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Let me first say that I am a fanatic about personal finance. I’ve been studying it for years and I find it sexier than Paris Hilton… even when she’s out of her jail clothes. One of the tenets in personal finance however, is the budget. And BUDGETS DON’T WORK. They don’t work because after a week or two of staying on top of one (if you actually take the time to make one) you run into a situation that messes everything up. Whether it’s a sudden car repair, a pair of versace sunglasses or your sudden desire to see how many beers you can drink in a night at the local bar.

So what do I suggest… The 60% budget. But since we hate that word, lets call it the 60% solution. Basically, it means covering all your “must” expenses with 60% of your paycheck (after taxes but before your retirement deductions). These include:

• Mortgage
• Car payment/lease
• Insurance
• Property taxes
• Phone bill
• Cable/Internet
• Food, Clothes and other basic necessities.

Yes it’s hard to cover all of these with 60% of your paycheck. Right out of University it’ll be near impossible, but it should be a goal that you want to reach. So don’t give up if you’re not there right away, keep at it and you’ll eventually get there. This is how you split up the remaining 40%:

• Retirement (10%) - this is put away into a 401K (or RRSP in Canada). However, it must be automatically deducted off or your paycheck. Otherwise you’ll always find something better to spend it on, since a new TV now seems a lot more enticing than a week on the beach when you’re 65.
• Long Term Savings (10%) - This should also be automatically deducted and should also be used to get you into retirement early. After all they say save 10% to retire, 15% to be comfortable and 20% to retire early.
• Short Term Savings (10%) - Have this automatically transferred to a seperate account. These funds are used for all of those items that seem to appear suddenly. Car repairs, holidays, gifts, etc.
• Funny Money (10%) - The last 10% is to be spent in any way you want. Take it out in cash so you don’t go overboard and feel great about whatever you buy.

Now some people won’t be able to follow this approach right away. Namely, those of us with credit card balances. To get yourself out of debt, take the retirement and long term savings portions and use these to pay down your debt. Cut up the cards and once they’re done, start saving.

The biggest lesson here is an odd one for us here at livvit. We espouse an ambitious lifestyle, but you need to be able to afford it. Happiness is impossible if you’re worried about where your rent’s going to come from.

Leave a comment if you have any tips or stories about how you managed your finances. We’re all about building a community here to help people start living their dreams.