Happy Saint Patrick’s Day! Hope you are wearing green. I was thinking about budgets this weekend and how to budget. I personally like the 60% budget proposed on MSN as a starting point. It’s a great way to see if your expenses are too much for your income off the cuff. Instead of tracking every dollar, it allows you spend percentages on categories and vary them as you see it. I see it more as a spending guideline, which works better for me than tracking every dollar.
How does it work?
Well you spend 60% on committed expenses. This is your food, shelter, taxes, insurance premiums, charitable giving, clothes, utilities, etc. This isn’t to say that you can categorize cable as fun, but it could be a utility and something you assume to be part of your basic needs.
The other 40% is divided into retirement, long-term savings, short-term savings, and fun money. I guess that’s the question, what do these other categories entail, with the exception of retirement which is self-explanatory.
To me, long term savings is car replacement, major home repairs, furniture, etc. Large purchases you know will come up but not for a long time. Short term savings is more annual home repairs (1% of home value), vacations, gifts, etc. Miscellaneous expenses that occur during the year but can’t be precisely budgeted for. Fun money I am guessing is just whatever. It can be eating out, cable, vacations, super expensive clothes, etc.
Does this budget work to be? Yes and No. I think retirement should be upped to 15%. I also think perhaps that should come from the fun money, decreasing that to 5% of income. One thing I’ve found to be difficult is learning to “spend” your short/long term savings. Often you get attached to the money and not want to part with planned expenses.
What would I cut for debt repayment? I would likely cut the fun money and long term savings. That would give me 20% of my budget to use for debt repayment. I would still save 10% for short term expenses because you will constantly have “unbudgeted” expenses cropping up. And I would keep saving for retirement because it’s better to stay in the habit.
So how’d we do last year? We spent 28% on our home (PITI and maintenance), 25% taxes, 22% on retirement, and 25% on living expenses. We had some savings (short term) but it was earmarked for tuition expenses. Interestingly we spend 2.61% on food and 2.31% on eating out. We also spent 3.21% on travel, the biggest fraction of our living expenses. While we aren’t exactly on the 60% budget, we live on 78% instead of 70%, I think we’re doing okay. I think our home expenses and our living probably should be cut by 4% each to get our budget in line. Granted it might also be due to our taxes, but how can that get lower right?
What was your biggest budgeted expense? Are you in line with the 60% budget?
9 responses so far ↓
1 monica @ living large on less // Mar 17, 2009 at 9:21 am
What I love about the 60% budget is it allows for each budgeter to understand how much they can allocate for “fun” expenses, no matter how much or little they make. There has to be flexibility in budgeting – for some, eating out is an absolute must, for others, a big clothing budget is more exciting. I think this budget accommodates for that, while making sure that your necessary living expenses are accounted for first.
Thanks for the great post!
2 LivingAlmostLarge // Mar 17, 2009 at 7:56 pm
I agree that it does allow for a lot of flexibility which is nice.
3 Kristy @ Master Your Card // Mar 18, 2009 at 4:14 am
Hmm…so does the long-term savings equate to an emergency fund? I liked this up until the point that it doesn’t really seem to account for an emergency fund. This is such an important expense, especially in a down economy. I already harp on having one even when the economy isn’t in bad shape, so when it’s like it is now, I definitely think people need to account for saving, and I’m not sure I’d categorize as short-term either.
Does this 60% budget let you change the names of the categories? I haven’t browsed through it just yet.
5 Lynn // Mar 18, 2009 at 1:44 pm
OK, so this is going to be a stupid question. But when you come up with percentages do you look at the entire year? I only budget on a monthly basis and my husband gets paid bi-weekly and I get paid weekly so there is always those extra paychecks that I don’t even consider in our salary. When I calculate the % of our categories in our budget I always only use 2 paychecks for my husband and 4 for me even though some months he has 3 and I have 5. It makes the % a lot higher than the mortgage company considers it to be. (I never understood this because it makes our monthly gross salary a lot higher than it is).
6 LAL // Mar 18, 2009 at 6:59 pm
Kristy, No, long term savings is not an EF. That is separate and this is making the assumption the long term savings is for known long term expenses like car replacement, new appliances, new roof, etc.
Lynn, I budget annually. But we’re salaried. This could be difficult for people who are hourly or not salaried.
But you will find most people who successful work a budget look at things in 3 ways. Annually to plan long term and see overall picture.
Monthly to track spending, and see how the spending/budget plan is going.
Weekly, daily to keep to the monthly plan.
I have a strong curb on my spending, so daily/weekly isn’t a big deal. I watch my monthly so I don’t go hugely over in any category. Then the annual goals are more easily meet and fine tuned.
It’s easy to say 15% of gross salary to retirement and do it annually but track it monthly or weekly.
7 fengshui // Mar 18, 2009 at 11:26 pm
Wow. I wish that I had almost half of my income earmarked for “saving and fun”….. but perhaps I’m just saying that because I’m still a FT student and am not at my earning potential yet
As a FT student, about 45% of my income goes to my housing. I’m not putting anything away for retirement at the moment. I do have a pension thought. This will all change in about 8 weeks…. job prospecting but no offers yet.
8 LAL // Mar 19, 2009 at 9:33 am
Fengshui you’ll get there. Good luck!
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