Using the ‘60%’ Budgeting System

For many households, making ends meet is becoming harder. With the cost of living rising and wages remaining static, having a budget plan that works has never been more important.

And there are lots of budget plans out there to choose from. Some set inflexible limits to monthly expenditure, others recommend taking out a short term personal loan to clear all debts, while others allow for flexibility in spending to accommodate unforeseen circumstances.

The 60% Solution

One of the most popular budgeting systems is the 60% Solution. Invented by former MSN Money editor, Richard Jenkins, it advocates spending 60% of gross household income on fixed expenses such as taxes, insurance, regular bills and basic living expenses.


The reasoning behind this is that most people don’t budget for everything that falls outside of fixed expenses, such as savings, retirement and entertainment expenses. So by allocating the remaining 40% of your budget to these things, you will be able to control them much better.

The remaining 40% of your budget is broken down as follows:

  • 10% into retirement funds, such as superannuation or investments
  • 10% into short-term savings for holidays, new appliances, unexpected bills and the like
  • 10% into long-term savings, for major purchases, renovations, debt consolidation etc
  • 10% into ‘fun money’ to be used for entertainment.

The 60% Solution also recommends that if you have large debts, you should channel the 10% for short-term savings and the 10% for long-term savings into paying off those debts and then return to savings once the debts are paid.

Another way would be to take out a low interest caveat loan (one which uses your house as collateral), pay off all debts and then allocate the 20% saving’s portion of your budget to paying off the loan.

There are plenty of software programs available for implementing a 60% Solution budgeting system, but a simple spreadsheet such as Microsoft Excel is really all you need.

Things to keep in mind

Whether you use the 60% Solution or some other budgeting system, there are some simple ways to stay on track.

  • When estimating expenditure, always estimate higher rather than lower. You can always adjust it later and you won’t get any nasty surprises.
  • Apply the KISS principle and keep it simple, with just a few main categories that most expenses fall under, rather than dozens of complex sub-categories.
  • Automate as much as possible, by setting up your bills online to be direct-debited from your account and your savings to be deposited automatically.
  • Shop around for the best interest rates for your savings accounts as well as any loans you take out.
  • Withdraw cash to cover your regular expenses for the month, rather than using a credit or EFTPOS card and repeatedly incurring ATM fees.
  • Physically separate your cash into envelopes or compartments, so that you can see exactly how much you have for each expense.
  • Use a debit card rather than a credit card, so you are always spending your own money.
  • Set aside a regular time each week to make entries and adjustments to your budget and to gauge the state of your finances.

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