The Budget for People Who Hate Budgeting (and Also Want a Bidet)

Note: This story first ran in TLDR, Wealthsimple Media’s weekly, non-boring newsletter about money, markets, and crypto.

Here’s a topic we’ve (somehow) never covered in this newsletter: budgeting. And here’s a person we’ve never mentioned: U.S. Senator Elizabeth Warren. The two connect! Stick with us! You might have seen Warren on TV talking about why big tech ought to be broken up. Before she got into politics, though, she was an academic who studied consumer bankruptcy. One outgrowth of her research was her 2006 book All Your Worth: The Ultimate Lifetime Money Plan, which popularized the 50/30/20 rule — a budgeting technique for people who loathe budgeting. It’s designed to help you pay your bills, work toward your financial goals, and splurge a little on yourself without a lot of tedious penny-counting. Here’s how it works:

50% of your income should go toward your MUST-HAVES. This includes housing, food, and all your essential bills. Keeping your must-haves at 50% gives you something precious: flexibility. “You are in control,” Warren explains. “You can manage an unexpected expense like a car accident or a leaky roof” without slipping into debt.

30% of your income should go toward WANTS, like travel, dining out, a Stanley tumbler, an in-home bidet, whatever. Splurging a little will help your budget feel sustainable. “Anyone can live on rice cakes — for a day,” Warren writes. But you want a budget you can stick with for life.

20% of your income should serve your FINANCIAL GOALS. That is, debt reduction, cash savings, and investing for retirement (ideally in that order).

Why budgeting is brutal right now: Did reading that breakdown fill you with dread? If so, we get it. One in three Canadians today are struggling to pay their bills, and 44% of Canadians saved not a cent from 2022 to 2023, thanks to inflation, rate hikes, and unaffordable housing. Given these factors, some financial experts argue the 50/30/20 rule is no longer feasible for many workers. So, don’t panic if it seems wildly ambitious. It is ambitious! But it’s more of a yardstick than a hard-and-fast rule anyway. Do the best you can, and if you can’t save a full 20% of your paycheque, putting away 6% to 12% is a solid start.

Give me an example! Again, try not to panic. Let’s say you and your partner have an annual household income of $128,000, which is typical for two Canadians with university degrees. In Ontario, that’s a monthly take-home income of $7,470. According to the 50/30/20 rule, you should use $3,735 of that cash for needs, $2,241 for wants, and $1,494 for savings or paying down debt.

The problem is that in Toronto, for instance, a two-bedroom apartment rents for about $3,600/month, which would leave you with $135 for other must-haves. Which ain’t possible. In such a situation, Warren suggests cutting your wants first, which might translate into cancelling your gym membership or forgoing a trip to Prince Edward County. You could also try to find cheaper housing or relocate. In Edmonton, you can get a two-bedroom for just $1,700/month, which helps to explain why, in the first three quarters of 2023, 45,000 folks moved to Alberta. Reducing your savings should be a last resort, says Warren, to ensure you have enough for retirement. (We’ve previously covered the benefits of investing early and often.)

How do you stick to your budget? One trick is to set up automatic bank transfers that move your money into separate accounts — one for must-haves, one for savings, etc. — so you’re budgeting on autopilot. Also, keep in mind that while a budget can initially feel like a straitjacket, it can also be freeing. If you live within your means, you can guiltlessly go on that cottage-country vacay. Or, at the very least in this economy, you can hit the gym again.

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