I have been living on the 60/40 budget rule for over three years. I had read about this in a magazine article and in a conversation with a colleague, I discovered a simple system that my colleague has been using for years.
The rule (60%)
The 60/40 rule simply says that 60% of your gross income should go to committed or fixed expenses. These expenses are your overhead, that is, the basic things you must pay to survive. They include:
• Basic food and clothing needs.
• Rent or mortgage
• Public services (electricity, water, internet, cable subscription, etc.)
• Insurance premiums.
• Charitable contributions.
• Taxes.
It seems simple enough, but in my experience, putting all the committed expenses at 60% of my income was a difficult thing to do. But do not give up, as it is very possible to achieve it.
The rule (40%)
The other half of the equation is 40% which is divided into four categories of 10%.
• Retirement – money set aside in your IRA or 401 (k) plans.
• Long-term savings: money set aside for the purchase of a car, major home repairs, or to pay off debts such as credit cards, mortgages, and so on.
• Irregular expenses: vacations, car repairs, new appliances, etc.
• Fun money: The best part! Do what you want with this money! Just make sure this category applies to your whole family, such as dining out, a day of shopping at the mall, your hobbies, etc. But also remember that having fun with your friends, kids, and family doesn’t have to be expensive!
What to ask yourself
• Are you renting a place or have a mortgage that you can’t pay? Is it worth moving to a smaller place or further away to save? How much money will you save if you do?
• Are your car payments too high? How is the fuel consumption of your car?
• Do you have too many paid subscriptions that you don’t really use? (Satellite TV, club memberships, etc.)
• How is your lifestyle? How much do you spend in a week, going out to eat, going on a trip, etc.?
• Do you wear designer clothes? Where do you shop?
• Can you afford to buy your coffee or lunch at a cheaper place?
