subject: How to Save More Money: The 60-40 Budgeting Rule [print this page] How to Save More Money: The 60-40 Budgeting Rule
I have been living on the 60/40 budgeting rule for more than three years now. I had read on this subject in a magazine article and in a conversation with a colleague, I found out a simple system in which 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 expenses, meaning the basic things you need to pay to survive. They include:
It looks simple enough but in my experience putting all committed expenses into 60% of my income was a tough thing to do. But don't give up as it is very possible to achieve this.
The Rule (40%)
The other half of the equation is the 40% which is divided into four 10% categories.
Retirement: Money set aside into your IRA or 401(k) plans.
Long-term savings: Money set aside for car purchases, major home repairs, or to pay down debts such as credit cards, mortgages, etc.
Irregular expenses: Vacations, car repairs, new appliances, etc.
Fun money: The great part! Do anything you want with this money! Just be sure that this category applies to your whole family such as dining out, a day in the mall shopping, your hobbies etc. But also remember that having fun with your friends, children and family does not have to be costly!
What to Ask Yourself
Are you renting a place or have a mortgage that you cannot afford? Is it worth it move to a smaller place or farther place to save up? How much money will you save if you do so?
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.)
What is your lifestyle like? How much do you spend in a week, eating out, going on trips etc?
Do you wear designer clothes? Where do you shop?
Can you afford to get your coffee or lunch at a cheaper place?
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