Updated: 10/27/2011 1:53 PM ET|
Simpler saving: The 60% Solution
The key is keeping a lid on those committed expenses. You can categorize them if you want, but it isn't really necessary. In fact, you could make a budget with just three categories: committed expenses, fun money and irregular expenses.
Now, at this point you may be saying, "Well, la-dee-dah for you, but there's no way I can get my committed expenses down to 60% of my income."
Getting to 60%
For a lot of people, part of the difficulty in reducing committed expenses comes from the need to make big monthly credit card payments.
If you're carrying a substantial amount of non-mortgage debt, I'd suggest using the 20% that otherwise would go to retirement and long-term saving to aggressively pay down your debt -- but only after you cut up those cards.
Every dollar in interest that you don't pay is just like getting a guaranteed, risk-free, tax-free return on your money equal to the interest rate on the debt. When your debts are paid off -- and it won't take long using 20% of your gross income -- immediately redirect that money into savings.
Now, let's take the really hard case: Even excluding debt payments, reducing your committed expenses to 60% still seems like an impossible goal. If that describes your situation, the odds are good that you're facing one of the following problems:
- You have a more expensive home than you can afford.
- You've committed to car or boat payments that are larger than you can afford.
- Your children are in a private school that you can't really afford.
- There's just a big, ugly gap between your income and your lifestyle.
If it's one of the first three, you can undo the damage by slowly unwinding the commitments you've made and choosing something less appealing but ultimately more appropriate.
If the problem is having champagne tastes on a beer budget, you'll need to take a long, hard look at where the money is going and why. Perhaps you're using money and things to fill a void in your life. Often, the steps needed to fill that void have little to do with money.
The real secret to building a budget that works isn't tracking what you spend, any more than counting calories is the secret to losing weight. The key is creating a sustainable structure for your finances, one that balances spending and income and that leaves enough room to handle the unexpected.
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Some of these are very good advices. From my perspective I would add something extra. Few years ago I found great way to productively utilize my free time. I am a stay home mom and my kids can safely play by themselves now (under supervision of course) while I enjoy my favorite TV shows ...with one little difference. Now, while I watch I also take online surveys. One thing to another and I managed to make $4000 last year. I know it’s not for everyone, but so are above suggestions. I like taking surveys and getting paid. In the beginning it was very slow since I wasn't signed up for the right survey sites (that pay cash), If you think this could be something for you look up free info sites like surveyjet or zeeses (they both show proof of payments which is great, so you won’t be taking any sweepstake surveys that don't pay ...unless you win)
You say you calculated 60% of the GROSS income.
Then you took the rest and divided it into 4 parts of 10% each.
What about the taxes that you pay on your income?
Let's say you earned $1,000/ week. 60% is $600. Aren't you paying about $300. in taxes? In your calculation, you still have $400 to divide between the 4 categories. What am I missing?
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