[nina_yyc]

I'm about halfway through this book and it's making a lot of sense to me. It's by the authors of The Two Income Trap and the basic premise is that you should budget for 50% Must-haves, 30% Wants, and 20% savings. (If that sounds like a ton of wants, they really mean discretionary spending, like food other than beans and rice, clothes, etc. not necessarily frivilous stuff.) I really like the premise of the book, which is about "going after dollars and not pennies." I just thought I would post this since I seem to see a lot of posts on here about keeping track of the little things but maybe we don't spend enough time discussing the big things.

http://www.amazon.ca/All-Your-Worth-...1189544&sr=8-1

 

[mrskennedy]

Speaking just for us, I can tell you this formula doesn't work. Our rent alone is almost 50% of our income, and when you add in only the barest of necessities--fuel oil only--that brings our necessary expenses to 60% of our income. So this is a book I won't read on our currenv income, b/c I know it would just discourage us and not help one bit.

And how can food be considered discretionary sspending? You have to eat! Or not?! Yes, you could just eat beans and rice, but who--unless you really can't afford more--would opt to do that if they had a choice? Not me...

 

[TiredX2]

Quote:

Originally Posted by mrskennedy And how can food be considered discretionary sspending? You have to eat! Or not?! Yes, you could just eat beans and rice, but who--unless you really can't afford more--would opt to do that if they had a choice? Not me...

I think the idea is that you put the amt of $ you *need* for food in the "need" and the extra in the "wants." That way, in a real emergency you could cut down to your "need" level and only be at 50% of your income.

 

[msjd123]

I like that book! As an overall common-sense sort of guide, I like it. Unfortunately, I feel like we're pretty sensible with our money, an we don't fit the formula at all. We live in an area where real estate costs are high, and even though I feel like we're doing fine with our mortgage, it's still a tonof money going out each month. Then, add in childcare (which is absolutely necessary) and our Must-Haves are at 75%. We compensate by not saving as much as we should and paring our Wants waaaaaay down, and I know that paying for childcare won't last forever, but sometimes I wonder if we'll ever get down to the 50% number.

 

[wannabe]

Quote:

Originally Posted by mrskennedy And how can food be considered discretionary sspending? You have to eat! Or not?! Yes, you could just eat beans and rice, but who--unless you really can't afford more--would opt to do that if they had a choice? Not me...

I think she meant that the basic food is in your needs, and in the wants goes the extras - meat, juice, fruit, etc.

I'm so glad we're down from 50% rent, that sucked!

 

[nina_yyc]

Quote:

Originally Posted by mrskennedy Speaking just for us, I can tell you this formula doesn't work. Our rent alone is almost 50% of our income, and when you add in only the barest of necessities--fuel oil only--that brings our necessary expenses to 60% of our income. So this is a book I won't read on our currenv income, b/c I know it would just discourage us and not help one bit. And how can food be considered discretionary sspending? You have to eat! Or not?! Yes, you could just eat beans and rice, but who--unless you really can't afford more--would opt to do that if they had a choice? Not me...

Mrs. K ~ I am posting with great respect for you, since I know from the no-spend thread that you are the no-spending champion!!

As PP have said, not *all* food is discretionary spending. They recommend budgeting $160 per adult to cover the bare necessities and then the rest of your food budget would be discretionary. The $160 comes from a USDA recommendation and is probably an average for the country. To be honest it sounds a little high to me since we can eat very well (frugally, but not minimum cost) on $320 for two adults in Canada, which is more expensive even though our dollars are now equal. Anyway, that's not the point...the point is that the 'must-have' food budget is the cost for beans and rice or a similar minimum-cost diet.

Second of all, they propose that formula as a goal, not necessarily a starting point, so you may not find it discouraging. There are also some caveats to the formula...so if you have special circumstances that are temporary then it's OK for your must-haves to be higher (i.e. parent staying at home with young children, going to school, etc.)

 

[Herausgeber]

I also think it's a good plan.

As counterintuitive as it might feel, the family renting an apartment that eats out twice a week and takes nice vacations can actually be more financially stable than the family who makes the same amount of money and owns a house, never vacations, rarely eats out. It's a matter of budgetary flexibility in case something bad happens -- and something bad *always* happens.

And I say this from experience. We just bought another house (an upgrade in terms of size and neighborhood), and I am feeling the pressure of it, even though the old house is performing well as a rental. I miss my little mortgage.

 

[nina_yyc]

It does made a lot of sense to me. I have always had a huge thing about keeping monthly costs down or else...comes from working as a freelancer and never knowing if it was a steak month or a Kraft Dinner month. Also when we had $650 rent and a great apartment...not a lot of motivation to buy. But in the last year rents have doubled...after a year when housing went up 50%....and I'm wishing we'd saved more during the salad days of cheap rent and no kids!!! We did pay off a lot of debt but not nearly as much as we're saving now on way less money.

 

[AngelBee]

: Adding that book to my reading list.

