ImproMed, LLC. Logo
Issue: 29 - May 16, 2011
How To Reach Financial Bliss
By: Dr. Phil Zeltzman
Dr. Phil Zeltzman

Personal finance is one of those incredibly important topics that either get people excited or puts them to sleep.


If you plan on retiring one day, you can’t just “wing it.” People who wing it often end up bagging groceries at an age when they should be golfing or playing bingo. You owe it to yourself (and your family) to learn at least the basics of personal finance.


I recently came across two systems that are both very simple and very powerful.  Both are borrowed from the financial pages of


The first one is called the 50-30-20 solution*.  The second one, called the 60% solution, is ever so slightly more sophisticated. Both concepts stem from one simple observation:  budgeting is a wonderful idea, but it doesn’t work for very many people. Budgeting means setting up spending limits on everything: $2 per month for bubble gum, $800 per month for rent, $387 for food etc.  Seriously, who can keep up?


So let’s go over our magically brilliant alternatives.


The 50-30-20 solution

Are you ready for this? This system allocates 50% of your take home money to “needs,” 30% to “wants” and 20% to savings. That’s it!


Behind the apparent simplicity is in fact a very powerful concept.


What are “needs?” They encompass everything we can’t live without. So this includes taxes (beyond what has already been taken away at the source), food, child care, rent or mortgage, utilities, car payments and gas if you must drive to work, health insurance, disability insurance, car insurance, renters or homeowners insurance, etc. And I’m sorry, your fancy phone and your Internet connection are not technically considered “needs” here. I know, life is tough.


“Wants” are everything else that is considered non essential to survive. This is typically what causes the most animosity. Some people will argue violently that they can’t live without texting or e-mailing or Facebooking or meeting their friends at the bar, and therefore these expenses should be considered “needs.” “Wants” include entertainment, your gym membership, movie rentals or tickets, vacations, gifts, clothes, manicures, restaurants, sports tickets, pet food, etc.


“Savings” are just that – money saved or invested that will allow you to survive an emergency (short term savings) or retire one day (long term “savings”).


It can be tough to decide what is a want or a need. Here is one way to figure it out. If you can delay a purchase for a while without any major hardship or having Repo Man on your door step, then it’s a “want.” But if you must repay a bill or an invoice by contract, such as credit card payments, bills or alimony, then it’s a “need.”


The 60% solution

Our second system, the 60% solution, is a tiny bit more complicated, only because it is a little bit more specific.


Here, 60% of after tax money is dedicated to what the author on, Richard Jenkins, calls committed expenses. These include food, necessary clothes, insurance premiums, debt reimbursement and charitable contributions. Importantly, they also include all of your taxes and all of your bills, from your fancy 387 channel satellite TV plan to your Internet connection.


The remaining 40% are divided into four chunks of 10% each: retirement savings, short-term savings, long-term savings and “fun money.”


1. To be more specific, retirement savings include payroll-deducted 401k contributions and any other retirement money such as IRA or SEP contributions.

2. Short-term savings are used for “vacations, repairs, new appliances, holiday gifts and other irregular but more or less predictable expenses” explains Mr. Jenkins.

3. Long-term savings can be used for college money for the kids, a down payment on a house, or any other planned, large purchase.

4. Fun money can be used on anything related to entertainment, as long as the total doesn't exceed 10% of your take-home income.


Now, I don’t necessarily agree with the allocation. I think it could be simplified, but I am merely reporting information here, not sharing my personal beliefs. The beauty of this system is that you can tweak the numbers to match your needs. Just don’t cheat by decreasing your savings and increasing your play money!


If you realize that, as Richard Jenkins puts it, “there's just a big, ugly gap between your income and your lifestyle,” then be happy the system helped you figure it out. You then need to face reality and start making tough choices. Awareness is the first step, as they say…


Common situations, the author says, include paying too much for your house or your car, or private school tuition you can't really afford.


How to embrace either system

The beauty of these two systems is that they allow a lot of flexibility. You don’t have to sit down every evening to track every penny spent. No need to be anal-retentive about every single purchase. All you need is to make sure you are close to the suggested percentages. If there is a gross discrepancy, it may be because you live a Champagne lifestyle on a beer income, or because you are drowning in debt. Fixing either issue can take a lot of time and effort, just that’s the price of financial bliss.


Let’s take a few examples which hopefully will not offend any readers.

* Cooking meals from scratch is a “need.” Ordering food for lunch every day, just because you can’t get up 5 minutes earlier every morning, or because “everybody else does it” is a “want.”

* Utilities are a “need.” Keeping your house at 68 degrees all summer while you’re at work 10 hours a day is a “want.”

* As Liz Weston at explains, “basic phone service is a must-have. But features such as call waiting or unlimited long distance are wants.”

* Similarly, “Internet access and pay television are two expenditures that can feel like must-haves but usually are wants, unless you're on some kind of long-term contract.”


Ultimately, who cares what you spend on which specific item? What truly matters is to ensure that you are not overspending or “under-saving.”


The other nice feature about these systems is that they work regardless of how much you make (within reason).


Last but not least, a benefit of these methods is that they won’t transform you into a scrooge.  They actually allow you to have fun. After all, 10 to 30% of your take home money is pretty generous in the name of fun!


Phil Zeltzman


Dr. Phil Zeltzman is a mobile, board-certified surgeon in Allentown, PA. His website is He is the co-author of “Walk a Hound, Lose a Pound: How You and Your Dog Can Lose Weight, Stay Fit, and Have Fun Together (Purdue University Press).”


* This concept is borrowed from the book “All Your Worth: The Ultimate Lifetime Money Plan” by Elizabeth Warren and Amelia Warren Tyagi.  Free Press (2006).