ednkris
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Post by ednkris on Nov 26, 2019 10:26:54 GMT -5
I was reading an article about this (nothing new) i was wondering how in today's world does anyone here follow this? I view it as like the so called 4% retirement "rule" a personal choice only good for certain people. I compare now at 35/25/40.
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Deleted
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Post by Deleted on Nov 26, 2019 10:35:44 GMT -5
So, care to elaborate on what it actually is?
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Gardening Grandma
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Post by Gardening Grandma on Nov 26, 2019 10:39:35 GMT -5
Or post a link so we can read it?
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ednkris
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Post by ednkris on Nov 26, 2019 10:40:35 GMT -5
So, care to elaborate on what it actually is? Im sorry It's a budgeting tool all net pay 50% goes to necessities housing, electricity, food, transportation etc 30% goes to wants, TV, spending, vacation, etc 20% savings retirement, paydown debts etc...
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Deleted
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Post by Deleted on Nov 26, 2019 10:44:59 GMT -5
Well, if paying down debts doesn't include the mortgage and if the 30% towards wants includes sinking funds (a type of savings), it doesn't seem horrible. I've never really followed any of these rule of thumb things though.
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Tiny
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Post by Tiny on Nov 26, 2019 11:32:49 GMT -5
I don't do math so figuring what percentage my pretax retirement contribution is of my "net pay" makes me want to run screaming from the room. Add in all the other "pretax savings" like my HSA and FSA and I'd probably willingly stick a pencil in my eye to avoid doing the math. I wish they'd do a 2 step thing.... like allocate between 5 and 10% to retirement and then to the 50/30/20 thing with what's left. That said, I do think using something like the 50/30/20 break out can be helpful. It gives a starting framework and if one DOES go thru the exercise of evaluating their current expenses/savings with that in mind they may have a "light bulb goes on over their head" moment and start thinking about money differently. A long time ago I did tough out some math and the effort of gathering up all of my financial stuff/bills/what I wanted to spend on in the future (I'm pretty sure there were tears/kleenex and anxiety involved) and tried to fit my financial square peg into a "rule of thumb" round hole (I think it was the 60/40 budget). I couldn't make my numbers fit... but it was eye opening AND motivated me to make a 'better budget' for myself and to find ways to stick to the budget (ok. I called it a spending plan). I am forever thankful for discovering the term "sinking fund" - I was doing it but didn't have a name for it OR that it was a thing. without the concept of "saving to spend" I would probably still be struggling with how to pay some big yearly expenses (as in attempting to scramble and "cash flow" it from a couple months worth of paychecks - versus allocating a fixed amount from each pay check over the course of the year to the "sinking funds" savings.) All that said... I currently have no idea what my actual break out might be... (well, I save about 30% of gross - but it's pretax with some post tax) Years ago I gave myself an "allowance" from each paycheck that I could spend on anything I wanted ALONG WITH focusing on getting to a set point of "savings" from my gross. Once I achieved the savings level I aspired to, I set it and forgot it. I still give myself an allowance and I do monitor my "fixed expenses" which include sinking funds. Anything left over is either long term (non-retirement) savings or fun money or a new "sinking fund" type project.
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Deleted
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Post by Deleted on Nov 26, 2019 11:38:23 GMT -5
Oh wait. NET. So retirement isn't even part of that 20%. I mean, it seems totally reasonable to me. Not everyone is carrying a bunch of debt.
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Gardening Grandma
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Post by Gardening Grandma on Nov 26, 2019 11:46:29 GMT -5
Well, personally, if I had debt, I'd be putting more into paying it off than "wants".
Being already retired, I'm not saving for retirement. I AM tracking withdrawals (for emergencies and "wants") so as not to deplete the savings too soon.
But if you are going to go to the trouble of figuring out percentages, why not just use a good budgeting tool like YNAB
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Deleted
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50/30/20
Nov 26, 2019 11:47:15 GMT -5
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Post by Deleted on Nov 26, 2019 11:47:15 GMT -5
Oh wait. NET. So retirement isn't even part of that 20%. I mean, it seems totally reasonable to me. Not everyone is carrying a bunch of debt. That’s the part that I think confuses it, I would count 401k contributions as savings and also tack it into net pay for this kind of analysis. I would also include any employer matches and also tack that onto net pay. Ignoring those things IMO would give people a false view.
