A few months ago I read on JD's blog about the Balanced Money Formula. In their book, All Your Worth: The Ultimate Lifetime Money Plan Elizabeth Warren and Amelia Tyagi suggest that instead of listing a line item for everything in your budget, you should create three buckets:
- Needs (50%): Things you can't live without, like your rent/mortgage, food, insurance, etc.
- Wants (30%): Stuff like cable t.v., dining out, etc.
- Savings (20%): Whatever is left over from the above. This can be used for debts also.
This method has helped me flesh out a budget for whenever I move out on my own. You'll notice that my percentages are different. Part of it is how I decided what should go where, another part is the reality of living in a HCOL city. So based on an estimated take home pay of $2,300 a month I drafted the following:
Technically, I could afford to pay a much higher rent. However doing so would significantly cut into how much I can save. I estimate $700 should get me a decent studio in the city. Yes, I consider an Internet connection a need!
I put a high priority on savings, so this bucket is much bigger than suggested. Especially since I still have financial goals to accomplish.
I don't want for much. I love dining out, and anything left over can go towards any online gaming/computer geekery.
Using this formula has really helped me wrap my head around a scenario I've yet to encounter. It's helped me feel more confident about moving foward to getting my own place when that time comes.