I found an article on a personal finance blog last week about the Balanced Money Formula, which is an idea about budgeting wherein you fit all of your Needs into 50% of your income, Wants into 30% and Save the remaining 20%. And I thought that this was a great idea! What an easy way to set a budget, let me just check on my own budget and crunch some numbers…some math…move some columns around…Sum function in Excel and WHAT THE WHAT?
My needs made up 68% of my income. I did some maneuvering, ok the pet insurance isn’t a Need. Hell, Gus is entirely a Want to some people and I classified all his expenses as such, bringing it down to 63%, but I still cannot budge that number otherwise. My Needs include my rent, car insurance, renter’s insurance, medical costs, groceries, electricity, water, and commuter costs. In my Wants category was Gus’s insurance and food, my cell phone, gym, internet, Netflix and Hulu memberships, clothing (ha!), restaurants, Weight Watchers membership, personal care and coffee shops. And my Savings included Retirement, Emergency, and Down Payment.
No wonder I feel so pinched every month. 2/3 of my spending was spent on things I had to spend it on leaving me with 20% of my income on Wants and 15% to Savings. And I didn’t even include the costs of school or running my business, which I feel are whole budget lines unto themselves.
Even more interesting than that is what I chose to classify as a Need vs a Want. This article on the same blog went into detail about doing exactly that with the ultimate conclusion that it is sort of up to you to determine what is a Need and what is a Want. To me, the $700 we spend a month on groceries is a Need because I know our bodies function better when we’re both eating to our specific needs. This means that we spend $350 on groceries per person per month, and apparently the national average is $250, so we’re not doing too bad. But other people think that’s exorbitant and we must be buying cold-pressed extra virgin olive oil packaged in hand-made bottles that we sung over by monks or something.
I thought of Gus as a Need initially and now he’s classified as a Want, but I can think of at least one crazy cat lady who would say that her cats are a Need and not a Want.
And what about those of us who eschew savings (whether smartly or not) and would prefer to spend it on travel? Is Travel then a Want or a diversion of Savings?
Overall, I think the Balanced Money Formula makes sense, but what I have a problem with is that my own personal formula is not imbalanced because my Needs are crazy. I don’t have a gas guzzling car, I bus or carpool whenever possible. I turn of lights and conserve water and while our apartment is very nice, it is by no means in the high range of living spaces in Seattle. My problem is the same as many people’s in that I just don’t make enough money. Sometimes I just have to tell clients your problem is not that you aren’t frugal, your problem is that you just need to make more money. And for those of us who are younger and in the arts, it is not easy to do and that’s why there are a lot of side businesses cropping up, however successful they are.
I’m very interested to know what you think of as a Need or a Want and which items you think are fuzzy. Cell phones and Internet seem to be Needs now, but yet they ended up in my Want category.
Post yours below by midnight on Sunday and I’ll pick a winner at random to offer a free Household Budgeting session!