More on balanced money formula

Key messages

Keeping your must-haves down to 50% gives you flexibility

If your must-haves creep higher — say, to 70 or 80% — there just isn't much room to maneuver. There's no space for you to scale back, nowhere you can cut if you need to.

But if you can get by on 50% of your (after-tax) income, you have the flexibility to cut back on your spending whenever you need to. You are in control. You can manage an unexpected expense like a car accident or a leaky roof. You'll be okay if your boss cuts your hours.

Debt reduction is a kind of savings

The assertion is that when you're making extra (more than the minimum) payments on credit-card debt, personal loans, medical debts, and most other debts, you are actually decreasing future obligations, and thus increasing your potential for future cash flow.

Those additional debt payments now, in other words, make increased future saving possible. Thus any extra payments toward debt principal are grouped with Savings.

The authors recommend if you're carrying credit-card debt, personal loans, overdue bills — basically any debts other than mortgages, car loans, or student loans; the entire 20% of savings should go toward debt paydown each month.

Just do your best

If you can't save 20%, can you save 15%? If you can't get your Must-Haves down to 50%, can you get them down to 55%?