Simple Pound

The 60% solution

April 6, 2007

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Richard Jenkins @ MSN Money has written an interesting article on how to simplify budgeting. He basically argues that breaking a budget down into various categories (i.e. clothes, dining out etc.) is a waste of time, since in the end it doesn’t matter where you overspend - if you do. So to simplify his life, he’s adopted the 60:40 rule, where he immediately puts away 40% of his salary for retirement savings, long-term savings, short-term savings and “fun money” and pays all necessary bills from the remaining 60%.

While I agree that it doesn’t really matter on what items you overspend, I do believe that knowing exactly where your money ends up is definitely a good thing. Obviously, if you adjust your target level every month so that you’d technically never go over, then it’s a waste of time, but if you actually realise that you are wasting money on unnecessary things and set yourself a limit and stick to it, then having a budget can only be beneficial.

Having said that, while I do track my expenses at the moment, I don’t have a specific budget as such, since most of my expenses are still highly irregular. For example, at the beginning of the (academic) year I will have book expenses that I don’t even get close to later on. What I have realised though is that I’m wasting an amazing amount of money on coffee and lunch, which is definitely £40 I could save.

In any case I think that his 40% savings target (30% if you exclude the “fun money”) is maybe a little bit ambitious - reducing your annual salary by more than a third isn’t something that will go unnoticed. Especially after moving to London I will probably have to spend much of my money on the bare necessities like rent, tube and food. Nevertheless, I want to keep this figure in the back of my mind in order to compare my monthly savings to it - once I can actually put some money aside (i.e. not before July). Nothing wrong with aspiring to challenging goals…