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.