The Budget or Spending Plan that I Follow

For many years I struggled to find a way to budget that would work for my personality and time constraints. I know that having a precise record of spending and spending per category is useful, but I can't keep it up over the long term.  If you can that's great.

Then one day over a year ago, I was reading an article on MSN Money about the 60% solution.  I would have linked the original article, but it is no longer available on MSN. I searched for it and the link in their own search results is bad so I guess they pulled the article. It is too bad because it is the best budget method I've been able to find.

Here's how it works (at least how I remember it!)

Take your total income and multiply it by .6 to get 60% (and add a line in your budget to calculate it and to compare it with your current planned expenses)
Lets say you get paid $500 twice a month. 60% would be $600 for the month.
60% is the most you can spend on ALL of your normal expenses. Yes, thats everything you normally spend money on even your month's credit card expenses, food, housing, transportation, cable, insurance, telephone, cell phone, etc.)

The remaining 40% is for entertainment (10%) and Savings (30%).   That means that you can't spend more than 10% of your income on Entertainment (not 40%!).

If I remember correctly the 30% is divided into 3. 10% for irregular expenses like vacations, weddings, gifts or when something expensive breaks and you need to fix them.  10% for long term saving like for a new car, buy a house, etc. 10% for retirement.

It is a good system for most people since it will cover almost anything that comes up. That 30% savings every month will quickly grow an emergency fund and later investments or you could be strict and really put 10% in different accounts.

What about debt?   If you are in debt, you can spend 20% from Savings and 10% from Entertainment to pay the debt down.    Obviously if your current expenses are below 60% don't increase them!  any additional money that can go towards debt payment and investing is great.

What I'm doing differently from the 60% solution

I have an irregular income instead of a paycheck so my 60% is different every month. That means that I can't set up any automatic process of moving $x to 3 different saving and investment accounts on the 16th and 1st.  I calculate what I should make every month based on what I expect and as classes get canceled, I reduce the number and update the income field for the month.
If I'm having a really bad month I'll save only 30%.  If I'm having a good or normal month I'll deposit 50% of the money I receive twice a month (since I charge twice a month). Yeah, I know 50% is much higher than the 30% in the plan, but you never know when a month will arrive that won't let me save anything so it will probably average down to 40% this year.

My goals include buying a condo, house, or land outside of the city for building a small house.  30% savings won't get me there!  Therefore I've been slowly adjusting my expenses down from a 60% solution to a 40% solution. 40% solution would therefore be to limit regular expenses to 40%, consider 10% for irregular expenses and entertainment and put the other 50% toward savings and investing.

If I were to divide up the 50% up into groups, it would depend on age. I'm 36 now and I don't own my own home or even some place to camp on if I needed to so my first goal is to have enough savings for emergencies and to buy some place to call my own. If I save 50% the next 4 years, I should have enough money for a deposit on a tiny condominium here in Mexico City or pay for half of a house out on the edge of the city (about 2 hours in public transportation from where I live now!)  That money would probably pay for an undeveloped lot outside of the city  about 3 hours away from here. They all have pros and cons.

My next goal is to have money for retirement or semi-retirement. Until I buy my own place, I'm putting all the money that isn't emergency fund into a special account for retirement savings. There are no fees for taking money out before I'm old. If I don't see the money grow there, I might move it to a brokerage account.

If you are new to budgeting, you are probably thinking "60% or 40%? you've got to be kidding me!"   No, I'm not. I make less money than you'd make on minimum wage in the United States. I share an apartment in a relatively poor area. I don't have a car. I don't buy a lot of stuff.  I only pay for services that I really want. I don't have movie channels. I don't have a television either.  I pay for internet and an inexpensive cell phone plan. I don't have a home telephone right now either. I don't buy a lot of clothes and none of it is name brand.  I'm currently only struggling with my food expenses. It is easy to buy fast food or a taco going to or from work.  If I cooked and packed all my meals I'm sure I'd have 50% saved every month as long as I keep working and sharing the apartment.

If you can't save 30% every month, start by reducing the biggest expenses: housing, transportation, and food. Then go after extras that you pay for every month. Finally go after the entertainment related expenses until you can reach your savings goal at 30%, 50%, or more!