The Balanced Money Formula suggests that you spend 50% of your net income on needs, 30% on wants, and 20% on savings.
If I followed that, I would split my net income up like this:
- $3,500 on needs
- $2,100 on wants
- $1,400 on savings
To me, that is a really low amount to savings – I normally save somewhere around $3,000 – $4,000 per month. My net income is actually budgeted to be split up something like this:
- $2,200 on needs (31%)
- $1,500 on wants (21%)
- $3,300 on savings (47%)
So I have basically swapped savings for needs at the 50% marker, wants for savings at the 20% marker, and needs for wants at the 30% marker.
I think that at a net income of $7,000 or so per month (checking account direct deposit with 401(k) contributions added back), spending 50% on needs is a bit excessive and I would argue that at my income, 30% on needs 20% on wants, and 50% on savings is a much more balanced formula.
My needs and wants have definitely been going up continually, but I think I’ve found a pretty good balance of what I want to spend money on and spending money on what is important to me.
How did I split these groups up:
- Savings: my 401(k) contributions, cash and taxable investment contributions
- Needs: Rent, renter’s insurance, water, sewer, gas, trash, parking in my apartment building, car insurance, electricity, keeping my driver’s license and passport up-to-date, renewing the tabs on my car, maintaining my car, putting a tank of fuel in my car each month, internet at home, groceries.
- Wants: smartphone, sports, Pandora, Remember the Milk, and Dropbox subscriptions, income tax preparation (I could do it myself), personal domain registration and hosting, TiVo, clothes, social, dinners and lunches out, getting my eyebrows waxed, hair cuts, make-up, occasional trips to the spa (once or twice a year), a new cell phone and computer every few years, parking meters (I don’t have to drive where there are parking meters – I can bus or walk, mostly), parking at work if my employer doesn’t pay for it, travel, donations, and presents.
Readers, have you ever tried the balanced money formula? Why did it or did it not work for you?