Some of the simplest budget strategies involve using percentages instead of dollar amounts. If you divide your income into percentages, then you can follow your budget even if your income changes.
The simplest percentage-based budget method
One of the simplest percentage-based budget strategies is the 60-40 method. Basically, this strategy says that you should use 60% of your money for fixed or committed expenses. In other words, all bills and necessities should be included in this percentage of your income. Your housing, auto payments and utility bills fall into this category.
The remaining 40% should go towards non-necessities. This category should be broken down further.
Breaking down the 40%
Of the 40%, 10% should go towards long term savings, which you should use to build wealth through investments or interest-bearing savings accounts. 10% should go towards short term savings. This money can be used to pay for repairs or unexpected expenses. If any money is left over, you can put it towards extra spending for things like vacations or holiday gifts.
The third 10% category is retirement savings. This will help you have extra money to spend once you stop earning a regular income from your job. The final 10% in the 60-40 equation is for spending on entertainment and non-necessary shopping. Yes, you can still have fun with the 60-40 budget!
An easily adjustable budget
One of the most positive aspects of this budget is that it can show you where you need to adjust your spending. For example, if you are unsure about how much you need to spend on housing or rent payments, you can subtract all the other necessary spending from your 60% category. Whatever amount remains is how much you can spend on rent. You can increase the amount of the housing allowance by decreasing some of your other necessary expenses (such as finding out how to lower your phone bill or insurance payments).
The 60-40 budget method is also flexible enough to deal with unforeseen expenses. If you have to get an online personal loan to pay for unexpected repairs or some other expense, you can easily adjust your budget so that you have money to repay the loan each month. (For example, you could use the money in the 10% “short term savings” to pay for the loan). Once the loan is paid off, you can go back to your regular budget categories.
Most financial advice will include something about debt being bad. However, if you have a flexible budget that will allow you to pay off loans in a timely manner, then debt is not necessarily a bad thing.
The 60-40 method is one of the easiest ways to organize your finances so that you can cover all necessary and unnecessary expenses month after month.