This is a guest post from Erin who writes about sustainable living at The Conscious Shopper and The Green Phone Booth. Connect with her on Twitter or join her Go Green without Going Broke group on Facebook.
I’m the type of person that could be perfectly happy in that most boring of all professions: accounting. I love lists. Spreadsheets are my friends. Lists of numbers on spreadsheets are a thing of beauty. Needless to say, I am a big fan of budgeting.
But that doesn’t mean I’ve always been good at budgeting.
For many years, my budgeting strategy went something like this: Last month, we spent approximately X dollars on groceries, and Y dollars on gas, and our rent is this, and our car payment is that…And it all adds up to just a little less than we make, and this tiny bit leftover will go into savings…Unless I feel like buying new shoes…The important thing is that I don’t spend more than I earn.
For years with this strategy, we paid all of our bills on time, and we avoided any credit card debt. But our savings grew very. very. slowly.
And then one day, I stumbled across an article on MSN Money called A Simpler Way to Save: The 60 Percent Solution. The author, Richard Jenkins, describes how he divides his budget into five categories. The largest category, committed expenses, comprises 60 percent of his gross income and includes things like food, clothing, housing, insurance, charitable contributions, utilities, and all taxes. The other 40 percent of his budget is divided evenly between retirement savings, long-term savings, short-term savings, and fun money.
I was immediately attracted to the simplicity of Jenkins’ budgeting system. By keeping his committed expenses at 60 percent of his income, he ensures that he spends way less than he earns. By dividing his savings into several different categories, he establishes a cushion for repairs and emergencies without needing to delve into his long term or retirement savings. And by providing a large and guaranteed fun money category, he makes sure that his budgeting strategy doesn’t become restrictive, leading to binges on shoes.
But how to apply this system to my own budget?
I sat down that night and stared at my budget spreadsheet. And squinted. And stared some more. And finally determined that it was impossible. There was no way we could live on 60 percent of our income with our current expenses – our house payment was sucking up too much of our money. So I presented my findings to my husband, and we agreed: If we wanted to be able to reduce the cost of our committed expenses and increase our savings, we would need to move. Fast forward four years, and we’ve moved to a city with a lower cost of living and downsized to a much smaller home.
With that big expense tackled, I made a few alterations to Jenkins’ original plan to fit our lifestyle:
- Because we donate 10 percent of our income to charitable donations, I decided to make that a separate category rather than lump it into the 60 percent chunk of committed expenses.
- The remaining 30 percent, we divided up between long-term savings, short-terms savings, and fun money.
- Unlike Jenkins, I include a few committed expenses like cable and Netflix in the “fun money” category because we could live without them if we needed to.
At this point in our lives, the 60 Percent Solution is still a goal – we’re not quite there yet because we still have a car payment and some other debts to pay off. Even so, I feel like this budgeting strategy has helped us prioritize and plan for our needs. It really is a “simpler way to save,” and in this modern age of go go go, simplification is definitely a good thing…Even for those of us who love spreadsheets.
Related posts:
- December Budget Wrap Up
- June Budget Wrap Up
- October Budget Wrap Up
- August Budget Wrap Up
- September Budget Wrap Up
 Subscribe via RSS |  Subscribe via Email | learn more about subscribing |
{ 7 comments }
Thanks for the chance to post here today!
This sounds like a sound way to organize finances. I’m a spreadsheet geek, too, and I carefully manage our budget. The thing that gets me, though, is that 20% of our gross income goes to medical insurance. It puts such a cramp on everything else, that I can’t figure out a way to save. I’ve thoroughly investigated, and we have the most cost-effective plan we can qualify for — it’s just too stinkin’ expensive and the premiums go up every year faster than our raises. I wish articles like Jenkins’ would talk about that. I don’t see how we could ever fit into any kind of 60% plan without a higher income, and we are at the median household income for the US.
I like this idea. We have been doing something like this for a while, but I think we could live on a lot less if we put our mind to it. I have been tracking our spending for several months and frankly am surprised at how much we spend unnecessarily, I thought we were more frugal. I admire your being willing to make a big change, like down-sizing your house. For the record, ours is already small (1040 sq. ft.), our spending needs to be cut elsewhere.
-Brenda
Donna – Medical insurance is definitely a tough one. I think one of the great things about Jenkins’ plan is that it’s a rough guideline but it can be adjusted to fit your personal needs. We’re actually shooting for more of a 70% plan, and that works for us. The important thing is to make it automatic. So even if you’re saving 1% of your income, you have it automatically deducted before you get your paycheck, and then you never see it or think about it and you don’t feel deprived or tempted to buy things you don’t need.
I really like this plan. We have been terrible about savings in the past but have been trying to revamp our thinking for the past year. 60/40 or 70/30 makes a whole lot of sense!
I was brought up with the motto “spend half, save half” so this is a familiar concept
That’s a great motto! I’ll have to remember that one to teach my kids.
Comments on this entry are closed.