I recently had a conversation with a friend about Mint.com’s limited featureset, and one of the things that came up was that it would be nice to be able to automatically categorize certain features. We agreed that something similar to gmail’s automatic filters would be useful. Well, it turns out that Mint.com does offer automatic categorizing, but it isn’t quite as nice as gmail’s filters. Instead, you can click on a transaction, and choose to click a checkbox that will automatically categorize all identically named transactions in the currently selected category. Not bad, I guess. At least it’s simple.

So now you can automatically categorize all golf fees into the “uncategorized” or “miscellaneous” expenses and never know how much you spend on golf (something I’ve learned would be detrimental to the golf industry).

The personal finance sector of the information garbage heap is the smelliest gawdawful load of crap in the whole bit.

Like everyone, I’ve fallen into various financial management habits over the course of my (short) adult life. Also, like everyone else (I’m sure), I’ve despised much of the crap that I’ve been forced to trudge through. Often, I feel as if I’ve been given the job of digging through the garbage heap, naked even, and I’m not really sure what I’m looking for. Bottom line: I feel that I need some advice, or at least I want to know how everyone else does this… but when I get the answers, I’m left asking, like (Tina Fey and) Seth Meyers, “Really?”

I believe I’ve come across something easy that actually makes sense. The plan is MSN Money’s Richard Jenkins’ “60% Solution.” The idea is that all of your committed expenses should be no more than 60% of your gross income. The first time I heard this, I thought, “Yeah, if you’re friggin’ rich budgeting must be easy.” As I searched for better, more practical, solutions, I realized more and more how practical the 60% solution really is. One of the first essential understandings in this budget plan is committed expenses. Richard explains,

The slow but steady growth in our monthly spending commitments was putting a squeeze on our budget. I call these “committed” expenses rather than “fixed” or “non-discretionary” expenses, because things like music lessons are neither fixed in amount nor absolute necessities, but rather are commitments my wife and I have made to provide for our children.

Among your “committed” expenses are taxes, charitable contributions (tithing), bills, household essentials, and even insurance premiums. Un-committed expenses, for example, include tickets to see the Jonas Brothers.

The rest of the money goes to 4 equally portioned categories. The four categories are retirement savings, long term savings, short term savings, and “fun money.” The 10% “fun money” is simply your entertainment budget, not including vacations. Jenkins’ explains the rest of the categories,

Retirement savings. This consists entirely of my 401(k) contribution, which is subtracted automatically from my paycheck.

Long-term savings. Also automatically deducted from my pay, I buy Microsoft stock at a discount as part of an unusual stock-purchase program. The relative lack of liquidity (i.e. the difficulty of turning these shares into cash) makes it harder to spend this money without some planning and a series of deliberate steps. In a real emergency, though, I could sell and have the cash wired to my bank account within three days, so this is also our emergency fund.

Short-term savings for irregular expenses. These are direct-deposited from my paycheck into a credit-union savings account. Money in this account easily can be transferred into our checking account, as needed, via the Web. Over the course of a year, I expect to use all of this money to pay for vacations, repairs, new appliances, holiday gifts and other irregular but more or less predictable expenses.

This is a brilliant plan. The key is in the simplicity of the goals. Some faith is required in your budget when you think about buying new appliances or other unexpected large purchases. When I look at my 1, 2, and 3% apportionments of my “household” budget category, I’m not really sure where I’m going to find money for a new washer and drier, so I have little faith in my current budget anyways. This is because I’m never really sure how much I need for such things. Now, I’m just assuming that this will be 10% each year. I have a lot more faith in 10% then I do my current budget, which I couldn’t point to any one thing and say, “Here, this is where I’d take money out for new appliances.”

This budget is tough. That doesn’t mean that the ideal shouldn’t be your goal. Stop looking at the 1%, 2%, 3% crap. You’re either spending too much or your not. If you have non-mortgage debts, you’ll need to appropriate all of the long term savings towards them (that would be 20%). As things change, try to fit your budget into this mold. Jenkins’ explains in straight simple language why I’m not meeting the goals of this budget,

• You have a more expensive home than you can afford.

• You’ve committed to car or boat payments that are larger than you can afford.

• Your children are in a private school that you can’t really afford.

• There’s just a big, ugly gap between your income and your lifestyle

The first 2 items apply to me. I just simply cannot fit into this budget until my car loans are paid off and my home is a smaller percentage of my overall expenses. It’s going to take some significant changes in my life before I’m meeting any one of the 5 categories in this budget.

Practically, I’m too irresponsible or too stupid (I haven’t yet figured out which) to use credit cards for monthly expenses, so I use a cash budget. I’m extremely ridgid about it; we (my wife and I) use a recipe organizer to separate cash funds. I don’t mind if I over spend from one category to the next, but it’s very important that we don’t start a new withdrawal period with “negative” funds (where one envelope borrows from another and pays it back the next time cash is withdrawn), because this just sets a bad tone for the next period. Instead, I simply move money from one category to the next for keeps. To keep track of the big picture, I use gnucash, which is free, but not for Windows. Gnucash allows me to create virtual accounts for each cash ‘envelope,’ which provides me with a quick status of all remaining cash and what it’s allocated for. If you aren’t irresponsible like me and you use credit cards for most of your purchases, mint.com is an awesome tool for the big picture.

In the end, aren’t all budgets mostly a matter of faith and hope? I have faith that when my washer explodes, I’ll be able to pay for it because I have a “Household:Mainenance” category. I have faith that when the Jonas Brothers come to town, my entertainment funds will cover the tickets. I really hope that my washer doesn’t explode the same month that the Jonas Brothers come to town. I think that this budget just simplifies the faith, reduces the need for hope, and presents a real, challenging, and obtainable goal.

Read Jenkins’ entire article here.