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hoops902
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Post by hoops902 on Nov 26, 2019 11:58:09 GMT -5
Oh wait. NET. So retirement isn't even part of that 20%. I mean, it seems totally reasonable to me. Not everyone is carrying a bunch of debt. It's "net", but typically in that kind of thing "net" means "net of taxes". That also makes the calculation a little more consistent...because lots of people have pre-tax spending at fairly high levels which would skew things (i.e. If you fully fund a 401k, you're in a lot different position than someone who contributes nothing to a 401k, but "real net" would show you in the same boat). For example, if you're making $40k gross per year, and fully funding a 401k, you're saving a lot even if you save 0% of your "real net".
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Tiny
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Post by Tiny on Nov 26, 2019 13:52:55 GMT -5
So, could we build the 50/30/20 budget for a single person who is salaried at 40K per year, works a 40hr week and who's employer offers healthcare and a 401K... Let's call them Pat (SNL reference).
What other variables are coming out of their check before it gets to the net part? Is there an online calculator that would give a net -ish amount for a bi-weekly paycheck for Pat?
What would their budget look like for a typical 2 paycheck month if broken out in 50/30/20 mode? How much could they spend on Housing? Wants? and savings/debt?
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hoops902
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Post by hoops902 on Nov 26, 2019 14:42:23 GMT -5
So, could we build the 50/30/20 budget for a single person who is salaried at 40K per year, works a 40hr week and who's employer offers healthcare and a 401K... Let's call them Pat (SNL reference). What other variables are coming out of their check before it gets to the net part? Is there an online calculator that would give a net -ish amount for a bi-weekly paycheck for Pat? What would their budget look like for a typical 2 paycheck month if broken out in 50/30/20 mode? How much could they spend on Housing? Wants? and savings/debt? As noted above, "net" in these instances means "net of taxes" really. So 40k, minus the annual taxes you pay. Then that's your 100% you divide out into 50/30/20. If we assume Pat is single and takes a standard deduction of $12k, then we're looking at $28k of taxable income. Roughly that's $2k on $20k of income, and $960 on the next $8k...so let's call it $3k in taxes. Net pay is $37K. I'll skip the bi-weekly part and just go to monthly paychecks (because biweekly gets tougher with the extra paychecks due to months being longer than 4 weeks. Monthly net after taxes is $3,083 (let's call it $3100 on the assumption you can get more than just the standard deduction back at tax time). 50% is $1650 30% is $930 20% is $620
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resolution
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Post by resolution on Nov 26, 2019 15:44:19 GMT -5
The spending formula seems to allocate too much to wants and not enough to needs and emergency savings. It probably works well at higher income levels, but at the 40k income level and below, the person would have a hard time covering all mandatory expenses on 50%, and the 20% savings wouldn't cover much by the way of emergencies and retirement.
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hoops902
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Post by hoops902 on Nov 26, 2019 15:50:03 GMT -5
The spending formula seems to allocate too much to wants and not enough to needs and emergency savings. It probably works well at higher income levels, but at the 40k income level and below, the person would have a hard time covering all mandatory expenses on 50%, and the 20% savings wouldn't cover much by the way of emergencies and retirement. 20% savings would be about 7500/year towards paying off debt and then retirement. If you do that for 40 years (say 25-65 yo) and grow it at the market rate of 10%, you'd end up with over $3 million. And that's assuming you just keep making $40k/year.
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resolution
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Post by resolution on Nov 26, 2019 15:54:17 GMT -5
The spending formula seems to allocate too much to wants and not enough to needs and emergency savings. It probably works well at higher income levels, but at the 40k income level and below, the person would have a hard time covering all mandatory expenses on 50%, and the 20% savings wouldn't cover much by the way of emergencies and retirement. 20% savings would be about 7500/year towards paying off debt and then retirement. If you do that for 40 years (say 25-65 yo) and grow it at the market rate of 10%, you'd end up with over $3 million. And that's assuming you just keep making $40k/year. The 20% includes things like the emergency fund, so a good portion of it would end up being spent in various emergencies. If it were strictly retirement and stayed invested, then it would be more than sufficient.
