The 60% Solution: A Simpler Way to Save

For many people, the thought of saving money can be daunting. After all, spending is easy and often enjoyable, while saving requires discipline and sacrifice. However, by analyzing his spending patterns, financial expert Richard Jenkins has come up with a solution that makes saving more manageable: the 60% solution.

Committed Expenses

The 60% solution works by focusing on committed expenses. These are the basic necessities that cannot be eliminated or reduced, such as food, clothing, rent/mortgage, insurance, and taxes. According to Jenkins, these expenses should ideally account for no more than 60% of gross income. This leaves a remaining 40% for other types of spending, including discretionary expenses and saving.

Of course, the 60% figure is not a magic number that works for everyone. It may be higher or lower for different individuals and families, depending on their unique circumstances. However, it provides a useful starting point for assessing one’s financial situation and setting goals for saving.

Savings Categories

One key aspect of the 60% solution is the way that the remaining 40% of income is allocated. Rather than simply spending this money freely, Jenkins suggests creating a plan that divides it among several predetermined categories. This way, you can ensure that your money is being used in a purposeful way that aligns with your values and priorities.

Jenkins recommends dividing your savings into four categories:

Retirement Savings – Putting money into a retirement account is essential for securing your financial future. This might include a 401(k), IRA, or other type of retirement plan. Jenkins suggests allocating at least 10% of your income to retirement savings.

Long-Term Savings – In addition to retirement, you may have other long-term savings goals such as buying a house, paying for your children’s education, or starting a business. Allocate another 10% of your income towards these goals.

Short-Term Savings/Irregular Expenses – This category is for expenses that may not occur regularly but can still be anticipated, such as car repairs or medical bills. Allocate another 10% of your income towards this category to cover these expenses without dipping into your emergency fund.

Fun Money – Finally, allocate the remaining 10% towards discretionary spending that brings you joy and enhances your quality of life. This could include hobbies, travel, or dining out.

Benefits of the 60% Solution

The 60% solution offers several benefits over other budgeting methods. First, it is simple and easy to understand. By focusing on committed expenses and dividing the remaining income into four categories, it provides a clear plan for managing your money. This can be helpful for those who struggle with more complicated budgeting systems.

Second, the 60% solution is flexible. It allows for some variation depending on individual circumstances, such as higher or lower expenses in certain categories. It also allows for adjustment over time as goals and priorities change.

Finally, the 60% solution emphasizes saving and planning for the future. By allocating a significant portion of income towards retirement and long-term goals, it encourages people to think beyond immediate needs and consider their financial well-being in the long run.

Conclusion

Saving can be challenging, but with the 60% solution, it becomes more manageable. By focusing on committed expenses and dividing income into four predetermined categories, individuals and families can create a financial plan that aligns with their values and priorities. Although the 60% figure may not work for everyone, it provides a useful starting point for assessing one’s financial situation and setting goals for saving. By following this simple and flexible plan, anyone can take steps towards a more secure financial future.