 

[mrskennedy]

Quote:

Originally Posted by nina_yyc Mrs. K ~ I am posting with great respect for you, since I know from the no-spend thread that you are the no-spending champion!! As PP have said, not *all* food is discretionary spending. They recommend budgeting $160 per adult to cover the bare necessities and then the rest of your food budget would be discretionary. The $160 comes from a USDA recommendation and is probably an average for the country. To be honest it sounds a little high to me since we can eat very well (frugally, but not minimum cost) on $320 for two adults in Canada, which is more expensive even though our dollars are now equal. Anyway, that's not the point...the point is that the 'must-have' food budget is the cost for beans and rice or a similar minimum-cost diet. Second of all, they propose that formula as a goal, not necessarily a starting point, so you may not find it discouraging. There are also some caveats to the formula...so if you have special circumstances that are temporary then it's OK for your must-haves to be higher (i.e. parent staying at home with young children, going to school, etc.)

Oh cool! Thanks for this info. DH isn't working right now, and although I'm a WAHM, I'm also going to school. So there's a lot going on here that hopefully won't be "normal."

 

[bobandjess99]

Pretty much ALL formulas REALLY don't work when "child support" is part of your monthly spending. She gets 1/3 of his money. Period. That is a 33% expenditure we can not reduce/eliminate (at least not for another 8-11 years.)

 

[nina_yyc]

Quote:

Originally Posted by bobandjess99 Pretty much ALL formulas REALLY don't work when "child support" is part of your monthly spending. She gets 1/3 of his money. Period. That is a 33% expenditure we can not reduce/eliminate (at least not for another 8-11 years.)

Ouuuuuuch!!

 

[ChattyCat]

Quote:

Originally Posted by bobandjess99 Pretty much ALL formulas REALLY don't work when "child support" is part of your monthly spending. She gets 1/3 of his money. Period. That is a 33% expenditure we can not reduce/eliminate (at least not for another 8-11 years.)

I think that in that situation, I would just consider the income to be 33% less and then calculate everything (minus child support) off of the lowered amount.

33% of income does seem a bit high for a child support payment though, if it's just for one daughter.

 

[RoundAbout]

Quote:

Originally Posted by Herausgeber I also think it's a good plan. As counterintuitive as it might feel, the family renting an apartment that eats out twice a week and takes nice vacations can actually be more financially stable than the family who makes the same amount of money and owns a house, never vacations, rarely eats out. It's a matter of budgetary flexibility in case something bad happens -- and something bad *always* happens.

This is us right now and I agree - as renters our Must-Haves are way less than the 50% recommended by the authors and our savings are more like 40%. We eat out and take nice vacations. Would love to own a house, but my husband is military and we move every 2 years so have no interest in buying until he retires 10 years from now.

Sort of off-topic, but since you brought it up - I agree that buying a house is not the end-all-be-all of financial security. As renters if something happens we could be into a smaller apartment in less than 30 days or move in with family for free. I don't have to budget for maintenance and repairs and have cheap utilities. We can also live closer to DH's work and spend less on gas and get by on one car - so many of my friends have hour or longer commutes just so they can buy a house in a good but affordable neighborhood.

In any case, I thought the book was pretty good even if it doesn't fit everyone's scenario.

 

[phathui5]

Quote:

Originally Posted by ChattyCat 33% of income does seem a bit high for a child support payment though, if it's just for one daughter.

It doesn't seem high to me. Particularly if she's in a non-public school.

 

[Belleweather]

I LOVE THIS BOOK... so be warned, I'm totally about to gush.

But for my money, Elizabeth Warren can kick Dave Ramsey and Suze Ormann's rear ends sideways. Partially, I think, because of her credentials -- she's a law professor at Harvard and teaches Bankruptcy law. Her whole financial program grew out of researching middle-income bankruptcies and trying to figure out why so many two-income middle class families were going broke in the 1990's and 2000's when they hadn't been in earlier decades, which is what "The Two Income Trap" is all about.

"All Your Worth" is about AVOIDING that predicament... and the other thing I love about it is that it does not pull ANY punches. Warren's plan is not about making you think nice things about yourself -- she's really into putting your self-esteem aside and looking at the numbers. Her theory is that if your "essentials", which are the things you MUST pay even in a financial emergency, are more than 50% of your income you have a high chance of ending up in bankruptcy in the event of an accident or a disability or someone losing their job. And frankly, the statistics are pretty convincing.

Living in her idea of balance isn't easy -- or at least, it hasn't been easy for us. We've definately had to make some tough choices as far as our lifestyle to keep the money in balance and have chosen to keep renting and driving older cars to keep necessities under 50%. On the other hand, we have plenty of comforts and no debt other than student loans.

I think part of what I really like about Warren's philosophy is that she gives us real, tangible ways to tell what what we can and can't afford... and what the consequences of going out of balance are. In today's world of too-easy credit and loose lending standards, and with a DH who isn't that into money and frugality, that tangible number is something we NEED. It's great to look at our budget and know that yeah, we can go on vacation this year but no, we can't afford to buy a house yet... values still need to come more in line with our income. It's really reduced the arguing about money in our household.