Could this be the perfect budgeting strategy for you?
There are so many great types of budgets out there, and for good reason! The sheer variety of budgeting strategies reflects how uniquely we all manage our finances and live our lives. Your financial journey is personal, shaped by your income, goals, habits, and priorities. After all, no single budget fits everyone perfectly, and what works wonders for a friend might feel completely restrictive to you. That’s why it’s really important to explore the different options available, to experiment a little, and to find the one that best suits your specific needs and personality. It’s not about forcing yourself into a box; it’s about finding a tool that makes you feel empowered and in control of your money.
The 60% solution, inspired by Richard Jenkins, the former editor-in-chief of MSN Money, emerged from his own personal experience of trying, and failing, to make traditional budgets work for him and his family. He found that many popular methods, like the highly detailed Zero-Sum budget, were far too granular and demanding. Instead of sticking to the rigid Zero-Sum budget, he began tracking his monthly expenses in a more streamlined way. He focused on essential categories like food and gas to stay within his income limits without feeling overwhelmed by tracking every single penny. However, even this simplified process felt tedious and was often left incomplete by the end of the month. Recognizing this common challenge, Richard knew he needed a budgeting strategy that was simpler, more intuitive, and quicker to adopt—a system that worked with human nature, not against it. This is how the brilliantly straightforward 60% budget solution was born.
What is the 60% solution budgeting?
This easy-to-follow budget helps you allocate your after-tax money into five important and easy-to-manage categories. The goal is to provide structure without being overly restrictive, allowing you to cover your needs, save for the future, and still enjoy life today.
1. Committed expenses
Start by dedicating 60% of your take-home pay to what Jenkins calls “committed expenses.” These are your essential financial responsibilities and the core costs of living. This includes the four walls of finance (food, utilities, shelter, and transportation) and various other bills you’ve already committed to paying. This includes things like your rent or mortgage, car payment, insurance premiums, your cable bill, phone bill, internet, subscriptions, and even your gym membership. Basically, if it’s a regular, predictable expense that you need to pay each month to maintain your current lifestyle, it likely falls into this category.
You might be surprised to know that your taxes are included, too! To make this method as simple as possible, it’s best to calculate all percentages based on your gross income (before taxes) and count all taxes—federal, state, and local—as part of this 60% chunk. Many people overlook this when they start budgeting, but it’s essential to consider your taxes as part of your fixed expenses. Jenkins wisely mentions that 60 isn’t a magic number. It’s just a percentage that worked well for his family’s unique situation. For some, especially those in high-cost-of-living areas, this percentage might need to be 65% or even 70%. For others who live more frugally or have a higher income, it could be as low as 50%. Feel free to adjust this percentage based on your circumstances, whether that means going a bit higher or lower. The key is to find what’s realistic for you.
2. Retirement savings
The remaining 40% of your income, or whatever you have left after taking care of your essential expenses, is shared equally among several vital categories. First, there’s retirement savings, which gets 10% of your income. This is typically set aside in a pension plan, a 401(k), or an IRA to help secure your financial future. This contribution is a fantastic way to build a healthy nest egg, taking full advantage of the incredible power of compound interest over time. By saving early and consistently, you allow your money to start working for you, growing exponentially over the decades. This consistent, automated saving greatly improves the quality of your retirement, making sure you can enjoy a comfortable and fulfilling lifestyle in your golden years without financial stress. If your employer offers a match on your 401(k) contributions, contributing at least enough to get the full match is a top priority, as it’s essentially free money.
3. Long-term savings
Then, we have long-term savings, which also receives a 10% allocation. This fund is perfect for those bigger life expenses that are on the horizon but are not immediate, like saving for a down payment on a house, buying a new car, or funding a child’s college education. This dedicated budget is designed to keep financial stress at bay, so you can comfortably make those big purchases without relying on high-interest loans or credit cards. It’s about planning ahead for major life milestones. This fund brings you a profound sense of financial security and peace of mind for whatever the future may hold, transforming major expenses from potential crises into achievable goals.
4. Short-term savings
Next, we have short-term savings, also allocated 10%, which is perfect for those occasional but predictable expenses like vacations, holiday gifts, or minor home repairs. This is not your emergency fund, which is for true, unforeseen crises. Instead, this is a sinking fund for expenses you know are coming up within the next year or two. This strategy lets you fully enjoy your planned experiences without the worry of financial stress, leading to guilt-free spending. Plus, it encourages better budgeting habits and makes reaching your personal goals easier while keeping your day-to-day finances stable. You’ll never have to scramble to pay for Christmas presents or a weekend getaway again.
