How to save money: the 60-40 rule

September 22, 2022 0 Comments

I have been living with the 60/40 budget rule for over three years. I had read about this in a magazine article and in a conversation with a colleague, I discovered a simple system that my colleague has been using for years.

The rule (60%)

The 60/40 rule simply says that 60% of your gross income should go toward fixed or committed expenses. These expenses are your general expenses, that is, the basic things you must pay to survive. They include:

• Basic needs for food and clothing.
• Rent or Mortgage
• Services (electricity, water, internet, cable subscription, etc.)
• Insurance premiums.
• Charitable contributions.
• Taxes.

It seems simple enough, but in my experience putting all the committed expenses into 60% of my income was a difficult thing to do. But do not give up as it is very possible to achieve it.

The rule (40%)

The other half of the equation is the 40% which is divided into four categories of 10%.

• Retirement: Money set aside in your IRA or 401(k) plans.
• Long-term savings: money set aside for car purchases, major home repairs, or to pay off debts such as credit cards, mortgages, etc.
• Irregular expenses: Vacations, car repairs, new appliances, etc.
• Play Money: The big part! Do what you want with this money! Just make sure this category applies to your entire family, like dining out, a day of shopping at the mall, your hobbies, etc. But also remember that having fun with your friends, kids and family doesn’t have to be expensive!

what to ask you

• Are you renting a place or have a mortgage you can’t pay? Is it worth moving to a smaller place or further away to save? How much money will you save if you do?
• 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.)
• How is your lifestyle? How much do you spend in a week, eating out, going on a trip, etc.?
• Do you wear designer clothes? Where do you buy?
• Can you afford to buy your coffee or lunch somewhere cheaper?

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