Monday, August 3, 2009


Liz Pulliam Weston recently published an article in her MSN Money column titled "How much should you spend on...", which talks about the 50/30/20 budget. Basically, the idea is that you should budget 50% of your after-tax income for "needs." "Wants" should take 30%, and the remaining 20% should be allocated toward savings & debt repayment. The article clarifies what kind of expenses should fall into each category.

I think a lot of people (particularly those with lower incomes) would probably find it difficult to make it on that kind of budget. And prior to refinancing my house from a 10 year loan to a 30 year fixed mortgage, I wouldn't have been able fit my expenses into those guidelines either. However, here are what my monthly expenses look like now:

I estimated some of the above values based on historical spending, but overall it's pretty spot on (I deliberately lumped food into the "wants" category because I know I spend more than I have to in this area). So this tells me that I currently have an excess net of 29% after needs/wants/savings, which I am using to bolster my emergency fund. It also tells me that in order to meet the 50/30/20 budget and maintain my current lifestyle, I need to bring in at least $60,000 a year after-tax. This seems a bit high to me, however the good news is that I can survive on about $32,000 a year after-tax if I stop saving and cut my diet to rice & beans, before I have to start selling assets or dipping into my emergency fund.

I am definitely appreciative of the fact that a lot of families live on less than $32,000 a year, and I know I am in an extremely fortunate position. That said, the majority of my expenses are related to housing, and if I were to downsize I could live on significantly less.

Please note that I do not actively budget per se. I priortize saving by having my retirement contributions deducted from my pacheck, and most of my recurring bills are paid automatically via billpay. What's left stays in my bank account, and I make purchase decisions based on actual need and return on happiness, rather than some preset number that I've allocated beforehand. This has worked well for me in the past, and as mentioned in one of my favorite finance articles, it means that I am no longer relying on training wheels for my savings habits:

"What does that mean in terms of money management? It means I learned how to spend what I needed and save the rest. While “tricks” of money management assume that you are incapable of controlling yourself, that if you have money, you will spend it, taking off the training wheels means facing up to your own ultimate responsibility for your finances. It means facing up to the fact that you are a conscious, reasoning human being who can choose to spend or not to spend. It also means learning that once you have the true necessities covered, enjoying your life has remarkably little to do with how much money you spend." - Holly Ordway, Spending Wisely


Anonymous said...

Cell phone - $13/mo
Gym - $12/mo

These two items are shockingly low. Care to share what companies they are? I want them too! :)

By the way, your utility bill (gas, power, water, etc) seems very high, well, unless you have a huge house.

azphx1972 said...

Hello, Anonymous. The cell phone was an add-on to a friend's family plan (ATT), but I just got rid of it as work has provided me with a cell phone.

I got the cheap rate on the gym membership about 11 years ago, via a corporate discount. I'm afraid the current discounts are not anywhere as good. I'm lucky that I took advantage of it, and have kept it all these years.