Better To Use Cash From Savings Or Finance A Car How to Save Money – The 60-40 Rule

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How to Save Money – The 60-40 Rule

I have been living on the 60/40 budgeting rule for more than three years now. I had read on this subject in a magazine article and in a conversation with a colleague, I found out a simple system in which my colleague has been using for years.

The Rule (60%)

The 60/40 rule simply says that 60% of your gross income should go to Committed or Fixed expenses. These expenses are your Overhead expenses, meaning the basic things you need to pay to survive. They include:

• Basic food and clothing needs.

• Rent or Mortgage

• Utilities (electricity, water, internet, cable subscription etc.)

• Insurance premiums.

• Charitable contributions.

• Taxes.

It looks simple enough but in my experience putting all committed expenses into 60% of my income was a tough thing to do. But don’t give up as it is very possible to achieve this.

The Rule (40%)

The other half of the equation is the 40% which is divided into four 10% categories.

• Retirement: Money set aside into your IRA or 401(k) plans.

• Long-term savings: Money set aside for car purchases, major home repairs, or to pay down debts such as credit cards, mortgages, etc.

• Irregular expenses: Vacations, car repairs, new appliances, etc.

• Fun money: The great part! Do anything you want with this money! Just be sure that this category applies to your whole family such as dining out, a day in the mall shopping, your hobbies etc. But also remember that having fun with your friends, children and family does not have to be costly!

What to Ask Yourself

• Are you renting a place or have a mortgage that you cannot afford? Is it worth it move to a smaller place or farther place to save up? How much money will you save if you do so?

• Are your car payments too high? How is the fuel consumption of your car?

• Do you have too many paid subscriptions that you don’t really use? (Satellite TV, club memberships etc.)

• What is your lifestyle like? How much do you spend in a week, eating out, going on trips etc?

• Do you wear designer clothes? Where do you shop?

• Can you afford to get your coffee or lunch at a cheaper place?

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