There are tons of popular types of budgets out there as you no doubt have noticed just
by the amount of videos I’ve put out on the channel already on the topic.
And for the record, I haven't even covered half of the popular methods yet.
Today we’re going to be discussing another one.
Hey everyone Daniel here and welcome to Next Level Life a channel where you can learn about
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So, the reason for having so many strategies for budgeting is because not every type of
budget works for every person in every situation.
In fact, no budget works for everybody in every situation.
Which is why I started this series just to lay out the most popular methods for you so
that you can decide which one will work best for your own situation.
And that seemed to be the thinking of Richard Jenkins as well.
For those of you who don't know Richard Jenkins was MSN money's editor-in-chief when he created
his budgeting system known as the 60% solution, which is the method I will be covering in
full in this video.
He came up with this budgeting system after realizing that, for him, approaching the budgets
in the same way that many others do wasn't working.
His initial approach to budgeting was to carefully track his expenses during the month and then
adjust whatever his Targets were in each budget category like food and gas so that his expenses
never exceeded his income.
It was laborious and certainly a little compulsive but only sometimes useful.
And after using this method for two decades he started to Wonder: Isn't there an easier
and more effective way to do my budget?
That's how he came up with the 60% solution.
Just like my previous videos all be talking about what the 60% solution is, as well as
who should use it, and some of the reasons that it could fail.
Let's get started.
So what is the 60% solution?
Simple the 60% solution says that 60% of your gross income should be used for what Jenkins
calls committed expenses.
This includes your four walls of Finance which I've discussed in other videos, as well as
many other bills that you have already committed to paying which would include things like
your cable bill and other subscription services.
It also believe it or not includes all of your taxes, that's something that I would
imagine most people wouldn't think of if they were just starting this budget but you do
have to include your taxes as part of your committed expenses.
Now Jenkins does say that 60% is not a magic number it just happened to be the number that
worked as a goal for his family.
He mentions that depending on your situation you may have to adjust that number to be a
little bit higher or lower.
Now with that out of the way, the remaining 40% of your income
is equally divided into four categories.
You put 10% into retirement savings which are usually put into a 401k or a pension plan,
10% in the long-term savings which is used to cover big expenses such as buying a new
car, 10% into short-term savings which is used to cover all of the irregular expenses
like vacations that might come up, and 10% into fun money which can be used for anything.
Jenkins set the budget up this way because he realized that what a budget really is trying
to do, in his opinion, is prevent overspending because overspending ultimately leads to debt.
However, in his opinion, it doesn't really matter what you're overspending on.
Think about it whether you're overspending on eating out, or entertainment, or clothes
who cares?
In the end, it still leads to debt, right?
He also noticed that it wasn't the little purchases here and there that got him into
trouble.
It was the large, irregular expenses, like Vacations, or car repairs and holidays that
really did the majority of the damage.
And as I mentioned earlier, since these examples are usually more short-term expenses they
should be covered by your short-term savings.
He also noticed that the really big expenses like buying a car or putting a down payment
on a home or even a new roof on an old home could run into the tens of thousands of dollars.
So he had to do a better job planning for those and again that is what your long-term
savings are going to be used for.
So that is the 60% solution in a nutshell.
I think that this particular budget would work best for those people who, like Jenkins,
realize that in their case it is the big expenses that really do the most damage to their financial
houses.
They probably have a fairly good amount of control and don't make too many impulse buys
but maybe overspend in areas like cars or homes.
Now as you can imagine this may not work as well for people who do tend to impulse buy
a lot of things mainly because if you do that, in addition to overspending in areas like
cars or homes, it will become very hard to keep your committed expenses even near 60%.
And you can certainly alter that 60% to be a little higher or lower as I said before
but where are you going to take away from in order to do that?
No matter how you slice it you only have 100% of your own income to play with.
So if you up you're committed expenses you're going to have to take away from some other
area and if you take away from say long-term savings what are you going to do when you
need that new car?
If you take away from short-term savings what happens when the holidays come around?
And if you take away from your fun money how long do you think this budget will last?
One thing that I also fear with this particular method and this is just my opinion, Is that
saving 10% of your income may not be enough to fund a Secure Retirement depending on how
long you have to work of course.
If you look at the 4% rule, which I covered in an earlier video called can you afford
to retire, you would have to work over 51 years saving 10% of your income to be able
to retire using that rule.
Now that's not a knock against this particular method but it is something to keep in mind
if you start to use it.
You may want to alter some of the percentages as you go along.
So that's how the 60% Solution budget works.
As always if there are any other types of budgets that you want me to cover let me know
in the comments below.
But that'll do it for me today once again if you enjoyed this video be sure to subscribe
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