We had some great discussion generated by my last post about the 50/30/20 budget. Ever since I first read about the concept of the 50/30/20 budget in All Your Worth, I had a feeling that this budget could work for a lot of people, but there is a point where it falls apart when income falls below a certain threshold. Many of you confirmed this feeling based on your own experiences.
Even so, I’d like to try an experiment. When I first saw the 50/30/20 budget, I wondered if it would be possible for me to get my life situated in a way that would meet the requirements of this budget. I was way over in the Must Have category.
In the comments section of the last post, MoneyWYN had a good contirubtion that I want to share here.
I may be in the minority here, but I think this budget CAN work for everyone. But it’s not FOR everyone. I think many people look at this rule the wrong way. The 50/30/20 percentages are goals to shoot for. And you have to do what you can to get there.
In the book, the authors talk about a series of things you can do to reach 50% for your Must-Haves. The one thing that I think people don’t want to consider is performing what the authors call “radical surgery”. I think that’s why people say it doesn’t work. No one likes radical surgery. Who would?
But I think that if you want to help provide security, as written in the post, for your family, that might be what you have to do. That might mean moving to a less expensive city. That’s looking for and hopefully finding a better paying job. There are a number of things. The problem is that doing some of this, particularly moving, can take a lot of sacrifice. I think that’s why the authors called it radical surgery.
That’s what we did. We performed radical surgery. We sold our 4 bedroom 3 bath house, moved across town (closer to work), and rented a 2 bedroom 2 bath apartment. We uprooted our family, our daughter had to change schools, and Dream had to make new mom-friends.
Before moving, we were at 80% to 85% in must haves. Our mortgage was 25% of our income, which is within an acceptable range. The things that got us were a second mortgage for a swimming pool, high power rates, high water rates, and the expense of gas for a 60 mile roundtrip daily commute. We also had some more reasonable must haves, like cable internet (for telecommuting), basic cell phones (not smart phones and we no longer had a land line), and groceries. All these must haves really added up. The remaining 15% to 20% was spent on wants and so we really had no savings other than my 401k.
We looked at all the things we could do to get our must haves below 50% and no matter how we sliced it, it just couldn’t be done in our existing house.
We had to get out of dream land and come back down to Earth in order to see what kind of place we could actually afford.
The choices were: buy a less nice house in a less nice neighborhood or rent an apartment.
There were some options in-between, like buying a condo or renting a house, but those didn’t really meet all our self-imposed requirements. Condos didn’t seem like a good long term solution, due to not having any control over the upkeep of the community, plus as the buildings age, condos seem to show their age more than houses do. Plus you still have many of the same maintenance expenses as owning a house and you have to pay condo association fees. There are benefits as well, and they may be great for some, but didn’t feel right for us. The only way we might have considered a condo was if it was on the beach. Renting a house includes much of the same upkeep expense as owning a house, including lawn maintenance and such, and we wouldn’t see any savings on the biggies of power and water.
Our ideal would have been a nicely appointed small house in a nice community, but those just don’t exist around here. The only things that come close are historic homes that have been renovated, but those come with a big price tag. Most communities around here with reasonably priced small homes are not very nice neighborhoods. It’s a little sad that it has to be that way, but that’s how it is.
The choice for us was apartment living. It’s still not ideal in all aspects, but it suits our current needs nicely and it gets our must haves down it a level where we can fulfill our wants and have enough left over to save.
That’s the beauty of the 50/30/20 budget. It’s a nice balance of needs, wants, and savings. It allows you to meet your needs, have some fun, and save for the future.
Our living situation change was a huge change for us. We were living the live we thought we deserved and thought we could afford, but we were drowning. It’s tough to face reality.
I know that many people are choosing to not face reality. I lived among many people like that, and still do actually. In our old neighborhood, people had nice houses and new cars, but they could never afford to go on vacation or do fun things with the family. They were strapped for cash just as we were. They’ll never let you know it, but we could see it in their actions.
Now for a challenge…
The 50/30/20 Challenge
I want you to try on a 50/30/20 budget and see how you could make it work. I know some of you have said it’s impossible, and I’m not going to discount that may be true, but I want you to at least give it a try.
Add up your current Must Haves, Wants, and Savings to see where you stand. Calculate the percentages based on your take home (after tax) income. I like to work in yearly figures, but you could do monthly if you prefer. You can refer back to this post if you need help determining what falls into Must Haves, Wants, and Savings.
Here is the math to get you started:
Monthly expense x 12 = yearly expense
(Yearly expense / yearly take home income) x 100 = percentage of yearly income
This will quickly alert you to the categories that are over budget. Is it Must Haves, Wants, or Savings?
Make it work
Now the challenging part. How could you get below budget in that area?
Consider the idea of radical surgery. What would it really take? Would you have to cancel your cable TV? (a want unless under contract then it’s a need) Would you have to give up your smart phone? (A smart phone is need when it’s under contract, once you’re out of contract it’s a want.) Would you have to move to a different part of town? Would you have to move to a different part of the country? Would you need to sell a car and downsize to something less expensive? Would you need to sell your boat, jet ski or motorcycle? Maybe you need to get your income up by taking a part time job or changing careers. Think about all the possibilities, no matter how impossible or how unpleasant they sound.
Sketch out the plan of how you could get your budget to fall in line with the 50/30/20 budget.
Share your results for a chance to win
Now, share your results in the comments section.
To give you a little incentive, I’m going to give away a $25 amazon gift card to one person that responds. You can use it to buy your own copy of All Your Worth, or any other book of your choosing. I want good detail and good thoughts. Only quality answers will be entered in the drawing. I’ll randomly select one person to win the prize. I’ll draw a winner on September 24, one week from today. That should give you plenty of time to assess your budget and think ways to make the 50/30/20 budget work for you.
Get your thinking caps on, lay out your 50/30/20 budget, and tell me what radical surgery you have to perform to make this budget work for you.