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Post by Deleted on Nov 26, 2019 16:04:03 GMT -5
20% savings would be about 7500/year towards paying off debt and then retirement. If you do that for 40 years (say 25-65 yo) and grow it at the market rate of 10%, you'd end up with over $3 million. And that's assuming you just keep making $40k/year. The 20% includes things like the emergency fund, so a good portion of it would end up being spent in various emergencies. If it were strictly retirement and stayed invested, then it would be more than sufficient. It depends how you budget though. If they have sinking funds built in their necessities and wants category a lot of what some people consider emergencies would be covered. House and car maintenance, vacations, etc.
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Tiny
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Post by Tiny on Nov 26, 2019 16:06:09 GMT -5
So, could we build the 50/30/20 budget for a single person who is salaried at 40K per year, works a 40hr week and who's employer offers healthcare and a 401K... Let's call them Pat (SNL reference). What other variables are coming out of their check before it gets to the net part? Is there an online calculator that would give a net -ish amount for a bi-weekly paycheck for Pat? What would their budget look like for a typical 2 paycheck month if broken out in 50/30/20 mode? How much could they spend on Housing? Wants? and savings/debt? As noted above, "net" in these instances means "net of taxes" really. So 40k, minus the annual taxes you pay. Then that's your 100% you divide out into 50/30/20. If we assume Pat is single and takes a standard deduction of $12k, then we're looking at $28k of taxable income. Roughly that's $2k on $20k of income, and $960 on the next $8k...so let's call it $3k in taxes. Net pay is $37K. I'll skip the bi-weekly part and just go to monthly paychecks (because biweekly gets tougher with the extra paychecks due to months being longer than 4 weeks. Monthly net after taxes is $3,083 (let's call it $3100 on the assumption you can get more than just the standard deduction back at tax time). 50% is $1650 30% is $930 20% is $620 Thanks Hoops902. I started poking around the 'net and it confirms the 3K -ish in taxes. But, your final number is missing SS and medicare. From what I found online they would be $2480 for SS and $580 for medicare - so another 3060 for an approximate total of 6060.00 let's call it $6000 in payroll taxes. So, 34K net per year or 2800 per month in NET income. 50% is $1400 30% is $840 20% is $560 And the NET is missing a health care deduction.... I know those cost vary wildly by employer. In my neck of the woods that $1400 for housing would be tight. And the 20% for debt isn't enough if there's a car loan and a Student Loan involved.
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hoops902
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Post by hoops902 on Nov 26, 2019 16:07:30 GMT -5
20% savings would be about 7500/year towards paying off debt and then retirement. If you do that for 40 years (say 25-65 yo) and grow it at the market rate of 10%, you'd end up with over $3 million. And that's assuming you just keep making $40k/year. The 20% includes things like the emergency fund, so a good portion of it would end up being spent in various emergencies. If it were strictly retirement and stayed invested, then it would be more than sufficient. How much in emergencies are you planning on spending in your life (not a completely rhetorical question, I'm curious what you think the number is for the general "you"/people, because honestly I haven't dipped into money for an emergency for more than $5k total in my 20 years as an adult)? It's for ACTUAL emergencies...which is an important distinction because in most cases people seem to think a failure to plan for something completely foreseeable constitutes an "emergency". So it's not for all the routine sinking funds folks should have, it's not for "I have an emergency my car is 10 years old and I need a new one". I think you're overestimating what a typical person spends in true emergencies (at least based on your tone since there aren't numbers to it). Obviously this board is somewhat of an exception, but I would say the vast majority of people in real life that I hear have had "emergencies" are things which are totally foreseeable on some level (i.e. I don't know what specific thing is going to break on my house this year, but I know it's something, which should be accounted for in a maintenance fund...if my 20 year old water heater breaks...that's not an emergency, that's expected). It's not an emergency that my car needs new tires, or that my kid needs braces, or that my roof is at the end of it's useful life.
