The following is a guest post from MoneySupermarket.com
What is the 60% Savings Solution?
Spending. Saving. Budgeting. These are issues that are major sources of stress to many people. Those who want to get a better grip on their finances and who want to start saving money and spending wisely often start by making a budget. Unfortunately, making a budget and living with one are two different things. Even those with the best of intentions may find it hard to keep their spending neatly within categories and to be accountable to the budget they set for themselves. For those looking for a simpler and less cumbersome alternative, the 60 percent solution may just be the answer.
What is the 60 Percent Solution?
The 60 percent solution is an alternative to making a detailed budget and it is a much simpler alternative. The basic premise behind the 60 percent solution is that you can achieve all of your financial goals and get into a great financial situation without budgeting, if you simply divide your income into appropriate percentages.
True to the name, the 60 percent solution allocates 60 percent of your income to a specific purpose. In the 60 percent solution, the aim is to keep all of your committed expenses below 60 percent of your income. Committed expenses include things like your mortgage payment, utility bills, food and clothing expenses, money given to charity, taxes and bills for both essentials (water, electricity) and non-essentials (cell-phones and satellites). All of these total expenses should fall at or below 60 percent of your income.
With the remaining 40 percent that is left over, you’ll put that money towards achieving different financial goals. Ten percent of it should go into retirement accounts that will help you to ensure a secure future. You should try to pay yourself this money first whenever possible and may wish to look into saving the 10 percent of your income in a tax-advantaged account such as a 401K, an IRA or a Roth-IRA. This will help you to maximize the value of your savings and grow your money more quickly.
Consider long-term savings accounts for another 10 percent of the money that you have remaining. Long-term savings should be used to help you accomplish longer-term financial goals. This money can be invested in stocks or bonds, or put into other types of investment accounts, but it shouldn’t be that easy to access and it shouldn’t be something you tap into regularly.
Another 10 percent of your remaining cash should go towards short-term savings. This will cover larger expenses that you need money for but that come up routinely. Things like vacations and car and home repairs can be paid for out of your short-term savings. Money Supermarket.com can help you to identify a good savings account to keep this money in so that the money is accessible to you when you need it.
Finally, the last ten percent of the cash you have left over will go towards fun money. This is money that you can use to do whatever you want and money you can spend without hesitation and guilt. You’ll be surprised to find that this can actually make spending a lot more fun since you won’t be worried about whether you are spending more than you should.
With the right accounts found through moneysupermarket.com, sticking to the 60 percent solution should be simple and easy and should help you to make your financial picture a good one.
