Wednesday, February 3, 2010

The 60/10/10/10/10 Rule

I'm constantly in search of a new and easy system to budget. I tried doing the all envelope system, while it was helpful, it was way to confusing and time consuming. Although I did find an extra $100 in an envelope I almost through away, so I guess there was an added savings benefit. And I'm constantly trying to figure out how do I decide how much to save?

Then last weekend my husband came across a great new system. Here is the premise. You use 60% of your income to live on, and save 40%. Of that 40% you break it down as follows:
  • 10%-Retirement

  • 10%-Long Term Savings: usually you won't touch this money. It's for emergencies are a very large purchase like a down payment or remodel. Of course, you never want to deplete your long term savings either, so make sure you still leave some for emergencies.

  • 10%-Short Term Savings: first paying down any debt aside from a mortgage, then for vacations, Christmas presents, vacations, new appliances, etc.

  • 10%-Fun Money: Anything you want to do during the month, eating out, going to a show, new clothes.

You take what is leftover from your 60% after fixed costs, utilities, car insurance, mortgage/rent and divide into three envelopes. Gas/transportation, Food/household supplies and Entertainment.

So far the key seems to be having that savings money deducted at the beginning of the month, so you get use to seeing only your 60%.

We're playing with this new system and will let you know how it goes. So far it's upped what we're saving by a lot. I'll keep you posted about any tips/tricks along the way. Has anyone tried a similar system?


  1. That is a great concept! We do the same thing, but it is not as concrete as to where the savings will go. So far, we've saved 7k. However, we need to determine what the savings will be used for, or we might spend it on a luxurious, tropical vacation.

  2. Great job, Prost! Saving 7K is a fantastic start! Take us with you on your tropical vacation!