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hoops902
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Post by hoops902 on Nov 26, 2019 16:14:53 GMT -5
As noted above, "net" in these instances means "net of taxes" really. So 40k, minus the annual taxes you pay. Then that's your 100% you divide out into 50/30/20. If we assume Pat is single and takes a standard deduction of $12k, then we're looking at $28k of taxable income. Roughly that's $2k on $20k of income, and $960 on the next $8k...so let's call it $3k in taxes. Net pay is $37K. I'll skip the bi-weekly part and just go to monthly paychecks (because biweekly gets tougher with the extra paychecks due to months being longer than 4 weeks. Monthly net after taxes is $3,083 (let's call it $3100 on the assumption you can get more than just the standard deduction back at tax time). 50% is $1650 30% is $930 20% is $620 Thanks Hoops902. I started poking around the 'net and it confirms the 3K -ish in taxes. But, there your final number is missing SS and medicare. From what I found online they would be $2480 for SS and $580 for medicare - so another 3060 for an approximate total of 6060.00 let's call it $6000 in payroll taxes. So, 2800 per month in NET income. 50% is $1400 30% is $840 20% is $560 And the NET is missing a health care deduction.... I know those cost vary wildly by employer. Your healthcare deduction should come after you figure the net (i.e. it's not your real net paycheck, it's your gross pay minus taxes...take out any pre-tax electives after you get your net-taxes number). I left out SS & Medicare because honestly I was lazy and just knew the tax tables close enough off the top of my head. I also didn't dig much into state taxes since those vary, and I kept it standard deduction for simplicity. You're right that $2800/monthly is probably closer. I'm going to assume that in a real-world application of this that people save more in taxes than just the standard deduction (i.e. if you contribute to your 401k or other pre-tax spending, that would reduce your tax liability to some extent. We're assuming you pay taxes on all of that right now, so it's likely somewhere in between).
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Post by Deleted on Nov 26, 2019 16:23:17 GMT -5
I'm retired so savings = zero. I just did this calculation for my YTD expense excluding taxes. Since savings is zero, let's say it should work out to 50/80 or 62.5% necessities and 30/80 or 37.5% "wants". Mine is 46% necessities, 54% "wants" and discretionary but that 54% is mainly charity and travel in equal portions. I've been pretty deliberate about buying less house than I could afford, driving a modest car, not spending much on clothes, Netflix only, etc.
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resolution
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Post by resolution on Nov 26, 2019 16:25:49 GMT -5
The 20% includes things like the emergency fund, so a good portion of it would end up being spent in various emergencies. If it were strictly retirement and stayed invested, then it would be more than sufficient. How much in emergencies are you planning on spending in your life (not a completely rhetorical question, I'm curious what you think the number is for the general "you"/people, because honestly I haven't dipped into money for an emergency for more than $5k total in my 20 years as an adult)? It's for ACTUAL emergencies...which is an important distinction because in most cases people seem to think a failure to plan for something completely foreseeable constitutes an "emergency". So it's not for all the routine sinking funds folks should have, it's not for "I have an emergency my car is 10 years old and I need a new one". I think you're overestimating what a typical person spends in true emergencies (at least based on your tone since there aren't numbers to it). Obviously this board is somewhat of an exception, but I would say the vast majority of people in real life that I hear have had "emergencies" are things which are totally foreseeable on some level (i.e. I don't know what specific thing is going to break on my house this year, but I know it's something, which should be accounted for in a maintenance fund...if my 20 year old water heater breaks...that's not an emergency, that's expected). It's not an emergency that my car needs new tires, or that my kid needs braces, or that my roof is at the end of it's useful life. I think that if someone is spending $1400 a month for their basic living expenses, that a lot of those things you are listing would be off-budget and end up being made up from emergency savings. $1400 doesn't leave a lot of breathing room for sinking funds. Just thinking about what would be considered low expenses in my area - they would have to cut out of the 30% spending on wants or out of the 20% retirement to handle anything out of the ordinary. 500 - rent 200 - health insurance 200 - food 100 - electric/water 100 - phone/internet 100 - gas for car 100 - auto insurance 100 - clothes/gifts/medical co pays, etc
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hoops902
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Post by hoops902 on Nov 26, 2019 16:36:15 GMT -5
