All Your Worth

We are also not going to say that if you’ll just shift to generic toilet paper and put $5 a week in the bank, all your problems will instantly disappear. A few pennies here and a few pennies there, and the next thing you know, you will be debt-free, investment-rich, and lighting cigars with Donald Trump. Nope, we’re not selling that brand of snake

This means you still need to make room for Savings. Pay your Must-Haves first, then carve out 20% for Savings. Then you can put the remainder toward your Wants.

Because nobody wants to talk about

What if my taxes aren’t deducted from my check? Estimate the taxes you will pay at tax time, and deduct them from your regular monthly income. If you need help, look at last year’s tax return.

So you can pay off your past

According to the smartest economists out there, that takes a minimum of 10% of your income to get ready for retirement. The Balanced Money Formula earmarks 20% for Savings so you will have enough to save for retirement and have plenty left over for all your other dreams.

Here’s the rule of thumb: The stock market is where you should keep money that you don’t expect to use for at least five years.

Calculating how much you can spend on Wants is simple. First, enter your monthly Must-Have expenses, taking into account all the cuts you made in Step Three. Next, take out 20% of your take-home pay, which is earmarked for your Savings. The remainder is your Wants budget.

An independent contractor supporting a family might decide he needs to put even more into Savings to protect against the times when business is slow. Or an older couple with a passion for travel and a fully paid mortgage might choose to go light on the Must-Haves so they could go heavier on the Wants.