The 60% Solution

I really like this article by Richard Jenkins at MSN Money. Instead of having a strict itemized budget, Jenkins advocates The 60% Solution, whereby you limit your committed expenses to 60% of your income and save the rest. He contends that if you spend more than you make, it doesn’t really matter what you overspend on, so there’s not much point in agonizing over each purchase. Instead, he recommends getting your fixed expenses – things you spend money on every month whether they are essential or not – to a manageable amount. He suggests the savings be allocated equally among retirement savings, long-term savings/emergency fund, short-term savings for irregular expenses, and fun money. The short-term savings gets used up over the course of a year and the fun money gets used up over the course of a month.

I evaluated my own budget to see if I could use The 60% Solution. I currently save about 25% of my take home pay. I could probably get it higher, since rent is about 30% of my budget and everything else* is another 30%. That everything else, however, doesn’t include things I spend money on like clothes, haircuts, entertainment, real car maintenance, local travel, etc. While I don’t spend money in every one of these categories every month, I do buy something in at least one of them each month (i.e., I don’t get my hair cut every month, but if I don’t do that I might go to the movies or buy jeans). It took writing this post for me to realize that those items could fall into the fun money category, which by Jenkins’ rules is 10% of my income. In that case, I’m not doing so badly.

The thing that sucks, though, is seeing the short-term savings money -- that 10% that you expect to spend during the year -- get spent. For example, I know I have some major car expenses coming up and I’m secretly putting it off because it will be so sad to see the balance in my savings account plummet**.

A year ago, I didn’t have much money saved and I had a bunch of debt. These car expenses would have made me a nervous wreck. I probably would have scraped together part of it and charged the rest on my credit card. While it’s sad to see my savings go to something I don’t really want to buy (clean transmission fluid and new struts), at least I have the money to cover it.


*Insurance (car, renters), car stuff (gas, minimal maintenance), food (groceries, restaurants), utilities (gas, electric, phone, internet, netflix).
**That’s a bad attitude because the suspension problems my little car has after a winter of devastating potholes will probably just get worse if I don’t get them fixed -- alignments aren’t cheap!