Healthy Spending – Love Your Life Series Part 1

As you’ve now guessed, this blog isn’t just about fitness and healthy eating (although those are large components of it!). My interest is in overall healthy living….the big picture. There are many aspects of our lives that add up to create an overall healthy, balanced life so let’s start scratching the surface of some of the other pieces of the puzzle!!

Today’s topic: MONEY. Nobody likes to talk about it. We’ve all been taught from a pretty young age that it’s just not polite to discuss money. But why? Like it or not, money is  a HUGE part of our lives.  I recently listened to a lecture given by Manisha Thakor on the importance of “healthy spending”. I love her spin on the term “budgeting”. Nobody likes the thoughts of budgeting. It sounds so restrictive and grown up (side bar: if you know me in person, then you know that I refuse to ever feel “grown up”). Using the phrase “healthy spending” makes it seem like SUCH a good idea…healthy spending as part of an overall healthy life.  The majority of people list money (or lack there of) as one of their primary sources of unhappiness.  When you think about it, it’s not surprising at all.  Peronal budgeting isn’t part of our general education growing up (or at least, it wasn’t part of mine!).  We’re not taught how to spend money wisely and create a budget to live within our means as well as create savings for our retirement.  Anything I learned about those things was from my parents….and even hearing it from them was pretty limited.  Luckily, I have always been a saver, but I was still REALLY excited to hear Manisha speak and provide her simple guidelines for an IDEAL healthy spending plan.  Emphasis on IDEAL.  She made sure to be very clear that if this isn’t your starting point….no worries. There are lots of baby steps to get there.

Her basic guidance is this: take your income AFTER taxes and divide it based on the 50/30/20 rule:

– 50% of your income goes towards your NEEDS (housing, utilities, food, insurance, transportation, kids, etc.)

– 30% goes to WANTS

-20% goes to SAVINGS (12% to retirement savings and the rest for short term emergencies or savings for vehicles, housing down payment, etc.)

My favourite part of her lecture weresome basic guidelines on how much you should look at paying for things like houses or vehicles.  This was definitely not something I was taught before, but now that I think about it, it seems like something should have been discussed at some point in school or even at home! Her suggestions with respect to home and vehicle purchases are as follows.

You “should” be able to comfortably afford a house that is 3x your household income (remember, that’s after tax). When you add up all your housing related expenses, it should be somewhere around 30% of your yearly income.  As for a vehicle, she suggests 1/3 of your yearly income is the amount you could comfortably spend. So when you factor in all vehicle related expenses, it should fall somewhere around 10% of your yearly income. So if you’re following along, the house and the vehicle should now have you at 40% of your 50% that goes towards “needs”.  That additional 10% should go towards things like kids and debt pay down.

For some of you, this might be a pretty accurate representation of what you’re currently spending/saving. For others, your head just exploded.  Here are some things to keep in mind. There are many things that can throw this rule out the window. Kids, for example, are expensive. Right now it costs about $10,000 per child per year, and that’s just the basics, we’re not talking the bells and whistles that so many of us have come to think of as a normal part of raising children (expensive sports, the most expensive brand name clothes, private school, etc.).  In her lecture, Manisha gave a really great example of a friend with 6 children who was in debt and the 50/30/20 rule just wasn’t cutting it. She had to remind her friend that she was responsible for 6 kids….which might mean having to trade off in another area of life.  Maybe they would have to downsize their house.  Kids sharing bedrooms might have to be the trade off to being financially secure AND having  a large, busy family.

I can’t say I’ve ever been excited by personal finances before, but, being a scientist the whole idea of tracking and percentages has me very intrigued to see where our household income is being spent. The geek in me is actually SUPER excited about getting a spreadsheet set up this week to start seeing the percentages of our spending. Hopefully this has intrigued you to check out where your money is going!

Disclaimer: I am by no stretch of the imagination a financial expert but I thought this was interesting information to share!