If you are determined to live within your means so that you can save up for your future, then this is the budgeting system for you.

The 60 percent solution is a personal budgeting system by MSN Money author, Richard Jenkins. All you have to do is divide your budget into five categories, the largest category i.e. 60 percent of your net income should be exclusively committed to your fixed expenses.  This refers to you rent, utility bills, transport costs, food, etc.

The other 40 percent is divided evenly between your retirement, long term and short term savings and fun money.

• 60% to committed expenses such as basic living expenses, insurance, charity, regular bills
• 10% to retirement
• 10% to long term savings
• 10% to short term savings
• 10% to fun money

How this system works:

It all begins by cutting down your regular expenses to fit within 60 percent of you net income. This means your rent, utility bills, transport costs; etc should be within 60 percent of your net income. Sounds impossible, right?

Living within your means calls for a lot of sacrifice, there’s no way around it.

The biggest consumer in our budgets is rent. If your apartment costs more than 30% of your net income; you are living beyond your means.

Let’s put this budgeting system into perspective:

The 60% portion of your net income

Antonio earns KES 35,000 as his net income. Based on the 60 percent solution plan, he has to limit his regular expenses to KES 21,000.

KES 35,000 X 60/100 = KES 21,000

Based on the fact that the maximum amount he should spend on rent should be 30 percent of his net income, his rent shouldn’t exceed KES 10,500

The remaining KES 10,500 should be sufficient enough to cater for his transport, food and utility expenses. Remember, the idea here to cut on costs so that you can save for the future.

The 40% portion of your net income

As earlier noted, Antonio earns KES 35,000 as his net income. This means KES 14,000 should be evenly distributed between his retirement, long term and short term savings and fun money.

KES 35,000 X 40/100 = KES 14,000

This means:

• KES 3,500 will be dedicated to retirement savings
• KES 3,500 will be dedicated to long term savings
• KES 3,500 will be dedicated to short term savings
• KES 3,500 will be to fun money.

If you effectively implement this budgeting system, you will be able to save KES 42,000 every year in retirement money. If you start implementing this system when you are 25 years, you will save KES 1,470,000 in retirement money when you are 60 years. This is more than 10 times what NSSF will give you as retirement money.

Sacrifice is the secret behind the success of this budgeting system. Keeping your committed expenses at 60 percent of your net income would mean you are spending less than you are earning.

Dividing your savings into the remaining 40 percent means you are establishing a cushion for your emergencies without need of delving into your long term or retirement savings, plus you’ll always have fun money that’s with your means.

This budgeting system will help you prioritize and plan your needs. It is a simpler way to save and a sure way of securing your financial future. Try it out today.