5. Fun money
Lastly, setting aside the final 10% of your income for “fun money” is a fantastic way to build balance and sustainability into your budget. This is your guilt-free fund for anything that brings you joy. It opens up opportunities for spontaneous treats like dinners out, concert tickets, hobbies, and other delightful activities, boosting your overall happiness and well-being. This little bit of flexibility is crucial; it makes budgeting feel less like a chore and more like a tool for a better life. This discretionary fund helps you to avoid that sense of deprivation that can lead to budget burnout, all while still allowing you to indulge in the simple joys of life.
Jenkins thoughtfully structured the budget this way, understanding that its main goal is to help avoid overspending and the debt that follows. He felt that no matter what you overspend on, whether it’s daily coffees or a lavish purchase, it can ultimately lead to debt, which is something to keep in mind. He also realized that it wasn’t just the tiny splurges here and there that caused major financial issues. Instead, it was those more significant, unexpected or poorly planned expenses, like vacations, major car repairs, or holiday shopping, that could quickly add up and create serious financial problems. This budget structure accounts for all of it.
How to make a 60% solution budget
Before diving into your budget, it’s essential to get a clear picture of your current financial situation. Take a moment to log in to your bank account or pull out your last few months of bank statements and pay stubs. Having this information at your fingertips will help you accurately figure out how much you typically earn and where your money is currently going. This initial step is the foundation for building an effective budget.
1. Calculate Your Monthly Income
Begin by determining your overall monthly income, which includes all sources like your salary, bonuses, and any side jobs. For this method to be most effective, it’s best to use your gross (pre-tax) income. If your income is variable, for example, if you’re a freelancer or work on commission, calculate your average monthly income over the last six to twelve months to get a realistic baseline. For an even more conservative approach, you could use the lowest income month from the past year. For our example, let’s say your total gross monthly income amounts to $5,000.
2. Determine the 60% Goal
To establish your target budget for committed expenses, multiply your total gross income by 60%. This number will be the ceiling for all your fixed costs, including taxes. For example: $5,000 x 0.60 = $3,000.
This suggests that it’s a good idea to set aside a maximum of $3,000 for your essential needs and committed expenses. If you come in under this amount, that’s fantastic! You can allocate the surplus to savings or debt repayment.
3. Identify Your Essential Expenses
Now, take a moment to list all the expenses that are really important and that you can’t do without. Be thorough and honest with yourself. These usually cover things like your home, utilities, groceries, transportation, insurance, and at least the minimum payments on your debt. Remember to include your taxes in this calculation! For example:
- Taxes (Federal, State, FICA): $1,000
- Rent/Mortgage: $1,500
- Utilities (electricity, water, internet): $300
- Groceries: $400
- Transportation (gas, public transport): $200
- Insurance (health, auto): $300
- Minimum Debt Payments: $300
- Subscriptions (Streaming, etc.): $50
In this scenario, your total committed expenses are $4,050. This is over the $3,000 target, which signals that some adjustments are needed. (Note: many people prefer to calculate percentages based on their net/after-tax income. If you do this, simply remove taxes from your committed expenses list. The principle remains the same!).
4. Evaluate Your Spending
If your essential expenses are a bit over the 60% target, as in our example, take a moment to explore where you might gently cut back. Look for opportunities to reduce costs without drastically impacting your quality of life. For instance, meal planning and cooking at home more often could be a fun way to save on grocery costs. Using public transportation, carpooling, or biking might help you save a little on gas, too. You could also shop around for better insurance rates, cancel subscriptions you don’t use, or renegotiate your cell phone or cable bills. The goal is to get your committed spending at or below that 60% mark.
5. Maximize your income efficiently
After managing your essential expenses, think about setting aside the remaining 40% of your gross income for savings, enjoyable experiences, and any other financial goals you aspire to reach. This amount is split evenly into four 10% buckets. For our $5,000 income example, this means $500 goes into each category:
- 10% to retirement: $500. This should be automatically transferred to your 401(k) or IRA each month. Automating this step is key to consistency.
