Richard Jenkins, author, and former editor-in-chief of MSN Money proposes the 60% Solution. He recommends allocating 60% of your income to “committed spending.”
He discovered that the occasions when he felt most financially secure were when he spent less than a particular proportion of his income, not when he earned a certain amount.
According to the 60 percent Solution, you should allocate your monthly gross (pre-tax) income as follows:
• 60% to Committed Expenditures including monthly purchases, groceries, clothing, essential living expenses, insurance, and monthly bills
• 10% to Retirement – Set aside 10% of your income for savings and investments that will support you when you retire.
• 10% for Irregular Expenses — Set aside 10% for non-recurring expenses such as a vehicle, home, and other machinery repairs, vacations, unforeseen expenses, and the purchase or replacement of appliances.
• 10% to Long-Term Savings/Debt – This is the amount of money set aside for automobile purchases, house improvements, or debt repayment.
• 10% bonus for having a good time Never forget to enjoy your life while attempting to save money. Set aside 10% of your income for eating out, hobbies, and entertainment.
According to Richard Jenkins, Reduced Committed Expenses is the best strategy to ease financial stress. Your stress level rises as your Committed Expenses climb. If you can keep these expenses under 60% of your salary, you’ll have more money to go toward other things, such as retirement or fun today.