YNAB Book Club discussion
Group Reads
>
All Your Worth - November 2014
date
newest »
newest »
message 1:
by
Elizabeth
(new)
Nov 05, 2014 06:18AM
Okay YNABsters, here we go: bring on the conversation about All Your Worth.
reply
|
flag
*
I couldn't wait for this group to start. Great read so far. YNAB makes the percentages easy to figure out by rearranging categories. I helped a friend with her YNAB budget this morning and was able to apply what I read to simplify her situation also. It makes a complicated budget so uncomplicated.
I've finished reading the Step One chapter and found it very affirming. I've tried to apply the 50-30-20 formula to our budget since setting up YNAB in early 2012 and it works nicely. However, it's interesting to explore the logic and the examples in the book that support the formula. I'm also enjoying the writing style tremendously. The authors know how to avoid the "baffle gab" that often plagues books on managing your finances.
Since this is the YNAB Book Club, I should also mention that my responses to the Self-Tests in the Step One chapter are far different today than they would have been before I started YNAB almost two years ago. Back then, I would have been allocating far less than 30% to the Wants because retirement was approaching and, because I lacked real insight into my financial reality, I thought I needed to pinch every penny. My husband and I have both been retired for just over two years and we are still able to apply the 50-30-20 formula without feeling either apprehensive or deprived.
Using the formula helped with a financial discussion with my husband. I could show him that our must haves are currently at about 30%. When his salary decreases in March we will be slightly below 50%. The only places we can change that would be to pay off the house in a couple of years and/ or try to change our insurance costs. We could also move and be mortgage free and keep our personal expenses on the downswing as we launch our kids over the next 6 years. It is really in our financial interest to teach them about finances and push them toward financial independence. The book helped put our finances in perspective. We were pretty much living at 30-65-5, as a guess, pre-YNAB.
I'm finding the book to be an interesting read and a little different than other financial books I've read in the past. I figured out that my percentages are currently 53-31-16. This will change in a few months when I've finished paying off all non-mortgage debt. In the mean time, 16% for wants doesn't seem too restrictive to me.
I think there's definitely something in the book for people who may not be fans of Ramsey. I liked the percentages; I wish I had embraced something like that much younger. It did one thing for me: validated that I've learned a lot and made a lot of changes over the past 4 or 5 years. Not so long ago, it would have been a life-changer (which Total Money Makeover ended up being.)
I'm about halfway through this book, how is everyone else doing?I find it interesting that the authors discuss putting the whole 20% of your savings percentage into debt reduction. What about the money that goes into your retirement fund? That's calculated into that 20% savings rate. That would mean that you contribute $0 to retirement while paying down debt (or am I analyzing that wrong?). I do like how they focus on paying down debt, but I think they should have suggested that some of that money come from wants.
I've discussed this a lot in my journal, but this book is definitely making me more aware of how much money I spend on Must-haves. It has definitely made me re-evaluate my priorities, and it definitely pushes me towards paying down my debt, even more so than before.
AliciaP wrote: "I'm about halfway through this book, how is everyone else doing?I find it interesting that the authors discuss putting the whole 20% of your savings percentage into debt reduction. What about the..."
I finished it first week of November. I liked one of their other books a bit better because it explained the huge traps that could lead to bankruptcy. I don't think I would arrange my YNAB by the ratios described,however. I'm trying to get into minimalism and joy not tied to things that need money. I'd like to think that, no matter my income, $200/month or equivalent after inflation "wasted" would make make me very comfortable and be kind of frivolous and rich feeling. How far does wants % go before it's just ridiculous? If your take home pay is 10k does it give you a free pass to blast through 3k a month on "wants"?
Also, unless I misread, I think she's been talking about take home pay. 403b/401k is pre tax removed into savings.
Mesmoiselle, since you're into minimalism, the "wants" money could be spent on experiences or vacations. Or a hobby, or something that reflects your values. It doesn't have to buy more stuff. Although, I do agree that the wants percentage is high.It makes more sense that the retirement accounts aren't added into the 20% savings that you're supposed to use towards debt.
It did bother me a little that they talk about take home pay, then include things like 401k contributions and health insurance that are pre-tax and even employer paid retirement contributions which aren't even income.That said, I do like the idea of having percent-based goals; though my goal would be something more like 10% pre-tax to retirement, then 60-30-10 after tax, at least as long as we're supporting 2 kids.
It is clear how big an impact having consumer debt has on our percent of Must-Haves, but I don't see it as a "thinking trap" to acknowledge that when rent on a small 2-bdrm apt starts at $30k a year, it's going to be awful hard to get to 50% Must-Haves unless you're earning far more than the median income of $105k for a family of 4.
Mesmoiselle, keep in mind that charitable contributions also go under Wants, so you could certainly decide to give a large portion of your income, or gift it to family/friends rather than using it to acquire stuff or even benefit you.