How much in emergencies are you planning on spending in your life (not a completely rhetorical question, I'm curious what you think the number is for the general "you"/people, because honestly I haven't dipped into money for an emergency for more than $5k total in my 20 years as an adult)? It's for ACTUAL emergencies...which is an important distinction because in most cases people seem to think a failure to plan for something completely foreseeable constitutes an "emergency". So it's not for all the routine sinking funds folks should have, it's not for "I have an emergency my car is 10 years old and I need a new one". I think you're overestimating what a typical person spends in true emergencies (at least based on your tone since there aren't numbers to it). Obviously this board is somewhat of an exception, but I would say the vast majority of people in real life that I hear have had "emergencies" are things which are totally foreseeable on some level (i.e. I don't know what specific thing is going to break on my house this year, but I know it's something, which should be accounted for in a maintenance fund...if my 20 year old water heater breaks...that's not an emergency, that's expected). It's not an emergency that my car needs new tires, or that my kid needs braces, or that my roof is at the end of it's useful life. I think that if someone is spending $1400 a month for their basic living expenses, that a lot of those things you are listing would be off-budget and end up being made up from emergency savings. $1400 doesn't leave a lot of breathing room for sinking funds. Just thinking about what would be considered low expenses in my area - they would have to cut out of the 30% spending on wants or out of the 20% retirement to handle anything out of the ordinary. 500 - rent 200 - health insurance 200 - food 100 - electric/water 100 - phone/internet 100 - gas for car 100 - auto insurance 100 - clothes/gifts/medical co pays, etc The point of budgeting is to draw that to light though. So you can't simultaneously say "20% isn't enough" and "I'm throwing a bunch of stuff into the 20% that doesn't actually belong there". Definitely if you can't make the 50% work, you're going to have to cut back on the 30% wants. It should probably more accurately be called the 20/50/30 rule. Spending in that order. That said, a lot of the stuff I listed wouldn't be as big of a deal for someone with that budget. If you're renting you don't have to worry about the water heater, etc. Maybe it's the same point you're making in a different way, but I certainly don't think 20% is too little...I think 20% is fine, but it's all under the idea that you're only using the 20% for what it's intended to be for. The 50% might be too little, and the 30% might be too big for folks making $40k. I'm not sure $840 in "wants" per month is the right number for someone making $40k.
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Tiny
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Post by Tiny on Nov 26, 2019 16:39:33 GMT -5
Here's what's in the 50/30/20 break outs as per investopedia: www.investopedia.com/ask/answers/022916/what-502030-budget-rule.asp50%: Needs/Fixed expenses: Mortgage/Rent, car payments, insurance, groceries, utilities, healthcare, minimum debt payments 30%: Wants: non-essentials like dinner and movies out, vacations, latest electronic gadgets, etc 20%: Savings: retirement (401k/IRA), emergency fund, and/or additional debt repayment. I would agree that it's probably a better rule of thumb for someone with quite a bit more income than 40K.
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Tiny
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Post by Tiny on Nov 26, 2019 16:44:08 GMT -5
Thanks Hoops902. I started poking around the 'net and it confirms the 3K -ish in taxes. But, there your final number is missing SS and medicare. From what I found online they would be $2480 for SS and $580 for medicare - so another 3060 for an approximate total of 6060.00 let's call it $6000 in payroll taxes. So, 2800 per month in NET income. 50% is $1400 30% is $840 20% is $560 And the NET is missing a health care deduction.... I know those cost vary wildly by employer. Your healthcare deduction should come after you figure the net (i.e. it's not your real net paycheck, it's your gross pay minus taxes...take out any pre-tax electives after you get your net-taxes number). I left out SS & Medicare because honestly I was lazy and just knew the tax tables close enough off the top of my head. I also didn't dig much into state taxes since those vary, and I kept it standard deduction for simplicity. You're right that $2800/monthly is probably closer. I'm going to assume that in a real-world application of this that people save more in taxes than just the standard deduction (i.e. if you contribute to your 401k or other pre-tax spending, that would reduce your tax liability to some extent. We're assuming you pay taxes on all of that right now, so it's likely somewhere in between). Agreed. Just for an approximation I'd tweek that $2800 per month net to $2600 per month for actual spendable "net income" (assuming there's a healthcare paycheck deduction, maybe state tax, and maybe some FSA money or something) So: 50% is $1300 30% is $780 20% is $520 Yeah, that 30% for wants is awfully high... especially if the 50% peice is suppose to cover housing and transportation and minimum payments on one's other non-car payment debt.
