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Recently I blogged about my financial conflict, I was trying so hard to build up my magic 3-6 month emergency savings, which I didn't feel was really worthwhile while I had a need for a new (to me) car and a mortgage that I was also trying to repay. Well lonecow suggested I read "All Your Worth" by Elizabeth & Amelia Warren.

Of course I was like "Elizabeth Warren? The one from Occupy Wall Street who called out some big industries on their bullshit and got elected to the US Senate, THAT ELIZABETH WARREN?" I thought she was invented in 2011!" Silly me, it turns out smart women don't just spring up out of protest gardens to be instantly fabulous, Elizabeth Warren is a Harvard law professor and author of several bestselling books about everything from public policy to personal finance. She had a resume before this senate gig. Go figure.

Well I like her even more now! Her book does not have seven chapters of criticizing poor, instead she criticizes the fact that we read books about personal finance by real estate mogules... you can LOSE a lot of money in real estate too, and their advice for typical middle class families about "oh stop buying fancy blenders!" is likely to miss the mark if they haven't been where we are. Ahem, Kiyosake, Ramsey, anyone? It's like reading books about success by the 1 in 1000000 people who make it as hollywood actors.

This book's advice is to budget thusly:
1) 50% of your income on needs & contractual obligations
2) 30% on "wants" - which she turns into a very broad, flexible category
3) 20% on savings & debt repayment

The last book I read was Dave Ramsey's Financial Peace, which told me that after I have $1000 saved up and debt repayed, step 3 is to build that 3-6 months savings account, which is taking forever and feeling stupid. And generally, stop buying crap... he does have some "personal" budget in some website stuff he's published but his book really downplays it, and it's kinda weird... like "7% for clothes" when who buys new clothes every month? Anyway the warren book also recommends that "step 1: save up $1000" tip that I agree with, but after that it has very different suggestions... mainly, having a budget for wants.

Which is a lot, that's how it becomes 30%. "Wants" includes any food above and beyond the USDA recommended allowances ($160/week for a family of four), all clothing (because if you lost your job, you could probably wear what's in your closet for a long time), fancy TV or phone plans, etc. Birthday parties, gym membership, furniture, all that. You find out the big amounts then figure out what you'll use a card/check for and give yourself cash for the rest so you really stick to the plan (well, of course she's against credit cards too, but they all are... I still have my cards, and I still pay my balances, so there ya go.)

The 20% savings and debt repayment includes 5% to pay extra on your mortgage every month... a nice ballpark target for me, since I want to pay extra but wasn't sure how to go about it since I don't have the ideal emergency savings yet, I just thought I was doing something wrong. The home ownership chapter is good, has lots of questions about how to decide you're ready, dispels the myth that renting is bad, etc.

Then there are interesting tips on how to get things in order. Like the 50% "needs" is a good way to tell if you've bought too big a house or car, and there are some tricks to get it down, like shopping for insurance... she has pages of how a LOT of insurance premiums are scams and you can save a lot by raising your deductibles. Just for fun I tried it... saved $120 a year by going to a $1000 instead of $500 deductible on our full covered car. Gambling. We'll see what happens. Other stuff I've wondered about, like pet insurance, are total scams, even some health insurance is a scam, they know people LOVE low deductibles because they feel like they're getting free stuff when the company pays out, but the companies make a lot of money on those high premiums.

Anyway I am not stretched to the brink so I can't really evaluate which books best help you sleep at night if you're deep in debt, in fact I kinda skim those chapters anymore. But this book in particular gave me a much better idea of how much I should take out for my next car loan, rather than just telling me to feel like crap about ANY loan. I just need to figure up how much is left of the "50% of my income on contractual obligations" quantity and that's the payment I could responsibly make. EASY. "Millionaire Next Door" made me feel like crap about my net worth, Dave Ramsey made me feel like crap about car loans and having credit cards, so with the idea that you have to pick what's right for you I'm going to go with the Warren plan here. Anyone can live on rice cakes for a week, she says. Budgeting needs to be about finding some balance.

And it's also made me realize that holy crap, I just bought a house less than three years ago and my savings went to NOTHING for that, as it should, the down payment was a big deal to get right. My savings account is really still recovering. I should not feel bad about that. If my budget is in balance, and my income is greater than my outcome, I should feel good about things. I do not need to tell my stay-at-home husband to hitch a wagon up to a bicycle if he wants to take two kids to the store because we're too broke to buy a car that fits baby seats... there's more to life than being as cheap as humanly possible.


