All Your Worth (Book Review)


Full time employment: Posting here.
Oct 22, 2007
DW and I first got serious about FIRE in 2002. I became aware of the “50-30-20 budget” sometime between 2005 and 2008 but didn’t dig into it because we were focused on saving and investing. Recently I checked out the source, All Your Worth (2005), by Elizabeth Warrant and Amelia Warren Tyagi, from the library. This is a review, along with my take on how it applies to the FIREd population.

Notably, the authors don’t use the term ‘budget’ to describe their method; they say “balance” or “balanced money formula”. And this is not a traditional budget – there are three categories: Must-Haves, Wants, and Savings. The plan is to have those categories as 50%, 30%, and 20% of your take-home pay (after federal/state/municipal taxes, but before health insurance deductions and property taxes. Employer retirement plan or pension contributions are added to both take-home pay and savings.) Warren and Tyagi explain the reasons behind those percentages on pp. 26-33. 50% Must-Haves are sustainable, safe (for when things go financially wrong), and have been tested over time. The book is based on more than twenty years of intensive research (p. 4).

Must-Haves: A place to live, utilities, medical care, insurance, transportation, minimum payments on can’t escape legal obligations (for example, a cellular contract or child support), basic food. Credit card debt is handled under Savings.

Savings: Pretty obvious. After-tax savings, tax-advantaged savings, extra payments for mortgage/car loan/student loan. Subtract credit card debt.

Wants: Everything else!

There are easy worksheets for these and help columns for each. And examples of what spending too much on Must-Haves and too much on Wants look like.

There are two schools of thought on controlling spending: multiple frequent small leaks (the “Latte Factor”) and large expenditures (car, house, student debt). All Your Worth is firmly in the large expenditures camp. To bring spending in balance with their formula, they go through a series of steps, “Cut the Easy Stuff” (shop around for insurance costs), “Cut Where It Hurts a Little” (sell your car and buy used), and “Consider Radical Surgery” (a different job).

They talk about Wants, and are big supporters of cash and detractors of credit and debit cards.

The lifetime savings plan is nothing new or radical:
Stage 1: $1,000 emergency fund
Stage 2: Pay off “Steal-from-Tomorrow” debt (basically, everything except your mortgage/car loan/student loan(s))
Stage 3: Six-month emergency fund
Stage 4: 4a retirement savings (10%), 4b pay off house (5%), save for your dreams (5%)

There are other parts of the book that I’ll skim over for brevity: That the rules of the money game have changed since your parent’s time (this was written in 2005), some very basic investment advice, “thinking traps”, relationships and money, home purchase, and when things get tough.

This is a very well-written, easy to read (for a financial book), book with good explanations and stories to illustrate the points. I highly recommend it.

So how does this apply to the FIREd population, particularly those using portfolio withdrawals for the majority of their expenses? I see three main directions [all of the following is IMHO, YMMY, IANAL nor a CFP]:

I’ll use a 4% inflation-adjusted SWR for these examples; substitute your preferred withdrawal strategy.

  1. 2.0% / 1.2% / 0.8% Split the SWR into the categories; actually withdraw 3.2%, leaving the remainder to grow for long-term larger financial expenditures (boat?) and/or as a margin of safety for tough times.
  2. 2.0% / 2.0% / 0.0% Keep Must-Haves to 50% and spend the rest on Wants. This retains flexibility to cut if things go badly while allowing an immediate increase of 0.8% spending on Wants vs. method #1.
  3. 2.5% / 1.5% / 0.0% Allow Must-Haves to grow to 5/8 of total spend (maintaining the 50 / 30 ratio) and Wants to 3/8 of total spend. This allows more spending on things that can’t easily be cut (nicer house in better neighborhood?) at the expense of less flexibility to cut if things go badly.
Always lived by the "must have" or need vs want.

Totally disagree about CC's , they are simply a way to spend the $$ you have that is rewarding.

By saying people should use cash, authors are admitting people spend more than they have, and should address that directly instead.
I pay my CC balances off twice a month.
But I hear that some folks actually carry a balance on CCs from month to month and pay INTEREST for doing that.

So it depends...
I don't particularly care for the 50 30 20 approach for working people. There are better principles to embrace.

First job fresh out of college, you should be putting enough money into employer retirement plan to get the match, probably quite less than 20%.

Heavy expenses in first five years, often, with edu loans and buying primary residence. After first five years of fixed-rate mortgage, money eases and retirement savings can begin ramping up 1-2% of gross per year.
I was investing a bit over 30% of gross income my last few working years...
Totally disagree about CC's , they are simply a way to spend the $$ you have that is rewarding.

By saying people should use cash, authors are admitting people spend more than they have, and should address that directly instead.

I had to skim over several things in the review to keep it to even a somewhat readable length. The relevant discussion in the book is on pp. 116 - 121.

Let me say two things at the start: (1) The book was written in 2005, so times have changed somewhat, and (2) DW and I do use credit cards extensively - they are cash-back cards and we pay them off at the end of each month. We have done this for years and don't plan to change.

That said, I do agree that most people (the folks on these boards being an exception) do tend to spend more with CCs than cash, and it is more difficult to track spending as you go with CCs. Put your Wants money in your wallet, spend while it's there, and stop when it's gone. [This is one of "the rules of the game have changed" points. CCs for middle-class families basically used to be non-existent.] So advocating cash for Wants, at least for every day spending, does to me say that people are spending more than have and addresses it by enforcing spending discipline - no more cash in the wallet, no more Wants spending this month.
Good review.

For people on these forums, it is probably all old hat & most have their own ways/formulas for saving money. Otherwise, they wouldn't be here.

But that doesn't detract from the value of a book like this. Coincidentally, the first time I heard about this book was earlier this week when I came across an article saying that the 50-30-20 is unattainable for young people today due to the high cost of housing.
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I started out after graduation at 60/40/0. After two years, I went to 60/34/6. In the final push for ER, for years 27 to 30, it was more like 42/10/48. Of course, your spending will change from when you start out at (presumably) a lower paying j#b, and after you've covered the down payment on the house and purchased (presumably) a car, then you can put the savings mode into hyperdrive! But it does require a lot of sacrifice in the wants department! In accordance with Robbie's theme, I'm more than making up for it in ER...BTD!
Always lived by the "must have" or need vs want.

Totally disagree about CC's , they are simply a way to spend the $$ you have that is rewarding.

By saying people should use cash, authors are admitting people spend more than they have, and should address that directly instead.
For most of us here, we don't have an issue with CCs and CCs are just how we spend the money (paying off at end of the month.) But some folks (like my BFF) can NOT be trusted with a CC. They'll charge it to the max and then try to get their maximum raised while they try to get another card. So at least some folks would be better off sticking with cash only. Of course, as always, YMMV.
There are differences among the retired minds here. Cash only would be difficult for many.
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