Well, that explains it! (a.k.a. How did I not know?)

NicoleandMaggie recommended All Your Worth for my financial woes and it became available at the library this week. I’m only three chapters in but I think I can safely say that the premise is to create financial security by balancing your money. In what reminds me of the Zone Diet, their recommended spending 50% of what you make on Must-Haves, 30% on Wants and 20% on Savings.

Right away they help you calculate what percentage of your monthly take-home you’re spending on Must-Haves. These are your necessities, the things you’d have to pay even if you lost a job or were suddenly put on disability. This does not include anything you could cancel if need be (like cable) or anything you can live without (basically all spending except the bare minimum on food–they suggested inputting $650 for a family of four). It’s your mortgage or rent, your insurance premiums, your transportation costs, your required debt repayment. It’s the stuff you have to pay lest someone come knocking.

I filled in the worksheet and did the basic and math and was shocked to find that just over 75% of what we make goes to the basic foundation of our lives. That includes $650 on food, which is way less than we actually spend every month. Immediately it became clear why we have nothing left to put away each month. We’re using almost all of it just to get by.

I don’t know why I was so shocked by this. I knew we cut it close every month. Back when I was paying for our health insurance, the $2,500 premium was putting us over. We had nothing left. We racked up $10,000 in debt the year our son was born because I was part time, I took three months off (mostly unpaid) and my husband’s insurance coverage at work kicked in six months after we were promised it would.

I guess it’s just seeing it in black and white, and realizing how far we are from the 50%-30%-20% ideal they suggest. There is no way we’re ever going to bring our monthly “must-haves” down 25%, not without selling our house, leaving our jobs and moving very, very far from our family, probably to an entirely different state.

There are suggestions for ways to bring down your “must-haves” but we already collect rent on a portion of our house we don’t live in (and it’s clear to me now we will NEVER be able to move into that space like I once hoped). Our insurance premiums are very reasonable. I guess we could ask to lower our required student loan payments, but it doesn’t make a huge difference as we only have to put $500 (of $7,350) toward them every month. I am going to investigate refinancing our mortgage at a better rate but we’re already at 3.25% and I doubt even the increased value of our house (real estate in our neighborhood is crazy right now) would help us get better than that (rates seem to be 4% right now for 30 year mortgages).

So where does that leave us? I’m not sure. I know we can make small changes to start putting a little more away, but it’s never going to be anywhere near 20%. And this is after I read we should be putting 20% away into our retirement! Right now we’re putting almost nothing toward retirement (except what we contribute to our pensions) let alone saving for a rainy day.

This is sobering news. While it’s validating to know we haven’t been squandering some massive percentage of what we make on things we don’t need, it’s upsetting to think that we can’t do much to spend a smaller percentage on necessities.

In three years things will be better. My district is getting a 9% raise over three years which will mean I’m making about $800 more a month (before taxes). I can just plan to put more into my 403b as my salary goes up (1.5% every six months for three years) so that I never even see an increase in what I take home while putting away a larger percentage toward retirement. In three years we won’t have a $1,500/month childcare payment (assuming I can get my son into a T-K or preschool program through the district the year before he starts Kindergarten) which will bring our “must-haves” percentage to 60% if everything else stays the same. I’ll also be done paying off my student loans. My husband will step up on his salary schedule at least once in that time, which will add another $5,000 annually. We’ll definitely be in a much better place, and if we can learn to live on less now we’ll be able to save even more when later we’re making more.

So there is hope, but that light is a few years away at least. And it’s sobering to realize we won’t be making significantly more money anytime in the future. We’re both very close to our salary ceilings. There isn’t much farther up for either of us to go.

In the meantime I want to make small changes toward saving, even if we have to live on a tight budget to do it. I’m really sad to see my dream of moving into our downstairs unit evaporate in the roaring flames of our (disaster of a) financial reality, but we’ll make it work. (Oh second bathroom, I’m so sad to see the dream of you go). We chose to live in this city for a lot of reasons and we’ll have to keep reminding ourselves of those reasons as we make these hard choices. We could leave (in theory) but we choose not to. And if that is our choice, we need to figure out how to become financially secure while we stay.

Do you have any idea what percentage of your spending in dedicated to “must-haves?” Do you think you’re anywhere close to the 50-30-20 ideal?

