Creating a budget is an opportunity to think about current and future expenses—what you need and what you want. A method called the 60% Solution helps you balance multiple savings goals with regular expenses and occasional splurges.
What is the 60/40 rule?
To combat what he considered overcomplicated methods, in 2002 financial journalist Richard Jenkins proposed the 60% solution, aka the 60/40 budget. In his view, other budgets that track lots of spending categories result in “too much detail and not enough bottom line.”
The first 60%
With this simple budget, 60% of your income (before taxes and other withholdings) goes to fixed expenses, such as:
- Taxes, Social Security, Medicare
- Insurance premiums
- Housing
- Utilities
- Groceries
- Transportation
- Bills that come every month
Even though groceries aren’t a “fixed” expense—food prices fluctuate—they’re part of the 60% because you always have to buy them. Also included: regular bills for nonessential items, like streaming services or gym memberships.
The idea is that the 60% portion of your budget reflects “normal” household spending—not special, occasional events like vacations or parties.
To figure out how much you’re allowed to spend during a two-week pay period:
- Divide your annual salary by 26; or, check your pay stub for the “gross” amount before withholdings.
- Multiply either amount by 60% (0.6).
For example, a $60,000 salary equals about $2,300 for each two-week pay period. 60% of that—how much you can budget for committed expenses every two weeks—is about $1,380.
Keep in mind that if you’re an employee, some committed costs, like taxes and health insurance premiums, might come out of your paycheck automatically. But if you’re a freelancer or contractor who pays estimated taxes each quarter, determine how much to set aside every two weeks to cover them: Because there are 13 weeks in a quarter, divide your quarterly tax payment by 6.5.
The remaining 40%
The rest of your income can go to savings goals or spending that falls outside your typical monthly lifestyle. Jenkins recommends these categories:
- 10% to retirement savings
- 10% to long-term savings
- 10% to short-term savings
- 10% “fun money” for activities, trips, or other infrequent splurges
You may need to tweak these categories to suit your situation. For example, if you have debt to pay off, you could replace one saving category with “debt repayment.” Or, you could shrink all four categories to make room for a fifth. If you’ve met one savings goal (for example, you feel you have enough in your emergency fund), you can start a new goal, like building an investment account.
How does the 60/40 rule differ from the 50/30/20 rule?
The 60/40 budget isn’t the only strategy that splits income into broad segments. Another popular approach is the 50/30/20 rule, where half your income covers needs, 30% goes to wants, and 20% is for savings. A side-by-side look reveals differences in how these budgets can help you think about money:
By the numbers: 60/40 vs. 50/30/20
By the numbers: 60/40 vs. 50/30/20
| 60% Solution | 50/30/20 Budget | |
|---|---|---|
| Taxes | Included in 60% expenses | Budget based on after-tax income |
| Household expenses | Controls recurring expenses, regardless of whether they’re “essential” | Distinguishes between “needs” and “wants” |
| Savings | Higher target, guidance on how to divide savings | Lower target; no additional guidance |
| “Splurge” spending | Recommends earmarking 10% of spending for special occasions | Allocates 30% to “wants,” including regular and occasional expenses |
| How it’s helpful | Provides structure for your savings | Holds you accountable for nonessential spending |
Is the 60% solution right for you?
Depending on your situation, 60% of your gross income may not be enough to cover your taxes and basic household spending. For many, the cost of housing alone could put this goal out of reach: According to Pew Research, nearly half of renters in the U.S. spend more than 30% of their gross income on housing; one in four spend half. High inflation could put even more strain on your budget.
With this in mind, consider modifying the “60%” figure to one that’s more realistic for you. For example, try covering committed expenses with 70% of your income. If that doesn’t work, bump it up further.
The 60/40 rule is easier to follow than some other budgeting options. That can be great if you don’t want to keep up with a detailed plan. True, it doesn’t leave much room for spending on special occasions, but it may help you balance multiple savings goals. Even so, if you want detailed insight into your spending, this budget may not be your best fit.
Other budget approaches to try
Budgeting style is a personal choice. Find a plan that suits your habits and preferences.
For example:
- 50/30/20. Separating needs, wants, and savings may help you cut nonessential expenses and balance priorities on saving and spending.
- Reverse budgeting. A “pay yourself first” approach prioritizes saving above spending.
- Zero-based. Give every dollar a job and get the most insight into your spending.
- Envelope system. Using paper and cash—or an app—can help you avoid overspending.
Do you know how much of your budget goes to recurring expenses? Figure your income and expenses with a basic budget calculator. Talk with a financial professional about how to bring your spending closer to 60/40 and free up cash for saving. Even dedicating an extra 1% of your budget to each savings goal may bring you closer to your ideal saving/spending split—and help you prepare for the future.
Written by Jessica Sillers
Jessica Sillers is a finance, insurance, and business writer based in Maryland. Her work has appeared in many websites and publications, including Zapier, Backer, and Credit.org.
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