Simplify your finances using the 60 – 40 method

 

The best way to budget is to keep things simple . This philosophy will allow you to adhere to your budget month after month. You will not use a method that will prevent you from achieving the financial stability and success you desire.

Some of the simplest budget strategies involve the use of percentages instead of dollar amounts. If you divide your income in percentages, you will respect your budget even if your income changes.

 

The simplest method for calculating your budget in percentage.

The simplest method for calculating your budget in percentage.

The 60-40 method is the simplest. Basically, it implies that you use 60% of your earnings for fixed and mandatory expenses. In other words, this percentage of your income includes all bills such as housing, automatic payments and utilities and fall into this category.

As for 40%, it applies to non-essential needs. You can further subdivide this category.

 

Subdivide the 40%.

Subdivide the 40%.

Of the 40%, 10% will go towards long-term savings. You can then enrich yourself by investing and opening savings accounts with interest. At short-term savings, you will reserve another 10%. You will use this money to pay for repairs or unforeseen events. You will take the remaining amount for things such as holidays or holiday gifts.

You must not forget to keep a 10% for retirement savings. This additional amount will allow you to continue spending once you will not work regularly. The last 10% in equation 60-40 will be used for entertainment and unnecessary purchases. Yes, you can still have fun with the 60-40 budget!

 

A flexible budget.

A flexible budget.

You will find it positive that this budget shows you where to adjust your expenses. For example, if you do not know how much to allocate to your home or rent, you will subtract all other essential expenses in your category by 60%. The difference will be used to pay your rent. If you want to increase the amount of rent, you will have to decrease some necessary expenses (like the phone bill or insurance payments).

The 60-40 method offers enough flexibility to cope with the unexpected. If you apply for a personal loan online for unexpected repairs or other expenses, you can easily adjust your budget to get the money that will allow you to pay it back each month. (You could use the 10% “short term savings” to pay the loan, for example.) Once the loan is repaid, you will return to the usual categories of your budget.

Most financial advisers consider that we should not incur debt. However, if a flexible budget allows you to repay your loans in a timely manner, the debt does not necessarily prove to be a bad thing.

Use the 60-40 method and you will find it easy to manage your finances so as to pay all the essential and unnecessary expenses month after month.

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