The Lifetime Money Plan

I'm currently reading another book by mother-daughter team Elizabeth Warren and Amelia Warren Tyagi (of The Two Income Trap fame). This one was published after TTIT (hmmm, a somewhat inappropriate acronym for a book written by two women!) and is called All Your Wealth: The Ultimate Lifetime Money Plan. I bought it because I enjoyed its predecessor so much, but at the same time I sort of figured that I wasn't exactly its target audience. After all, it's a guide for getting yourself out of dire financial straits and into a sustainable monetary approach that will last you your entire life. So how beneficial of a read could it really be to me (and Vicki), when we're already embarking into semi-retirement long before our 60s?

Well, I'm now about 100 pages in, and I've already learned quite a few things, not the least of which is that we more or less "happened" into certain spending and saving patterns that are actually well-supported by the research that the authors of All Your Worth have spent much of their adult life compiling. One of the first points they make is that, in order to be able to live happily within your means, you need to maintain a healthy balance between what they call the Must Haves, the Wants, and Savings. They actually prescribe a very specific set of proportions for how much of your money to put into each of those three. When I described this part to Vicki, I asked her to guess what the recommended breakdown between them was, and she impressed the heck out of me by nailing it nearly perfectly! In case you want to think about that for your own situation, I'll hold off showing the actual % values until further down in this post.

So that can fully appreciate the distinctions between each type, though, here's what's meant by each:

• Must Haves - These are those items without which you don't believe you could live in safety and with dignity, which you would continue to pay for even if you lost your job, and which you don't feel you could live without for an extended period of time (say, 6 months).
• Wants - These are all of the items not covered by Must Haves, with the exception of Savings (see the next point). Many of the items that you might initially think are Must Haves actually belong in this list, as we'll see below.
• Savings - These include money in the bank not ear-marked for anything specific, retirement savings, debt reduction, college funds, and so on.

As I saw that list, I immediately began thinking of the way Vicki and I have allocated our take home money for almost the entire time we've been together (nearly 20 years now). Our "buckets" didn't exactly line up with those laid out in the book, but I could easily distribute them into the appropriate category. My thought processes on that went as follows.

Vacation money is clearly Wants, as is our own individual splurge money (mine often goes toward old comics or video games!) and probably half of the spending money that we set aside. The other half of spending, which would cover basic groceries like milk, bread, dinner meat and the like (but not necessarily ice cream, cookies and other treats), would go into Must Haves. Our bill money would mostly go toward Must Haves (maybe 75%) to pay property taxes, gas, electrical and water bills, car and house insurance, and so on, with the rest of it going into Wants to account for non-essentials like Internet, Cable TV, and gym memberships, just to name a few. (And yes, you have to wrap your head around how TV and surfing the Web are wants and not needs!) Now that we don't have any kind of employment benefits, some of our money goes into a "medical" bucket toward covering prescriptions, dentist visits, eyeglasses and the like, all of which would go into Must Haves. And, finally, we set aside money for each new car we buy, so most of that would be Must Haves (saving us from having a car loan) but perhaps 30 - 40% of it would be Wants because we could drive our car longer, if necessary, or buy a less expensive one. And then everything left over went toward Savings, which of course is now essentially 0% but previously was how we're able to enjoy semi-retirement at this early juncture.

So, now that you've had a chance to think about what the ideal % breakdown of those 3 categories might be, as well as how you currently do with your own money every month, here's what All Your Worth recommends:

• Must Haves - 50%
• Wants - 30%
• Savings - 20%

(Vicki had guessed 50% / 40% / 10%, I believe.)

I suspect, were I to take the time to actually crunch our specific numbers, that we probably adhered to a formula that hove closer to a 30% / 35% / 35% composition, especially once we'd paid off the mortgage on our current house. Prior to that, it was likely more like 40% / 30% / 30%, as we've always put a sizable amount into our RRSPs and into a "rainy day" account.

One of the points that the authors make, again and again, is that keeping your Must Haves at 50% or less is the secret to being able to live free from worry about money. Because you can essentially survive at half of your current income (jettisoning, at least temporarily, any Wants and Savings), you know that you can withstand a run of bad luck that might include a layoff, medical emergency (more a concern in the States that here, thankfully) or marriage breakdown. By capping your Wants at a relatively generous 30% (nearly 1 in every 3 dollars you take home), on the other hand, you're empowered to spend lots of your money in discretionary ways, rather than feeling like you're being choked to death by a tight budget. And if you manage to stick to the 50% and 30%, respectively, then the 20% Savings just happens automagically. What you do with that 20% is up to you, but regardless (assuming you don't invest it foolishly): it's there for any big emergencies that might arise (the "rainy day" concept that we always used) as well as to provide for retirement later in life.

The authors provide many examples of ways to get your Must Haves down to 50%, on the assumption that most people reading their book are probably sitting at 60% or more when they start. Things like shopping around for cheaper insurance (including getting rid of low-deductible options) and renegotiating your mortgage (though they're very clear about not reducing your equity in the process or taking on any additional risks) are offered up as tasks that will require time and perseverance but not affect your lifestyle at all. I'm just at the part where they then move on to other things you can do that are more of the "cutting" variety, when you feel at least some pain beyond having to make phone calls or deal with brokers.

It's unusual that I would read this much of a book on personal finances and find that I agree 100% with everything written (while also learning new tips in the process), but that's exactly how I feel so far about All Your Worth so far. Assuming that it continues in that vein, I'd have no reservations about recommending this gem to anyone looking for advice on how to get out of a financial hole.