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hoops902
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Post by hoops902 on Nov 26, 2019 16:46:05 GMT -5
Here's what's in the 50/30/20 break outs as per investopedia: www.investopedia.com/ask/answers/022916/what-502030-budget-rule.asp50%: Needs/Fixed expenses: Mortgage/Rent, car payments, insurance, groceries, utilities, healthcare, minimum debt payments 30%: Wants: non-essentials like dinner and movies out, vacations, latest electronic gadgets, etc 20%: Savings: retirement (401k/IRA), emergency fund, and/or additional debt repayment. I would agree that it's probably a better rule of thumb for someone with quite a bit more income than 40K. What would you say for someone with 40k? Just curious because I would have said 40k would be better around maybe 60/20/20. But much higher than 40k I would have wanted to see it closer to 40/30/30. I think a big mistake many people make as they increase income is increasing that needs/fixed expense bucket too in line with their income. I think those with higher incomes would be better off for a variety of reasons (both financial, but also enjoyment of life) in allocating less to fixed expenses and more to wants, while also bumping up retirement under the idea they're going to want a more "spendy" retirement or earlier retirement than someone planning on working until 65.
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resolution
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Post by resolution on Nov 26, 2019 16:55:05 GMT -5
I think that if someone is spending $1400 a month for their basic living expenses, that a lot of those things you are listing would be off-budget and end up being made up from emergency savings. $1400 doesn't leave a lot of breathing room for sinking funds. Just thinking about what would be considered low expenses in my area - they would have to cut out of the 30% spending on wants or out of the 20% retirement to handle anything out of the ordinary. 500 - rent 200 - health insurance 200 - food 100 - electric/water 100 - phone/internet 100 - gas for car 100 - auto insurance 100 - clothes/gifts/medical co pays, etc The point of budgeting is to draw that to light though. So you can't simultaneously say "20% isn't enough" and "I'm throwing a bunch of stuff into the 20% that doesn't actually belong there". Definitely if you can't make the 50% work, you're going to have to cut back on the 30% wants. It should probably more accurately be called the 20/50/30 rule. Spending in that order. That said, a lot of the stuff I listed wouldn't be as big of a deal for someone with that budget. If you're renting you don't have to worry about the water heater, etc. Maybe it's the same point you're making in a different way, but I certainly don't think 20% is too little...I think 20% is fine, but it's all under the idea that you're only using the 20% for what it's intended to be for. The 50% might be too little, and the 30% might be too big for folks making $40k. I'm not sure $840 in "wants" per month is the right number for someone making $40k. For the lower income households, I think it is more likely for them to have vehicle issues and medical copays as emergencies. If they are driving an older car to avoid a car payment, there are more likely to have vehicle issues than someone that can drive a later model car. I agree that the 30% should be cut back to allow some sinking funds and emergency planning, I was just taking it out of the 20% because the articles i saw for the budget plan included emergency funds in the 20%. I think it should come out of the 30% instead.
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Post by Deleted on Nov 26, 2019 16:58:16 GMT -5
I make around 40K, but it's so hard to compare because I also get child support, file HOH and have a (very) negative tax liability. I do not spend anywhere near 30% on wants. I think that's quite high for a single person making 40K.