{My first weekly spending post will go up this weekend, even if it happens late Sunday night. Thank you for all your thoughts on the bike idea. I will discuss my decision on my first weekly budget post.}


  1. I’m sorry, but that sounds like financial advice for someone who is earning quite a bit of money and is overspending on wants. Also someone who doesn’t pay for childcare. I don’t see how it’s realistic for someone on a teacher’s salary, with two small kids, in a place where housing is expensive.

    We spend about 25% of our income on housing-related costs. Then maybe another 20-25% on childcare. Probably 10% on debt repayment. And we haven’t even gotten to gas & food. So… I’m not beating myself up about it, since we’re paying down our debts and saving a little for retirement. I’d love to be saving more, but for now I’m happy we’re headed in the right direction.

    I think these years, when our kids are little, are tough. Childcare is so expensive. You and your husband seem pretty established in your careers, but many people are just getting there. I know in a few years we’ll be more comfortable. For now I’m glad we’re getting by!

    1. She doesn’t say you *have* to spend 30% on wants, that’s an upper bound suggestion. And the 20% on savings isn’t just retirement savings. IIRC she does briefly discuss extreme housing cost situations (like in coastal cities) in a later chapter. It’s just a fact that when you live in a coastal city housing is going to take up more of your income than you’d like or what is recommended– in the past we’ve adjusted by having one car that we paid cash for (or early on no car) and by knocking out DH’s student loans early, but it is true that we have a lot more slack now that we live in a low COL area (and had more slack even when we were making a fraction of what we’re making now).

      The book is by Elizabeth Warren (before she was a senator)– it is specifically *not* aimed at high earners, but at regular Americans. You should check it out, she talks a lot about how so much of middle America has ended up in these kinds of precarious positions based on her research. It’s really eye-opening. And it’s not at all about inducing guilt, but about simple guidelines about how to decrease monthly monetary stress, how to prepare for the unexpected (like layoffs), and to facilitate planning. Some people in the PF community don’t like it because it isn’t extreme enough and isn’t focused on early retirement etc. etc. etc. But it’s a really sensible book.

      1. I was hoping she would talk about living in places where COL is higher. So far I’m half way through the book and the message has been you really should try to hit that 50-30-20 balance unless you are in a transition period. I look forward to seeing what they have to say about living in places where rents/mortgages are much higher than other parts of the country.

        I am also hoping there is more about savings because that section has been hard for me to figure out so far, especially when it comes to how much of savings should go to retirement accounts we can’t reach as easily and how much should go into general savings.

        All in all I think it’s a well laid out book with lots of good, solid advice. And it’s true that a lot of Americans, especially those with small children paying for childcare, don’t save this percentage of their paycheck, but they are also not living a financially secure life. My husband recently sent me an article that said that over half of Americans couldn’t cover an expected expense of $400 without liquidating in some way (borrowing on future paycheck, selling something, etc). That is a scary statistic. So yeah, I believe that most people aren’t doing that but I also believe most of us aren’t saving enough every month.

    2. I know exactly what you’re saying, and you’re right, it could’t work for someone in that situation (my situation). But I think that is their point. Most people are not living in situations that are financially sound. If one thing goes wrong the whole house of cards comes down. Most American families, especially those that live in areas where COL is high, aren’t financially secure. Their plan is to make people financially secure, but I think there is a lot working against people achieving that these days.

    3. It’s actually not geared toward people making a lot of money. It’s absolutely geared toward people like you and me. And they do talk about how just moving in the right direction is a really positive step. That is what I’m trying to do…

  2. I remember when 50% of my income went for rent. Not including gas and electric or water. Then there were the other fixed required expenses. Sole support of 2 children. Clearly impossible. There is a reason I never knew where fast food places were, they were a luxury I could not afford ever. And yet, we made it through. And I sent 2 children through UC Davis with no student debt when they graduated from undergrad.
    Not possible but it happened anyway. I did not believe it could either. You will move forward and life will change.
    Hold on!

    1. You’re story is truly inspiring and I appreciate hearing it. It’s true that I have no idea what might be possible, if only we put our minds to it. We can do this, we just have to figure out how.

    2. Very inspiring. Thank you for sharing. I know it will change and that we can do a lot with what we have. That is why I’m trying to hard to make positive changes.

  3. So is it take home pay or gross? If take home, then we are sadly above 59%. Like you we live in coastal ca. We’re not squandering our $ on wants either. I think our musts prob total 70ish % also. Mortgage, prop taxes, prop insurance, daycare, life insurance, food, small amount of health insurance premium we have to pay, water/sewer/trash/gas/electricity. Actually now that I type it out it might be more than 70% take home pay. Oh well. None of those costs are reducible.

