From time to time we invite guests to write for us. We’re honored to have Manisha Thakor, Founder of the Women’s Financial Literacy Initiative, share her thoughts on budgeting with us today.

by Manisha Thakor

For most people, the thought of saving and budgeting is right up there with getting a Brazilian wax… one hair at a time. To me, saving and budgeting are power tools that help increase your life bliss.  As I like to say, saving is all about spending.  It’s just spending that you’ll do down the road as opposed to today.  And budgeting, well that’s just the process of making sure that your spending is optimized to take into account both what makes you happy and your current income level.

The two critical questions to ask of this process are: (1) Exactly how much should I strive to save?  and (2) How much is reasonable to spend in the key areas of my life – home, car, education, food, clothes, etc.?

Here’s how I think about it.  You earn an income.  Uncle Sam takes a bite out for taxes.  What’s left is your take-home pay pie.  The single best rule of thumb I’ve ever encountered for how to divide up that take-home pay pie comes from Elizabeth & Amelia Warren’s delightful book ALL YOUR WORTH:  50% needs, 30% wants, 20% saving.   Simple, powerful, and smack on.

The key to the Warren’s 50/30/20 formula is to correctly differentiate between needs and wants.  I define needs as: housing, transportation, food, mandatory debt pay down, insurance, child are, and bare essential clothing.  I define wants as: everything else.

Generally speaking this formula means that you’ll want to keep your housing plus transportation related expenses to 35% or less of your take home pay.  That gives you enough wiggle room for the other types of needs so that the total stays to 50%. I find using this broader 50/30/20 framework gives people a much clearer sense of financial tradeoffs without sucking the joy out of life.  If you want to have a very healthy grooming budget – go for it. Just understand that the slices of your pie have to add up to 100%.  If one slice gets bigger, another must get smaller. As for saving 20%, the logic there is that mathematically that’s what’s needed to fully fund both an emergency fund and retirement nest egg.  So there you have it – 50/30/20… budgeting made simple.


Want more financial love? You can follow Manisha on Twitter at @ManishaThakor, sign up to receive her weekly blog posts here, and enroll in her innovative online personal finance course called “Money Rules.”  Founder of the Women’s Financial Literacy Initiative, Manisha can be reached via her website: