Personal Budgeting Made Easy With the 60% Solution

by Guest Blogger on 2009-10-1822

Some great insights on budgeting, from our contributing writer: Beth M.

I’ve never made a budget, which is probably why I have struggled financially over the years. Well, truth be told, I tried it once, to no avail. I was riding in a car with a friend, who stopped to get gas and who then immediately jotted something in a little notebook. I asked her what she was doing, and she said she was recording all expenditures for a month to see where her money went. I tried the same thing the following month and found it too tedious. It was a hassle to write in the notebook all the time, and at the end of the month I didn’t know what to do with the information. So that was the end of that.

My interest in budgeting was recently piqued again, however, when I saw the article “A Simpler Way to Save: The 60% Solution” on The author, Richard Jenkins, acknowledges how difficult it is to budget, and developed the 60 Percent Solution as a way to make it easier. Here’s how it works:

personal budgeting
Squeeze that budget.

Personal Budgeting Made Easy With the 60% Solution

Rather than tracking every expense, Jenkins suggests keeping all committed expenses below 60 percent of your gross income. By committed expenses, he means:

  • Food and basic clothing needs
  • Basic household expenses
  • Insurance premiums and taxes
  • Charitable contributions
  • Bills

The other 40 percent is divided among retirement contributions, short and long term savings, and fun money. He suggests no more than 10 percent be earmarked for fun money.

When I first considered this approach, I never thought my committed expenses would fit within 60 percent of my income. (I thought it would be more like 70 percent.) But when I got it down on paper, I was shocked, because it did! And the other 40 percent worked out as well. After seeing it written down, I also realized that my trouble spots would be food, clothes, and fun money — I need to make sure I stay within my budget in those areas.

I can move the dollars among these various budget categories every month, as long as I stay within the total allotted for the three combined (e.g. food, clothes, fun money). If I end up having leftover money in any category, I can place this in short term savings in my trusty high interest accounts. To help with spending, I may also use the “envelope” budgeting system, which allows me to pull out enough cash to cover expenses. The theory is that when you have cold hard cash in your hand, you spend less of it.

The trouble with this budget, however, is that it doesn’t allow me to pay off my credit card debt faster. (I am currently on payment arrangements with reduced interest rates, but had hoped to pay the balances off faster.) I could stop contributions to my retirement fund and put less in savings to do so, but for the time being I am going to leave it as is and see how it goes. I can always amend my plan later. I’m also thinking that any extra money I earn can also go to help pay off my debt.

If it’s impossible for you to cover your committed expenses with 60 percent of your income, Jenkins (and conventional wisdom) suggests that you look at your lifestyle and then make some necessary budget cuts to bring your spending in line.

Contributing Writer: BEM

Copyright © 2009 The Digerati Life. All Rights Reserved.

{ 22 comments… read them below or add one }

Mrspiggy October 18, 2009 at 10:47 pm

Budgeting — totally believe in it. I think that budgeting is imperative !

kenyantykoon October 19, 2009 at 12:34 am

I think that to some extent budgets are over rated. I mean lets be real, this money plan is to make you save as much money as possible so if you adopt that frugal (bordering to stingy) lifestyle, you will save as much as you want. These budgets are for people with a somewhat lax attitude towards money that need something written down to keep them on their financial goals – hey I am just saying what i think.

Manshu October 19, 2009 at 3:06 am

I follow the same plan. I am not able to write down every expense but I can commit myself to a certain percentage and stick to it. Works pretty well for me. October 19, 2009 at 4:27 am

I think that having a general budget in mind is important, but once you have a general idea of where you spend your money, you can probably due without one. If you have no clue where you are spending your money, then you need to figure that out.

But, once you do, focus on how you can simplify your finances, how to automate them, and how to spend less on re-occurring expenditures.

John DeFlumeri Jr October 19, 2009 at 5:31 am

If you don’t know where you went, you don’t know where you’re going.

Funny about Money October 19, 2009 at 6:37 am

Gross income? Or net?

The 60 percent (+/-) of gross income that goes into your pocket gets there after about 40 percent has been withheld for taxes, health insurance, and other employer-provided expenses (such as parking) and benefits. Granted, some of those benefits come in the form of a retirement instrument (maybe…depending on the employer). But you’re unlikely to have 40 percent of gross left to devote to savings.

