Posts Tagged ‘MSN Money’

Jenkins & The 60% Solution – Realistic?

December 18, 2008

Richard Jenkins over at MSN Money has been talking about the 60% Solution for some time.  Upon reading through his budgeting recommendations, I will admit that it didn’t sound all that difficult.  The gist is that your committed expenses should not exceed 60% of your gross income.  The remaining 40+% is divided out accordingly.  According to Jenkins:

What you’re trying to do with a budget is to prevent overspending, which ultimately leads to piling up debt.

If you’re carrying a substantial amount of non-mortgage debt, I’d suggest using the 20% that would otherwise go to retirement and long-term saving to aggressively pay down your debt — but only after you cut up those cards.

The Budget

Committed Expenses (At Or Below 60% of Gross Income)

  • Basic Food & Clothing Needs
  • Essential Household Items
  • Insurance Premiums
  • Charitable Contributions
  • All Non-Debt Related Bills (Even Non Essentials)
  • ALL Taxes.

Retirement Savings (10%)

Long-Term Savings (10%)

Short-Term Savings (10%)

Fun Money (10%)

Easy enough, right?  Now, for my situation.

Committed Income

Gross Pay = $3,560.40

Fixed Committed Expenses

  • State & Federal Taxes = $958.24 (27%)
  • Insurance Premiums (Car, Health, Dental) = $192.00 (6%)
  • Bills (Loan Payments, Rent, Mobile) = $1041.57 (29%)

Without ANY non-fixed committed expenses, I am already at 62% of my gross salary.  So, according to this method of budgeting, I’m fucked.  I have -2% to spend on basic food and clothing needs, essential household expenses and charitable contributions.

The explanation?

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.

Let’s see.  I don’t own my home, but I would argue that my boyfriend owns a more expensive home than he can afford.  However, I can’t do much about that, and my rent ($700/month) is perfectly reasonable.  I don’t think asking for a reduction in my rent will do much for our relationship…..

Car and boat payments?  Negative.  My car is paid off.  And, who buys boats?

Children in private school?  You could say that my invisible kids are in invisible private school.

There’s just a big, ugly gap between my income and my lifestyle.  Ding ding ding!  Mr. Jenkins, you have hit the nail on the pile of red ink!

However, this doesn’t make sense as I haven’t even factored in food and clothing expenses yet.

Obviously this system is not realistic for me at the moment, and I’ve had to readjust.

What about you?  Do you use the 60% solution or another method for budgeting?  Or none at all?