I also found it a bit confusing to use after tax income and then add back in some pre-tax items and I couldn't tell if you should be contributing to retirement while paying off non-mortgage debt or not. I do like that the authors recognize that everyone is going to have different priorities unlike Dave Ramsey who thinks every situation is the same.
I'm finishing up the book tonight as the book needs to be returned to the library.
I find that All Your Worth is as applicable today as it was when I read it almost 10 years ago. We haven't finished doing this yet, but we're going to divvy up our 50-30-20 for 2015 based on Gross Pay, with the idea that we have 50% going to savings of some sort, 30% to needs and 20% to wants. We'll see how that shakes out. I have to wait on Mr L to have some free time, which he does not have right now.
Mesmoiselle, I could not agree more with Alicia P - *wants* don't have to be *things*. For us they rarely are. Simply put, in our lexicon, a *want* is anything that isn't a necessity or savings. It's hobbies, travel, experiences, some charitable giving, OUR PETS ... Thinking that percentage is all about *things* really narrows your scope of what your dollars can do! Get creative :)
I saw on the YNAB forum that someone asked about December's book - are we reading this month or taking a breather for the holidays?
I really appreciated the fact that I am paying down debt and they count that as saving! I had a really hard time justifying this with anything else I read but it just made scene to me that by owing less I was "saving" for the future. I haven't figured out my percentages but I know I'm below 50% right now on needs because I'm renting a room from an aunt to save money/pay off student loans. So my saving is 30-50% right now, I'm not tolerating this insanity of paying interest any more than I have to.
But lately I've been questioning what is a Necessity? The same authors talked about how people go bankrupt from expensive housing in the "Two Income Trap." Their must haves were 50% of two incomes; therefore, when one person lost a job, suddenly rent/morgage was equivalent to one person's earnings. They make the decision between food/gas and the mortgage/credit debt of yesterdays fun, the food/gas won, and they lose everything. Sometimes they talked about couples, and sometimes they talked about individuals. But inside a couple, from the perspective of their other book, it's almost that the 50% must haves should still be applied to one of two earners inside of a marriage so you can afford an unfortunate surprise. I wish they had mentioned something like that.
50% of two is 100% of one, so really, must haves should be 25% or you need a a huge Emergency Fund. It's too bad they didn't tie this book into the lessons from the Two Income Trap.
Mesmoiselle, I think the Two Income Trap is when couples need all or most of both incomes simply to support their basic needs in the best of times. If both partners are bringing in about equal income and their must-haves are 50% of their combined income, then if one loses their job, they can still pay the must-haves. They would want to temporarily cut back on wants and savings but it would be possible to continue their lifestyle without immediately crashing or downsizing.For singles or families with one primary income stream, the 50% rule of thumb doesn't have that failsafe of being able to make it on the second income, but it does leave a lot more breathing room than using up all your income on must-haves.
Tell me more about your "what is a necessity?" question! I often find myself questioning the gray areas between want and need, such as high-end grocery items and "saving up" purchases. (Like, I'm saving for a new computer, and that strikes me as a want, and not a savings. But if my "dreams of tomorrow" savings are for travel or home reno, aren't those wants too? Just big, deferred ones!)
Laura says:"If both partners are bringing in about equal income and their must-haves are 50% of their combined income, then if one loses their job, they can still pay the must-haves."True, if they properly labeled their must haves, then they're precarious but conservative. Job loss could just as well be major health crisis and that means time off from work for second partner to take care of first partner. I've just seen some people label their must haves to not involve food and car gas. So when the mortgage, all by itself, is 50% of their combined income they think they're okay?
I think a healthy exercise would be to put everything on a list, and then circle true needs. I'm assuming we already have enough clothes to keep us from being naked. So that cuts the needs down to a roof over your head and food in your mouth. But even then, it seems the natural inclination is to then give a pass on those expenses. Never mind it's an over valued roof with twice as much room as you actually need. Never mind that organic is just a silly label with no true power behind it to trick people out of money. Never mind that anything that is pre made is a convenience food, so even loaves of bread fall into this category. If I NEED food and I NEED a roof over my head, and I'm a good person, then I DESERVE to spend twice as much.
And that's a fine way to think but then, if you're honest with yourself, anything over what you need is a luxury. When you spend $300/person/per month on groceries, you should realize you are spending $200/person/per month more than is needed. Do you then count anything spent over that $100 "need" food and put it in your Entertainment/Fun budget? No, I'd say 99% of people don't. Same thing for the extra $300/month mortage papyment to get the "Recreation room in the basement" house instead of the one without. That means they already spend $300 a month on recreation in the form of the house! They give themselves an additional $25-$200-$400 entertainment budget on top of the luxury of buying (delicious! Easy!) fancy food and a bowling alley in the basement!