Taxes alone on my gross come to 26%. The total of all the deductions comes to 35% of gross salary. Of that, only 7% represents matched contributions to the 403(b). Total deductions are that low only because we have a very cheap EPO — my health insurance runs $26 a month.

IMHO, a budget needs to be figured on net income, not gross. Gross income is meaningless when you’re considering how much you have to live on and where extra money from savings will come from.

CX October 19, 2009 at 7:37 am

I follow the same plan. I am not able to write down every expense but I can commit myself to a certain percentage and stick to it. Works pretty well for me. October 19, 2009 at 12:20 pm

This is a clever budgeting plan. Jotting down each and every expense can get annoying; but by limiting yourself to a certain expense amount, you learn to weave out the unnecessary accommodations you make for yourself.

Andrew @ Financial Services October 19, 2009 at 1:02 pm

Useful advice. There are undoubtedly a lot of people who have jobs which can only support committed expenses. When a fast loan is made because of an emergency, most likely they will not be able to pay it properly. Sometimes a good solution is not to keep a job, but to find a better paying one so that your finances can recover.

Jim October 19, 2009 at 4:04 pm

I think this style of budgeting is a good idea.

But people should probably modify the % they distribute to the basic expenses, saving and ‘fun’ money to match their personal situation best. Someone with $150k income doesn’t need to spend 60% of it on basic expenses and someone with $15k income might not be able to dedicate 40% to saving & fun.

Cassie October 19, 2009 at 6:26 pm

Although I would not personally follow this plan (I’m much to OCD about exactly how much money I put into certain categories in my budget), I think it’s a fantastic idea for those who find “regular” budgeting much too tedious. Thanks for sharing this! 🙂 October 19, 2009 at 9:37 pm

I don’t calculate the percentage, but I do make sure I save a certain amount a month (with a float month ever now and then). I guess I practice more of a pay yourself first approach, with a twist. And the twist being… I live as frugally as possible while still being within reason.

Financial Samurai October 19, 2009 at 9:58 pm

This sounds like a good rule to follow, and of course the lower you can keep your expenses, the better.

I like our “Going Broke To Win Big” rule myself, where I flush out all my money to other banks to optimize returns, minimize expenses, and feel like I’ve got just enough money to survive. When you have very little, you know where every penny goes and you become very disciplined.

Jon October 20, 2009 at 6:25 am

I sat down with my daughter and taught her about the 60% solution when she was in college, before she landed her first job. She used the principles involved to manage her husband’s and her finances for the last couple of years since they graduated, and they were able to save up enough money to put a down payment on their first home a couple of weeks ago.

WeSeed editor October 20, 2009 at 12:02 pm

I’m going to talk to my wife about this — seems like a great idea. It’s hard with a two-year-old daughter to do things like this, though — by the end of the day, we’re both pretty wiped out. The idea of going over expenses (here’s how much I spent on lunch at Chipotle, here’s my gas receipt, etc.) isn’t super-fun.

That said, it seems like the first steps are the hardest, and once you get the system going you might be in good shape. Seems like you could combine this with the envelope method and really be onto something….

Web 2.0 October 20, 2009 at 2:04 pm

Well it’s actually very hard to keep track of your self budget although I’m good at accounting because we do lots of impulse buying and spend money on small daily needs… I never remember where I have spent my money on when I come back home (from a shopping trip), unfortunately.

Steven Francis October 21, 2009 at 11:01 pm

Good suggestions but i am afraid there are very few who can afford to save 40% of their income. The fun part is important because we have to be good with family and friends. Other than that I think i am not in a position to save for say post retirement savings. Anyway its a good plan and following it can really be helpful.

Anny October 22, 2009 at 2:30 am

The pig is so cute. If I had seen the 60% solution before I graduate, I would have another sense of value. it is useful.

Lawrence October 22, 2009 at 6:00 am

My accountant put me on a budget a few years ago and it’s worked very well for me.

Teejay October 24, 2009 at 1:57 am

The 60-percent solution is great for people who hate strict budgets but I personally like the Balanced Money Formula by Tyagi.

Gilf September 26, 2010 at 6:03 pm

All though the 60 % solution is great I find it quite hard to stick by. I think having massive will power is also a key factor here.

firefishy February 13, 2011 at 2:42 am

A simpler way to save the 60% Solution. Twenty years of complex budget cash made it harder to spend this money without some planning and a series.

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