    1. Take home pay. But I haven’t gotten to the part where they tell you how to include retirement contributions that come out before taxes are paid.

      None of our costs are reducible either, which means we’ll have to spend less on our Wants, which I knew was the case so… I think this book will just guide me in the right direction when it comes to goals for how much we should be saving. Obviously we can’t be saving 20% now, but we can work toward that and in three years, when things are less tight, we can probably get pretty close to that balance.

    2. It’s take home pay. I was realizing that we could probably tweek our W-2s so that we pay less in taxes but then don’t get anything back (as long as I don’t owe at the end I’m okay not getting anything back, if that’s being taken out for retirement or savings).

  4. We spend way more than 50% of our income on “needs” too. We do not save 20% at this time. Do you have a pension through the school system? I think that would change the advice on what you need to save for retirement.
    And $650/month on food? Oh my goodness, we spend WAY WAY more than that, and I only anticipate that going up as our boys get older.

    1. I hope there is a chapter on pensions because I don’t know how I’m supposed to factor that in. I feel like some people tell me my pension isn’t worth anything and some say I should be able to live off of it. I’ll be curious to see what they say…

    2. I do have a “pension” in that I pay into STRS, but it’s maybe not exactly like a pension because I don’t also pay into social security? I’m not really sure how that works. I was hoping there would be something in the book about pensions but sadly they were not mentioned. I was disappointed because I’m really confused about what I should expect from my “pension.” It sure does suck a shitload of my paycheck away.

  5. If you go to the get rich slowly website and type, “balanced money formula” into their search box, there are a lot of really useful posts on the topic, including budgeting stuff and a worksheet.

  6. I just calculated and ours is 59%, without internet or phones and using the unrealistic $650 as a grocery bill. I’ve really been thinking about this stuff a lot too as I contemplate a career change… it would be hard.

    1. It is so hard. I think all the time that if one of just made $15K more what a HUGE difference it would make. LeSigh. It will never happen…

  7. I’m afraid to compare our finances to the ideal spending 50% on Must-Haves, 30% on Wants and 20% on Savings. I think it’s hard if not impossible to meet those percentages in coastal cities. It’s great you own a home!

    1. Yeah. I keep telling myself that (about owning a home), especially since rents are so crazy high around here.

    1. I don’t know how people on one income could ever come close to this kind of ratio. The COL must be so different, and the one salary must be so high… I just can’t even fathom it when both of our financial contributions are so necessary for us to make ends meet…

    2. I still don’t understand how a family can live with only one earner. Here they’d have to make $200K+, which I guess a lot of people make. I just don’t know any of those people… 😉 So while it’s true childcare is a bit money suck, hitting 50% or must-haves on one salary would seem way more impossible to me.

  8. I think it’s often an illusion to suggest that the little things make a huge difference when for most of us it is about housing, childcare, education and health care. The rest can be significant in the long run, I know, but our choices in these mega-categories are fundamental. And, to make things difficult, those choices are usually closely intertwined with one another.

    We are in a rare minority in that we live in the Bay Area but do so in the most modest of housing (580 square feet for the 4 of us) and that allows us to save a bit but, as I lamented in my post this week, our situation leaves us vulnerable to the extent that I seriously consider moving.

    It’s a tough and wonderful place to live but, if you really want to save money, you probably don’t have much room to do so without making a big change or two.

    1. Wow, a family of four in 580 sq ft! That is inspiring. Truly. We would really struggle living in that kind of space. Whenever I feel sad about extending into our downstairs I remember how many people live in less space that we do. We really do have more than we need already.

      You’re right, it is a “tough and wonderful” place to live. As for the big change or two, I honestly don’t know what they could be, except moving. Have any suggestions?

      1. Yes. Our “solution” is one that would be painful for most families. In many ways we are pretty lucky that it feels like enough. I think it has a lot to do with coming from a crowded European city where homes are typically small and the fact that we try hard not to accumulate a lot of stuff. Still, it’s a different approach to things.

        My only advice to you is to keep observing the ways that people make it work and look for solutions that can be tailored to your situation.

        1. That is a good suggestion. I do take notice more and more of what other people are doing to make it work. The problem is you can never know if they are actually making it work or living off credit card debt (or just not saving like we are) in their current situation. I think that is the case for most of the people I know in SF. They are living like we do and best case scenario aren’t putting anything away, worst case scenario are putting part of every month on their credit card. People just aren’t making savings a priority. Or maybe they can’t.

