The 60% Solution: Budgeting for Non-Budgeters
Richard Jenkins at MSN Money has developed what he believes is a simpler way to save. Fed up with budgets that were a burden to implement, Jenkins came up with his own easy method to determine how much should go where each month.
What you’re trying to do with a budget is to prevent overspending, which ultimately leads to piling up debt. Contrary to the way most people budget, however, it rarely matters what you’re overspending on — dining out, entertainment, clothes. Who cares? It’s still debt, right?
Jenkins proposes that your budget divide gross monthly income as follows:
- 60% to Committed Expenses such as taxes, clothing, basic living expenses, insurance, charity (including tithe), and regular bills (including things like cable).
- 10% to Retirement.
- 10% to Irregular Expenses such as vacations, major repair bills, new appliances, etc.
- 10% to Long-Term Savings/Debt — money set aside for car purchases, home renovations, or to pay down substantial debt loads.
- 10% for Fun Money to be used for dining out, hobbies, indulgences, etc.
Jenkins believes that the best way to relieve money pressure is to reduce Committed Expenses: cut the cable TV, spend less on clothing, reduce your housing expense.
For a lot of people, part of the difficulty in reducing committed expenses comes from the need to make big monthly credit card payments. If you’re carrying a substantial amount of non-mortgage debt, I’d suggest using the 20% that would otherwise go to retirement and long-term saving to aggressively pay down your debt — but only after you cut up those cards.
His advice is excellent. I’m curious to see how my finances fit his 60% solution.
(The actual article has a nifty calculator that lets you play with numbers. You can enter your gross income, and then adjust allocations to the various categories to see what happens to the numbers. Give it a whirl!)
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There are 16 comments to "The 60% Solution: Budgeting for Non-Budgeters".
While bugets based on net income are certainly more common, some people prefer to use gross income as their basis. I believe they choose this option for a couple of reasons: a) it emphasizes how much is spent on taxes; b) it encourages allocating larger chunks to other categories (for example, investing 10% of your gross toward your retirement will get you to your goals faster than 10% of your net); c) it’s a more accurate representation of how your money is being spent.
I’m new to budgeting (just fooling around with PearBudget), and haven’t decided which method I’ll use.
How does a budget based on grossly income work? What about the stuff that is taken out in taxes? Or does “gross” have some different meaning here? (Oh I see, the 60% category includes taxes. But that’s kind of weird, isn’t it, since you have almost no control over those?)
I checked out the original article, but I’m not sure what calculator you are referring to. Can you help? Thanks!
The 60% solution article has been republished a few times… there is currently a calculator at http://moneycentral.msn.com/content/common/P139593.asp
The budget feature on Microsoft Money Plus lets you assign specific categories to the above budget of 60/10/10/10/10. It is an easy way to see how your finances fit into this budget.
The only thing I question about this plan is when your income increases. I’m not sure I like the suggestion that you should spend more as you make more. What about the popular advice to be more frugal and save your raises? Or is that only until you are at the 60/10/10/10/10 level?
Good idea with the different percentages, but actually following through with getting the job done by spending less is the hard part. It’s where most people fail in my opinion. Plans are good, but actions are better.
The site http://financialsecrets101.com helps people take action instead of just coming up with a plan.
I like the 60% solution though, it’s a good idea to aim for saving and investing 20% of your income if possible.
I think that the point of the 60% solution is to help you realize that you’re living beyond your means.
There’s no point in keeping up with the Jones if it forces you to spend yourself into the poorhouse.
So, if you maintain your basic sustenance on 60% of your salary, then you don’t have to worry about feeling anxious about how you spend the rest of your money
Into which category do you place Social Security? Treat as a tax or as retirement? If in retirement, that consumes 6+% of the 10% allocation.
This actually works out better than I expected. I’m going to set this on automatic so that I won’t have to worry about it and everything can work out for me 🙂