Decide How Much to Save
When it comes to saving, something is better than nothing, and more is better than less. That’s not much help—but this simple guideline might be:
- 50% of your after-tax income goes to needs
- 20% goes to savings and debt repayment
- 30% is for wants
This streamlined budget guide, or Balanced Money Formula, comes from the book All Your Worth: The Ultimate Lifetime Money Plan, by U.S. Senator Elizabeth Warren and Amelia Warren Tyagi.
Warren and Tyagi categorize the terms this way:
Needs are those expenses you must pay housing, food, utilities, transportation costs, insurance.
Wants are flexible expenses: cable television, restaurant meals, concert tickets, crafts and hobbies, clothing beyond the basics.
Savings accounts for money left after you take care of wants and needs. It includes what you set aside for the future as well as any debt payments outside of a mortgage or car.