Comments on: Some Notes On The 60% Solution

By: Mike

Mike — Sat, 31 Oct 2009 04:47:14 +0000

I read this article awhile back (the last post here is over 1 year ago). Here is what I do, a slight variance to this that has worked better for me:

Gross Mo. Income $11,829
Retirement savings $2,539
Long-term savings $1,285
ST Savings $907
Committed expenses $5,599
Discretionary expenses $1,500

Retirement = Retirement Vehicles (401k, IRA, etc.)
LT Savings = Emergency and LT Goals (Liquid Investments, HSA, Savings Account)
ST Savings = Non-Monthly Bills (HOA expense, annual dues, significant house projects, etc.)
Committed Expenses = Tax, Ins., Mortgage, Loans, Satellite TV,
Discretionary = Food, clothes, fun money, minor household items, golf, dining out.

I use two checking accounts: #1 for Discretionary Expenses and #2 for Committed Expenses (that are not withdrawn already from my paycheck). I fund only the amount needed every two weeks (1 months expenses/2) from my paycheck in Account #1 ($750 every two weeks). All the other money from my paycheck goes into Checking Account 2. From #2, I automatically pay every bill, or automatically transfer money to my savings/investment accounts.

This process entirely automates the money process and it works extraordinarily well. I have be able to get out of a lot debt through this method.

By: Eric

Eric — Tue, 15 Apr 2008 14:37:09 +0000

I have three simple questions

Q1 – Do the “Committed expenses” from the article “A simpler way to save: The 60% Solution” include both fix and variable expenses?
I mean, the Morgage is a fix expense and Clothing is a variable expense, but clothing is still a necessity. So is Clothing part of the 60%?

Q2 – Some web sites include savings in the Committed expenses. Are they?

Q3 – We are talking about
60% of the gross income for Committed expenses
and 10%(retirement) + 10% (long term) + 10%(short term) + 10%(fun)
Are these 10% from the gross income too?

Thanks

Eric

By: Budgeting: the 60% solution » frugalux

Budgeting: the 60% solution » frugalux — Fri, 13 Apr 2007 12:20:17 +0000

[...] Trent at The Simple Dollar wrote about this last week: The 60% solution is a budget plan proposed in this article by Richard Jenkins on MSN Money. His plan calls for committed spending (basic food and clothing, essential household expenses, all bills, insurance, taxes, and charitable contributions) to equal 60% of your income, with the remaining 40% split evenly between retirement savings, long-term savings, short-term savings, and fun money. [...]

By: db

db — Tue, 10 Apr 2007 16:02:38 +0000

Well, I just figured out that I’ve got my fixed expenses down to about 40% of my take-home pay, freeing up 60% for savings and debt repayment. Sometimes I bust out of that a little but if it fluctuates to 50/50 sometimes I guess I can give myself a break.

By: MossySF

MossySF — Mon, 09 Apr 2007 17:20:04 +0000

The ceiling for income goes up far higher than the floor for mandatory expenses. Not saying you can hit the 20% when you first graduate (although if you continue to live college-dorm-style) but after a decade or so of climbing the ranks, you may be close unless you also increase your lifestyle.

High expense areas are usually major urban areas with more options that you may think. As an example, I remember reading an entry on SFMoneyMusings stating she spends an absurdly low amount ($5? $10?) on groceries each week by doing her shopping in Chinatown. My wife also shops for our food there so the few times we head to Safeway, she always mentions the price disparity. Safeway celery? $1.99. Chinatown celery? $0.79. Safeway watercress? Don’t even ask. Chinatown watercress? $0.40. (The list goes on and on…) And usually the shopping areas in big ethnic communities offer much more than just groceries. If you can find what you need there, it’s 50% off for goods or could be as low as 75% off for services. Example, a CPA in Chinatown might charge $80 versus $200 elsewhere.

By: Sarah

Sarah — Sun, 08 Apr 2007 21:15:10 +0000

High income areas are also high-*expense* areas. Although some living expenses will be roughly constant from area to area (phone bill), many of the big ones rise roughly in proportion to salary (rent, food).

By: MossySF

MossySF — Sat, 07 Apr 2007 19:06:16 +0000

High tax areas also usually mean high income areas. The math works out as long as your non-tax expenses stay at a fixed amount instead of being a percentage of your income.

By: Sarah

Sarah — Sat, 07 Apr 2007 03:07:29 +0000

A problem I see here is that if you live in a high-tax area, 40% of your gross income can go to taxes to begin with–and he’s talking about *gross* income (he says so), not take-home pay. I’m not sure how anyone would manage to squeeze all his “committed expenses” besides taxes into 20% of his gross income.

By: Dan

Dan — Sat, 07 Apr 2007 02:23:07 +0000

It is really fun to contemplate, but also remember that that 40% (well really 30 because of the fun money) also includes long term savings.

When I did it for me, I’m not doing so bad. I’m actually close to the 30%, with the caveat that I’m sure I’m going to end up buying a bigger house, a replacement car, starting a family, etc. I won’t be able to keep up 30% for long. :(

By: Bill

Bill — Fri, 06 Apr 2007 23:19:47 +0000

Is that really 40% saved when he’s including 10% for fun money? :)

It’s a simple plan though, and I’m lucky to be saving each month, but it makes me think I can afford to save more. Good find, Trent.