    2. One of the big points of the book was that the little spending doesn’t really do much, that we have to look at the big ticket items to make real change. Has me a little depressed, but I also KNOW that I’m spending more than I need to and could be saving more, so I’m going to still work to makes those changes.

  9. I realized I had thought $650 a month for a family of 4 was surely generous with 2 adults and 2 in lower primary or preschool. Then I paused and remembered my latest grocery bills and how I had been reading about egg shortages and the normal American price for 12 eggs was under $1.66. I cannot remember seeing any eggs priced at any store near me for that. Not that I remember prices AT ALL but stores near me seem to be charging close to $4.00 for 12 eggs. And all at once $650 was way less realistic. So what do you all think is realistic food costs for a family of 4 (no teens) and what sorts of meals are you eating? Vegetarian, vegan, standard, gluten free or….

    1. Is that $650 from when the book was first written or has it been updated? If it’s from 2005, then that’s $791.47 (or round to $800) according to the CPI inflation calculator.

      1. The book is from 2005 and $800 was my estimate for a family of four in 2015. Good to know I’m not too far off.

    2. I was thinking about $800 for a family with no dietary restrictions, who wanted to eat organize when possible (especially for milk/dairy/meat) but didn’t have to… It seems like I wasn’t too far off.

      1. That’s doable. We’re vegan and we splurge on a few little things and we are usually under that. (Two kids, 2 and 4 and 2 adults)

      2. Holy SHIT?! My budget for groceries for 2 adults and 2 kids (Toddler and Preschooler) is $400 a month. We eat mostly Whole30 (veggies and protein) and not many trashy snacks. INSANE how food prices vary across the USA!

        1. I wonder how you shopping Whole30 affects your grocery bill, because on the one hand, eating healthy, organic produce can be expensive, but you probably save a lot not buying processed foods… I wonder what my grocery bill would be here if I shopped that way, because I do think food is more expensive out here, but not THAT much more expensive…

  10. This was an eye opener for me too! I live in high COL area in Canada and our needs end up at 71%, savings at 12.5%…add in cable and cell phones and that pretty much eats up the wants %. Makes me feel validated that there isn’t a lot of frivolous spending going on- life is just expensive!!

    1. I know! I feel like “basics” that I hardly consider “Wants” are also eating up much of my “Wants” category. It’s good for me to be reminded that those are, in fact, “wants” and to be appreciating that I have them even though I don’t need them.

    2. Life is really expensive. All Your Worth was written ten years ago. I wonder if they would add anything now, after the recession and the continual rise in cost of living…

  11. Huh, our needs take up 83% of our income and adding in our wants, we get to 88% of our income and we haven’t put gas in the car once… That’s startling. I really do need to get a job ASAP. I think I will see if I can get a money post up shortly and will prioritize reading Elizabeth Warren’s book. From the library. No new things!

    1. Isn’t this a powerful exercise? I feel like it really changed the way I think about our money and it’s starting to change the way I think about our spending.

  12. I think to hit the 50% (or lower) you often need to design your life a priori around that goal. LIke if you thought this through 15 years ago, it would decide your career choices, where you would live, how many kids you would have, etc… Its really hard after the fact to cut your basics down, when you have gotten used to a certain lifestyle or have come so far down a career or life path. You could do it, of course, but it would involve a MAJOR shake-up, one that most people aren’t willing to consider.

    1. This is a really good point. I definitely picked my career assuming my husband would make quite a bit more than me (which was how it was in my parents’ marriage). I NEVER expected my husband to make less than me for a long time, then the same for many years and eventually only slightly more. I wonder sometimes if I would have chosen a different career path if I had known I would be making half our money. I have to think that I would, but I can’t think of a more lucrative career choice that I should have pursued. Nothing that I ever liked to do made any money, and I don’t think I could have done something I didn’t like just for the fatter pay check.

  13. I really want to update our budget and drill down on things, but I *think* our must-haves are about 70%. We are really counting on a couple of good jobs for my husband this summer to pay down some debt that would help get that number down a bit, but this is definitely eye opening to see how much we spend on non-negotiable items. No wonder we’re not saving much. *cough* 3% *cough* I’m drafting a post now to look at this more closely. *sigh*

      1. It’s crazy isn’t it?! Totally blew me away. I’m not quite sure how we’re going to handle it moving forward but I’ll let you all know when I come up with some kind of plan.

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