- 10% to Long-Term Savings/Debt (automobile purchases, house improvements, or aggressive debt repayment): $500. This is your power-fund for big goals. If you have high-interest debt, you might direct this entire amount toward paying it down faster.
- 10% for Irregular Expenses (non-recurring expenses such as a vehicle, home, and other machinery repairs, vacations, and holiday gifts): $500. Build this up in a separate savings account so the money is ready when you need it.
- 10% fun money for having a good time (without a little bit of fun, no budget is sustainable): $500. This is your permission to spend on enjoying life without a drop of guilt!
6. Review and Revise
A budget is not a static document; it’s a living tool that should evolve with your life. Routinely assess your budget—ideally on a monthly or quarterly basis—and modify it as needed according to variations in your income or expenses. Life changes like a pay raise, a new job, getting married, or having a child are all perfect times to sit down and adjust your percentages. This regular practice enables you to remain focused, stay in control, and confidently reach your financial goals.
When you embrace Jenkins’ 60% solution budget, you’ll find it easier to build a balanced financial plan that prioritizes your essential needs while still leaving plenty of room for savings, debt repayment, and future goals enjoyment. It brings clarity and simplicity to what can often feel like a complicated process.
Is the 60% solution fit for you?
The 60% solution budget is a fantastic financial strategy for individuals and families with a relatively steady income, who are free from significant high-interest debt, and who already have a decent handle on their spending habits. If you fit this description, this framework can greatly enhance your financial well-being by providing a simple, clear path to supporting your immediate needs and future goals simultaneously. It works best when your fixed expenses naturally fall at or below the 60% guideline.
The main benefit of the 60% solution budget for organized individuals lies in its elegant simplicity. It bypasses the need for tedious micro-tracking of every last dollar. By categorizing expenses into broad buckets and adhering to a percentage-based distribution, it provides a transparent and high-level view of your monthly cash flow. For those who do not tend to make impulse purchases, this organized method aids in prioritizing necessary expenses while still accommodating leisure and savings, all without the danger of overspending or the headache of complex spreadsheets.
However, this budgeting method may not work well for those with significant debt, particularly high-interest credit card debt. Individuals with substantial loans or credit card balances should focus their financial energy on debt repayment before directing large sums towards discretionary spending or even some savings goals. In these cases, adopting a more intensive debt repayment strategy, like the debt snowball (paying off smallest debts first for psychological wins) or debt avalanche (paying off highest-interest debts first to save the most money) methods, can be critical. Failing to aggressively tackle debt can cause the 60% solution to exacerbate financial difficulties, as accumulating interest can easily outpace investment returns and hinder saving efforts effectively. If you’re looking for guidance on managing your debt, we suggest checking out ‘The Total Money Makeover Updated and Expanded: A Proven Plan for Financial Peace’ by Dave Ramsey. It offers some great financial advice to help you on your journey.
Moreover, the 10% portion of income designated for retirement savings can significantly differ in its adequacy depending on your age and personal financial situations. For younger individuals in their 20s and 30s, setting aside 10% of their income might be perfectly sufficient to accumulate a significant retirement fund over many years, thanks to the magic of compound interest. Time is their greatest asset. In stark contrast, those in their 50s who haven’t saved enough may find that 10% is woefully inadequate for a comfortable retirement. At this later stage, it’s essential to re-evaluate savings objectives and consider making much more aggressive contributions to retirement accounts, as the timeframe for substantial growth is limited. People in their 50s may want to target a higher savings percentage, ideally between 15% and 25% or even more, if possible. This recommendation considers the limited time left until retirement and the urgent necessity to enhance savings to meet financial goals for long-term security.
The 60% solution budget can be a liberating and effective tool for individuals with stable incomes and minimal debt, but it is certainly not a one-size-fits-all plan. Those who carry high-interest debt should prioritize paying it off first before adopting this balanced approach. Similarly, individuals approaching retirement age should carefully consider their savings rates to ensure they can secure a comfortable future. Ultimately, the best budget is one that is tailored to you. Customizing budgeting methods to fit your unique personal situation, age, and income is absolutely crucial for attaining financial stability and achieving your long-term objectives. Use the 60% solution as a starting point and don’t be afraid to adjust the percentages to make it work for you.
If you’re interested in exploring a different approach to budgeting, especially one that feels even more hands-off, you might want to try The “No” Budget Method.
