The Balanced Money Formula

Must share!  Check out this gem -a personal finance tool- I recently found in my personal Quest for Financial Health.  (What a concept.)  It is from the book “All Your Worth,” by Elizabeth Warren (as if I didn’t already have enough reasons to love her).  I found it quoted in “Get Rich Slowly,” the personal finance blog I now read religiously.  It is a simple budget framework that contains just three categories, and looks like this:

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This budget uses take-home (after-tax) dollars as a starting point.  Here’s a breakdown of the three categories:

  • Needs are things you must pay no matter what: housing, food, utilities, transportation costs, insurance.
  • Wants are everything else: cable television, restaurant meals, concert tickets, comic books, clothing beyond the basics, etc.
  • Saving comes last in this plan. Everything left after you take care of Wants and Needs is set aside for the future. (If you want to get out of debt, that’s also tackled here.)

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I (Jennifer) have heard -and agree- that a good guideline for how much to pay for housing is no more than 33%.  If you estimate that I bring in about $40K/year before taxes (which is a generous estimate these days), and consider that I pay about $24K/year in RENT… that is about TWICE a reasonable amount!  (I don’t even KNOW what the percentage is *after* taxes.)  Being self-employed with both a wildly fluctuating income and lots of deductible expenses… I don’t usually know what my actual income is.  AND -if you can believe this- I have never used a budget.  But I have started to feel it is totally unacceptable to continue robbing the financial future of my family for our temporary present.

So, things are about to change.  Now that I am over 40 and have 3 dependents, 2012 is shaping up to be the year I start taking CONTROL of my finances.  Why am I blogging (publicly) about this?  Because for some reason MONEY is a missing part of dialogue in our culture.  It is treated as a taboo subject that is too personal or even *rude* to openly talk about.  Why?  Or, forget *why.”  But at what *cost*?  The result is epidemic financial illiteracy that leaves so many of us vulnerable for big banks and other predatory entities to S-C-R-E-W us.  Not to MENTION screwing *ourselves* with foolish financial decisions,  and harmful habits!  Probably the most harmful of these is mere INACTION.  (A lot more can be said on this.)  It simply seems that in our parents’ generation, good old fashioned hard work and common sense were enough in this country.  But obviously things have changed.  It’s SCARY.  But I am determined.

So, at the risk of losing any followers to this very personal blog of mine, you are now cordially invited to join in me on a journey towards FINANCIAL HEALTH.

First stop for me?  As for what I *can* influence; 1) I have already reigned in our family’s spending (although certainly more can be done in this area).   2)  I have already -ironically enough- started cultivating financial literacy in our son, building a foundation of understanding for him I wish I had.   And 3)  I have already cultivated some “mindless” (ie; automatated) saving habits, thank god.  So, next target in my crosshairs?  4) HOUSING!*   More on this coming up.  (As well as more cute kid stuff, I promise.)  *(Although I also need to file taxes, implement the use of a personal finance tool like Quicken or Mint.com, and create a budget.  Sigh.)

If you are intrigued by the idea of being more mindful around your personal finances, here are two wonderful examples of articles available at Get Rich Slowly (like mine, you can subscribe to their blog and get daily emails to elucidate and inspire you):   6-steps-to-simplify-your-financial-life    and  10-ways-to-build-the-habit-of-saving-money

Join my Quest!  And/or begin your own!  Good luck to us all.  And *SMART* Luck too.

(Add your thoughts & comments below!)

PS:  I downloaded a free sample of Elizabeth Warren’s book with the Kindle app on my Droid.  The full version costs $11.99, so I will keep my eye out for a used, free, borrowed, or discounted version.  But this free “sample” is already 297 pages long, more than enough to start for now, and will be all the more pleasing to enjoy knowing how much money I saved.  *Especially* if I find any time to actually *read.*  (o;

 

About circuskitchen

performing artist, mom, wife, daughter, sister, aunt, niece... just a regular extraordinary person
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4 Responses to The Balanced Money Formula

  1. Hey this is super helpful! I’m really focusing on achieving financial independence and stability. I will definitely be checking this out 🙂 The cost of just the basics of shelter, food and transportation is STEEP! Especially in big cities like SF, where I am, or Boston. But now that I have a clearer goal, its getting easier for me to pay more attention, learn to budget & control unnecessary spending. I think the goal could be anything that’s most valuable to you. For me my new goal is to go through a yoga teacher training. I want to make yoga a part of my lifestyle, and learn another way to make a living doing something I love.
    So now, its a fun challenge to go without whatever is tempting me in the moment- a latte, pastry- for me its usually food or clothes! 🙂 😛 knowing it will bring me one step closer to my goal. If I have it to spend, then I have it to save. Even though I have some minimal debt on my credit card, saving for this yoga teacher training has become my #1 priority, and I know it will put me on a path toward making a sustainable living for myself, which will positively affect me holistically, including my other financial woes. Having a partner or friend who also wants to ‘play’ the ‘Who Can Be The Most Thrifty’ game can also make it more fun. There are also now new ways via the internet to make money at home, selling books, clothes, homemade goods, houseware, you-name-it through online sites, Ebay, Amazon, good ol’ Craigslist, and newer sites like Etsy which I’ve yet to check out where you can create your own online store. Arts & Crafts, as well as letting go of unnecessary stuff in your house can generate some cash flow, AND be therapeutic. Clutter stagnates the energy in your home, and in your mind, and can also negatively affect energy flow in the financial realm of your life (Feng Shui ideas). And focusing on a creative task that allows you to express yourself can be a much more fun and gratifying way to unwind than watching TV. My ARts&Crafts dream? To start making knitwear & vend to my favorite local shops that support local artists, and Gluten-Free edible treats! And these activities are fun and create opportunity for community. 🙂

  2. Damn. Totally started a long reply to you, and didn’t make it off my other computer! In short, SO PROUD OF YOU! WAY TO GO!!! Wanna be money buddies? We can set goals and encourage each other and check in on each other. For starters, wanna sign up with Mint.com??? Check it out! Love you!

  3. Pingback: How do you say… YES! | circuskitchen

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