In this post, I’ll be talking about what the 60% solution is, as well as who should use it and some of the reasons that it could fail.
There are tons of popular types of budgets out there and today we’re going to be discussing another one.
Who and how the 60% solution was created?
Now, the reason for having so many strategies for budgeting is because not every type of budget works for every person in every situation. In fact, no budget works for anyone in any situation.
Which is why I started posting budgeting strategies ( you can also read all you need to know about the 50/30/20 budget) just to lay out the most popular budgeting methods for you so you can decide which one will work best for your own situation.
And that seems to be the same thing Richard Jenkins thought of, for those of you who don’t know Richard Jenkins was MSN money’s editor and chief when he created his budgeting system known as the 60% solution which is the method I will be covering in full in this post
He came up with this budgeting system after realizing that, for him anyway, approaching the budgets as many people do wasn’t working for him
His initial approach to budgeting was to carefully track his expenses during the month and then adjust whatever his targets were in each budget category like food and gas so that his expenses never exceeded his income
It was a laborious and often compulsive activity but it was only sometimes useful and after using this method for two decades he started to wonder isn’t there any easier and more effective way to do my budget? and that’s how he came up with the 60% solution
What is the 60% solution budget?
Simply, the 60% solution budget says that 60% of your gross income should be used for what Richard Jenkins calls Committed Expenses (mortgage, food, car payment, utilities, etc…) as well as many other bills that you already committed to paying.
This would include your cable bill and other subscription services as well as maybe things like sports programs for your kids. It also, believe it or not, includes all of your taxes, that’s something that I think most people wouldn’t really think of if they were just starting out on this budget but you do have to include your taxes as part of your committed expenses.
Now, Jenkins does say that 60% is not a magic number, it just happened to be the number that worked as a goal for his family and he does mention that depending on your own situation you may have to adjust that number to be a little bit higher or lower.
With that out of the way, the remaining 40% of your income or whatever you have left after your committed expenses if you have to adjust your committed expenses is equally divided into four categories.
You put 10% into retirement savings which are usually put into a 401k or pension plans.
10% will go into long-term savings which used to cover big expenses such as buying a new car.
10% is also will go into short-term savings which used to cover all the irregular expenses like vacations that may come up during the year.
And the last 10% is put into fun money which can be used for anything.
Jenkins set the budget this way because he realized that what a budget is really trying to do, in his opinion, is prevent overspending because overspending ultimately leads to debt
And in his opinion, it didn’t really matter what you’re overspending on and think about it, whether you’re overspending on eating out or entertainment or clothes, who cares!!
In the end, it still leads to debt, it’s the same thing.
He also noticed that it wasn’t the little purchases here and there that got him into trouble. It was the large irregular expenses like vacations, car repairs, and holidays that really did the majority of the damage.
And as I mentioned earlier since these examples are a little bit more like short-term expenses they should be covered with your short-term savings.
He also noticed that the really big expenses like buying a car, putting a down payment on a home or even a new roof on an old home could go up to tens of thousands of dollars so he had to do a better job planning for those and again, that’s what your long-term savings are going to be used for in the 60% system.
Who does it work best for?
So that’s the 60% solution in a nutshell and I think this particular budget would work best for those people who are like Jenkins and realize that, in their case, it’s the big expenses that really do the most damage to their financial status and probably have a fairly good amount of control and don’t make too many impulse-buys but still may be overspend in areas like cars or homes
How it can fail?
Now, you can imagine this may not work as well for people who tend to buy a lot of things.
Mainly because if you do that, in addition to overspending in bigger areas like cars and homes, it’ll become very hard to keep your committed expenses even near 60%.
Plus, like Jenkins said you can certainly alter that 60% to be higher or lower but you’re going to have to take away from other areas in order to do that.
So no matter how you slice it, you only have 100% of your own income to play with.
So if you up you’re committed expenses you’re going to have to take it away from another area and if you take it away from, let’s say long-term savings then what are you going to do when you need that new car? and if you take it away from short-term savings what happens when the holidays come around? And if you take it away from your fun money how long is this budget really going to last?
One thing that I also personally fear with this particular method and this is just my opinion is that saving 10% of your income may not be enough to fund a secure retirement, depending on how long you have to work of course.
If you look at the 4% rule (you can read this post where I explain the 4% rule) you would have to work 51 years, saving 10% of your income to be able to retire using that rule and that’s not a knock against this particular method by any means but it’s something to keep in mind if you do choose to use it so you may want to alter some of those percentages as you go along.
Thanks for your time
This was my approach to the 60% solution. I hope you liked it and if you did then I recommend you to join my newsletter I post about money management and how to make money online.
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