( 11 comments — Leave a comment )
Jan. 3rd, 2013 04:21 pm (UTC)
She sounds like my sort of financial advice person. I should see if my bank-supplied financial overview tool lets me easily crunch the numbers in her categories.
Jan. 3rd, 2013 05:36 pm (UTC)
FFor me crunching the numbers was a bit involved, because like my paycheck has stuff like 401K (savings!), healthcare and life insurance (needs!) deducted out. So I had to add that stuff back IN to figure up my real income, then find my percentages. But it was interesting! (I am spending waaaay more on healthcare than I thought I was... ah, America!)
Jan. 3rd, 2013 05:55 pm (UTC)
I looked a bit at my bank's site, and I think I'm in a similar boat — for instance, regular mortgage payments vs. extra payments. Their taxonomy is kind of rigid, too. That, and a lot of things will change mid-year when I go back to work after parental leave and its different expenses and income streams (it's paid, but differently). I think we're well inside her guidelines, though. While I'm on parental leave, I'm responsible for my work pension contributions (actually, I have to pay them all at once on my return or get them deducted slowly over 16 months — I'm saving extra to keep my budget even-ish between leave and work), which has clued me into just how much they cost.

Does Warren think in after-tax dollars, or are taxes in the 'needs' box?

Do you plan on ongoing monitoring in her boxes, or did you find doing it all once informative enough?
Jan. 3rd, 2013 05:57 pm (UTC)
Does Warren think in after-tax dollars, or are taxes in the 'needs' box?

I was kind of curious about that too. Although, since I pay around 35% in taxes, that pretty much shoots my needs category right there ;)
Jan. 3rd, 2013 06:56 pm (UTC)
1) All of this is after-tax dollars - you're right, you can't have 35% eat up your 50% needs budget!

2) I will not be continuously monitoring the boxes, I lowered what I could lower and now I'm adjusting my direct deposit/cash amounts based on that. I have different bank accounts for savings, credit card expenses, etc, and I take out a specific amount of cash each week.
Jan. 3rd, 2013 04:36 pm (UTC)
Thanks for making these financial posts. It helps to hear about this stuff from a real person - it sounds like that's what Warren's book is like.
Jan. 3rd, 2013 06:05 pm (UTC)
One of the best things we did was to create a personal spending account, where we take approximately 4% of every paycheque and throw it into there to fund our wants.

I manage the finances and find it hard to say no, which led us into some debt early on. I's been a great solution. I *want* something, I check to see if I have enough in my spending account, and if I don't I wait until I have enough and then I go buy it (or well, that's how it's supposed to work, I'm currently borrowing a couple of hundred to fund a couch purchase).

Now, if it's a *need* it comes out of the general spending pool which pays for household stuff, food budgets, etc.

It's been very handy. I wanted to buy a book, I bought the book. I wanted a new necklace from an artist on Etsy, I bought the necklace. Comes out of the spending account. Sometimes I'll save up and get a bigger ticket item, like that papasan chair and cushion I've been looking at for my den or that trip to Greece. :)

I like her take - sounds like a book that might be worth looking at.
Jan. 3rd, 2013 06:49 pm (UTC)
I do not need to tell my stay-at-home husband to hitch a wagon up to a bicycle if he wants to take two kids to the store because we're too broke to buy a car that fits baby seats...

Aw no, you don't, but doesn't it sound like fun?
Jan. 3rd, 2013 06:53 pm (UTC)
Dave Ramsey suggests percentages like that for after you've gotten out of debt and are building wealth, except that he has charitable giving built in as well. His plan will get you out of debt much faster than Warren's, but if it were comfortable or easy everyone would do it. Then again I suppose I should not expect a tax, spend, and borrow Democrat like Warren to be particularly debt-averse either. It's all about priorities and what you're willing to sacrifice in the short term to win in the long term. You should not feel guilty about your money going towards your priorities, you just have different priorities than Kiyosake and Ramsey and that is OK. I don't plan on being a real estate investor, but the Ramsey plan has worked for me! At least you are paying attention, and that's more than could be said for either of us before we started reading up on financial planning. :)
Jan. 9th, 2013 04:56 am (UTC)
Added the book to my "to read" list. We've been on the "go debt free" plan for a year or two now and the only debt we have is the house and student loans. We are paying extra each month on the house (courtesy of refinancing) and are socking up cash to pay off student loans. It's going to a be about 28 months (starting more or less this month, depending on what our taxes look like this year)...which, in the long view isn't bad. But in the short term, feh.

We budget for fixed costs (even if it is for fun stuff) and then have envelopes for variable costs using EEBA, an awesome phone ap. A set amount each pay period goes into house savings and then general savings (our debt pay down fund).
Jan. 16th, 2013 01:48 pm (UTC)
Thanks for posting this! My mom loves to listen to Ramsay on the radio, so she purchased some of his book (including Total Money Makeover) for me and my husband as a house-warming gift. We're trying his debt-free plan in order to knock out our student debt, which will hopefully happen this year... but you speak so glowingly of Warren's book that I might want to check it out too.
( 11 comments — Leave a comment )

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