If you try sometime, you just might find...

A recent article on the Get Rich Slowly blog discusses the difficulty of striking a balance with money. The author, in her youth, was a big-time spender and racked up major debt. When she finally decided to change her ways, she went completely to the opposite extreme, cutting her spending to the bone and adopting a no-frills lifestyle. She got her debts paid off, but in the process she went from being a compulsive spender to a compulsive saver. She now finds it difficult to spend, even when it's appropriate.

I can recognize some of this compulsive-saving instinct in myself, too. Sometimes I obsess too much over tiny expenses, like whether I should really spend $5 on a new tube of face cleanser or wait until I've used up the old cleanser, even though it doesn't seem to work very well. But in general, I think I manage to strike a pretty healthy balance. I do think carefully about every purchase, but I'll spend the money when I'm convinced it's worth it. (For instance, I did go ahead and buy the new brand—but only after popping back home to make sure there wasn't a coupon available online.) I don't feel like I deny myself anything I really want; I just try to get what I want for as little money as possible.

So when I followed a link to another article on Get Rich Slowly that was about something called "The Balanced Money Formula," as outlined by Elizabeth Warren and Amelia Tyagi, I fully expected my spending to be in balance. Their formula breaks down spending into Needs and Wants. They say you should spend no more than 50 percent (ideally, no more than 35 percent) of your take-home pay on Needs, spend 30 percent on Wants, and put aside least 20 percent for Savings. I pulled up my little budget spreadsheet and ran a rough analysis of our spending, and I found that our spending on Needs was within the 50 percent limit (though not quite down to 35 percent) and our Savings were well above the 20 percent mark. Where we fell down, according to Warren and Tyagi, was that we weren't spending enough on Wants. The article suggested that those who spend less than 20 percent of their income on Wants "might be missing the point of money." While you won't get into financial trouble spending too little on Wants, they say, "you should ask yourself—are you making enough room for fun?" I suspect that Warren and Tyagi, looking at the 12 percent of take-home pay we spend on Wants, would answer that question with an emphatic no.

The thing is, we don't feel deprived. We just don't have very expensive tastes. We don't need to spend a lot to do the things we enjoy. We go to concerts a couple of times a month, but they're typically folk shows, where the tickets range from $7 to $25 (or where we can get in free by volunteering). We don't have TV service, but we watch shows on Hulu and borrow DVDs from the library (and enjoy low-tech pursuits, like reading aloud and playing board games). And also, a lot of the things we enjoy fall into categories that get lumped in under Needs rather than Wants. Gardening counts as a Need, because we grow vegetables to eat, but it's also something we do for fun. Home maintenance is a Need, because it includes the money we spend to keep the house standing and the heat running, but it also includes money we spend to make the house look nicer just because we like it that way. I counted meals eaten out as a Want and groceries as a Need, but a mocha frappe whipped up in the blender is just as much an indulgence as a Starbucks Frappuccino. So the line between those two categories gets a little blurry.

My conclusion? Warren and Tyagi are may be right to say that it's a mistake to spend too little on Wants. However, how much is too little depends on the person—it doesn't have to be a hard-and-fast number. The question isn't how much of your income you're spending but how satisfied you are with what you have. Why spend more on Wants than you really want to?