The answer might be simpler than you think. Just as we have the food guide to help us adopt a healthy diet, there are several guidelines out there to help you develop healthy spending habits. While these guides are only rules of thumb, they provide a good starting point.
One popular rule of thumb comes from Elizabeth Warren who knows a thing or two about balancing the household books; she’s a bankruptcy expert and the Harvard Law School professor who led the creation of the U.S. Consumer Financial Protection Bureau. To help families get their financial house in order, Warren co-authored All Your Worth: The Ultimate Lifetime Money Plan with her daughter-in-law Ameilia Warren Tyagi. In it, they explain their 50/30/20 rule that they say will ease your money worries.
It works like this: 50% of your take home pay goes to your needs (home, utilities, etc.), 30% goes to wants, with the remaining 20% going towards savings. The authors go on to illustrate that being out of balance on any one of these areas—including under spending on wants—can create financial challenges down the road.
When you stop to think about how tedious counting calories and carbs can be, Warren’s formula looks downright simple—simple, but effective. To learn more watch Bruce Sellery as he walks you through the rest of Warren’s plan and shows you how it can help you achieve a healthier financial life.