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hoops902
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Post by hoops902 on Nov 26, 2019 17:08:11 GMT -5
The point of budgeting is to draw that to light though. So you can't simultaneously say "20% isn't enough" and "I'm throwing a bunch of stuff into the 20% that doesn't actually belong there". Definitely if you can't make the 50% work, you're going to have to cut back on the 30% wants. It should probably more accurately be called the 20/50/30 rule. Spending in that order. That said, a lot of the stuff I listed wouldn't be as big of a deal for someone with that budget. If you're renting you don't have to worry about the water heater, etc. Maybe it's the same point you're making in a different way, but I certainly don't think 20% is too little...I think 20% is fine, but it's all under the idea that you're only using the 20% for what it's intended to be for. The 50% might be too little, and the 30% might be too big for folks making $40k. I'm not sure $840 in "wants" per month is the right number for someone making $40k. For the lower income households, I think it is more likely for them to have vehicle issues and medical copays as emergencies. If they are driving an older car to avoid a car payment, there are more likely to have vehicle issues than someone that can drive a later model car. I agree that the 30% should be cut back to allow some sinking funds and emergency planning, I was just taking it out of the 20% because the articles i saw for the budget plan included emergency funds in the 20%. I think it should come out of the 30% instead. I agree they're going to have more vehicle issues. My point is those are not actually emergencies. I think that's actually a key hurdle to get people across. Getting people to see that an emergency fund is not for things which are regular and forseeable, even if you can't pinpoint the exact expense, can be difficult. It's important though, because to your point, if you lump that into emergencies and not into regular expenses you'll be undersaving as your 20% will be eaten up by things that are actually expenses that you're simply attributing as "emergencies". Or you can throw them into "emergencies", but then you've got to expand the financials of the emergency category...which isn't actually changing anything. Even though it's a VERY generic rule...the rule falls apart even quicker if you start putting things into categories they really don't belong. The other key thing I think is a hard hurdle is that the point is that you build your budget to the rule, you don't try to manipulate the rule to meet your pre-constructed budget (because all that leads to is exactly this, attributing things to buckets they don't belong in, which becomes an exercise in moving piles of **** around your yard). For example, it does no good at all to take a need and count it as a want because your "need" budget is full. Better off to simply recognize that at the time your need budget is bigger, work to get it where you need it, etc...rather than mis-characterize the funding. The mantra I often find myself using when trying to explain budgeting to folks new to personal finance is "you spend your money based on the budget, you don't build the budget based on how you spend money". It's better to have a crappy but accurately categorized budget than a budget which looks all buttoned up and followed by mischaracterizes the spending. You can't see the potential areas to improve if you always modify things to make them look better artificially.
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Rukh O'Rorke
Senior Associate
Joined: Jul 4, 2016 13:31:15 GMT -5
Posts: 10,030
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Post by Rukh O'Rorke on Nov 26, 2019 17:53:01 GMT -5
So, care to elaborate on what it actually is? Im sorry It's a budgeting tool all net pay 50% goes to necessities housing, electricity, food, transportation etc 30% goes to wants, TV, spending, vacation, etc 20% savings retirement, paydown debts etc... why is debt and retirement lumped? - that seems very odd.... I'm calling it dumb....
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haapai
Junior Associate
Character
Joined: Dec 20, 2010 20:40:06 GMT -5
Posts: 5,882
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Post by haapai on Nov 26, 2019 19:39:29 GMT -5
I am not a fan of any description of 50/30/20 budgeting that I have ever heard described. I hate the slushiness of the categories. There's something in how I have always heard it presented that rubs me the wrong way, especially how breezily an inability to limit spending on necessities to 50% percent of gross net is handled. The solution that always seems to be implied is to steal from the 30% "wants" category.
I'm much more a fan of the 60/40 solution proposed by Richard Jenkins, which is probably much tighter and harder to hit for most folks, but somehow focused my attention on what matters to me (financial survival), and really showed me that in order to build a sustainable future, I needed to get "my nut" down to a surprisingly small proportion of my gross or net pay and devote a shockingly large proportion of what is left over to debt repayment, debt avoidance, savings, or investment.
FWIW, I make under $40K a year and have never gotten my nut under 60% of gross, at least not when practicing accrual accounting, but aiming to get my nut under 60% of gross has transformed my life for the better.
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