Some people consider Cable a must have. But it's obviously not that fun, because then they still want to "go out to the movies" "rent a DVD" ALSO have A Netflix AND HULU AND ROKU account, and then take vacations and trips on top of it. They're spending $600-$2400/year on all this digital entertainment! And they stil need "more."
Most of us are already surrounding ourselves with luxury but then we adapt, it becomes the norm, and we want more. Not saying you shouldn't have any of the big ticket items above, but you can see how people can somewhat blindly spend on more and more luxury and yet not see that they are already drowning in it.
Mesmoiselle wrote: Most of us are already surrounding ourselves with luxury but then we adapt, it becomes the norm, and we want more. Not saying you shouldn't have any of the big ticket items above, but you can see how people can somewhat blindly spend on more and more luxury and yet not see that they are already drowning in it. Not to imply that I'm perfect. But soon as I bought my 1900 sq ft house, got my husband and I arranged with two roommates and realized that the rest of the space was mostly just HOLDING STUFF, I realized that I bought too big a house. It's stressful. Clutter stresses me, not knowing where I stored what is stressful, unused space just seems wasteful.
Then the fact that I spent SO MUCH on food. And at the end of the day, the only goal is really to not be hungry while fueling one's body for the next thing. And I'm fat. So I'm obviously overdoing that category in more than one way (I've exceeded caloric as well as spending needs.)
And until this very month, even spending too much on food and other "entertainment", I was giving my husband and I a free pass to spend $200 on "fun". I don't need more "fun".
I buy luxurious food. I have two completely unneeded adorable dogs. I have a spacious house and 2 sewing machines with a million to do projects. I have a huge house I need to clean and organize. I have a park down the street to enjoy. And this thing, called a library, where I can listen to as much music, watch as much movie, and read as much book as I could possibly have time for. Oh yeah. and ALL OF THE INTERNET in the form of an internet subscription.
Why in goodnesses name do I need a vacation or a "fun money" budget?
I feel like you are making the same points as the book. She warns to keep all your must haves under 50%, not just your mortgage. She does advocate breaking groceries into needs vs extra wants based on the USDA chart; sure, most people won't do that ongoing in ynab, but you don't have to. I did my 50 30 20 chart in excel and I divided groceries accordingly. Anything you're legally obligated to pay is elevated to a must have because of that obligation, but she strongly encourages you to be in a position where you can drop back your nonnecessity bills at a moments notice, ie don't get into a contract with a gym or cable company. Not buying more house than you need would fit into that philosophy: keep obligations as light as possibl, and it's OK to spend on luxury as long as you could cut back quickly if needed.
The thing is, i agree with you completely: simple living! Minimalism! Most stuff is just clutter! Small space living! These are my passions, too. I love the library; I live comfortabky in an 800 sq ft apt with 2 other people; I make my own laundry soap; I hate commercialism and recently told my folks I'm opting out of Christmas gifts.But I don't feel that the balanced money formula advocates overspending or too much luxury. I think its flexible and nonjudgmental enough to work for a range of values and lifestyles.
One important thing to note is that 50% must haves and 30% wants are maximums, and 20% savings is a minimum. As long as your must haves and wants don't exceed the limits, you're in balance. They can be less. If your formula is more like 20% must haves, 0% wants, 80% savings, and you find that sustainable, great! Congrats, you're in balance, and if circumstances change, your budget has leeway to change, too.
I also wonder if the wants and needs terms are too emotionally loaded. Maybe it would be fairer to characterize ilthe nonsavings buckeys as as 50% obligatory spending (things you are legally obligated to pay, like mortgage, or biologically required to buy, like basic food) vs 30% discretionary (any other spending, including fun money, charity, gifts, organic produce, or whatever else).
Laura wrote: "I also wonder if the wants and needs terms are too emotionally loaded. Maybe it would be fairer to characterize ilthe nonsavings buckeys as as 50% obligatory spending (things you are legally obligated to pay, like mortgage, or biologically required to buy, like basic food) vs 30% discretionary (any other spending, including fun money, charity, gifts, organic produce, or whatever else). That is true. Perhaps I'm rejecting the labels and built in/implied categorization more than the overall philosphy and break down.
Mesmoiselle wrote: "Why in goodnesses name do I need a vacation or a "fun money" budget? "I'd say some fun/discretionary money is pretty important and it sounds like you may have some of that built in to your Must Haves categories.
For example, if you set your grocery budget at $100pp, then that bottle of wine or fresh fish or food for a party or whatever you enjoy that isn't strictly necessary likely won't fit in the budget. The access to the internet is a Want, as is the computer to play the videos on. You might find life somewhat bleak after a while without any of these things in your life.
Even the "free" library is only free until your kid drops a library book back behind their bookshelf and you don't find it to return on time. Going to the "free" day at the museum still requires transportation to get there, which costs money (unless you can walk to it).
I like Laura's obligatory/discretionary breakdown, and that seemed like what the book was promoting.
