The 30-30-30-10 Budget Rule
If your financial life is a mess, creating a budget can be the best thing for you.
A budget can ensure you pay your bills on time, help you get out of debt, cure bad spending habits, help you build up your savings, and more. While budgeting is important, it can also be incredibly frustrating.
Choosing a budgeting method or app that is too complicated, too time-consuming, or just a bad fit could lead to neglecting your finances until it’s too late.
Maybe you’re using a budgeting method right now that isn’t a good match for you. Or you’ve resisted creating a budget because you think traditional budgeting is too restrictive, too much of a hassle, or too tedious.
If any of those reasons for not budgeting ring true, but you want to improve your financial health, give the 30-30-30-10 budget a try. The key to a successful budget is sticking to it, so it’s important you find a budget method that works for you.
What Is the 30-30-30-10 Budget?
The 30-30-30-10 budget rule is a percentage-based way of budgeting your money. With the 30-30-30-10 budget, 30% of your monthly income is for housing, 30% goes toward necessities, 30% covers financial goals such as savings, and the last 10% is allocated to wants, like meals out, vacations, and fun.
What are the 30-30-30-10 Budget Expense Categories?
Using only four spending categories to manage your monthly expenses simplifies the process. Simple is good whether you’re creating your first budget from scratch or coming over from a more complex way of budgeting your money. Here are the four 30-30-30-10 budget categories based on your after-tax income:
30% for Housing
The first 30 percent covers housing expenses. That includes your mortgage payment, rent, homeowners’ insurance, property taxes, and maintenance costs.
30% for Necessities
This percentage goes toward unavoidable living expenses like utilities, groceries, health care, essential clothing, and car insurance. Make sure you account for any necessary periodic expenses that don’t occur every month like car registration, annual memberships, or quarterly bills.
30% for Financial Goals
30% of your after-tax income goes into your financial goals bucket. Your financial goals could include getting out of credit card debt, retiring your student loan debt, building an emergency fund to give you a financial cushion, or saving for retirement.
10% for Wants
10 percent of your income after taxes is pegged for wants. This is your fun money bucket. Use it for spending on dining out, travel, entertainment, hobbies, and any leisure activities that make you happy.
The Benefits of 30-30-30-10 Budgeting
There are many ways to keep track of your income and expenses. So why choose the 30-30-30-10 budget over any of the other budgeting techniques available? Here are some of the benefits of the 30-30-30-10 budget rule:
- Simplicity – Some budgeting methods are more labor-intensive than others. The simpler a system or process is, the more likely you are to stick to it.
- Less Time-Consuming – If budgeting takes up too much of your time, you might fall behind, lose track, or give up out of frustration. Once you get the 30-30-30-10 budget set up, maintenance is straightforward. You’ll want to review it once a month making sure the numbers make sense, but you’ll save plenty of time compared to other methods.
- High Savings Rate – You’ll save more than you would if you used other budgeting strategies, including other percentage-based techniques. For example with the 50-30-20 budget championed by Sen. Elizabeth Warren, 20% of your income covers savings rather than the 30% called for by the 30-30-30-10 budget rule. If building up your savings, investments, or an emergency fund is a priority, 30-30-30-10 could be a good fit.
- Fun Money Is Included – Wants are not an afterthought.
Who is the 30-30-30-10 Budget Rule For?
The 30-30-30-10 budget rule is well suited to someone new to creating a budget or someone who is overwhelmed with their current method of tracking expenses and income. The rule is easy to understand and setting up your budget is relatively uncomplicated compared to other budgeting techniques.
The 30-30-30-10 budget method is also good for anyone who wants to increase their savings rate or get out of debt. With 30% of net income allocated to financial goals, you can put that toward debt payments until you’re completely debt-free or focus on building assets for the future. If you’re looking to aggressively save money, putting 30% of your money toward financial goals should help.
Who is the 30-30-30-10 Budget Rule Not For?
Like other percentage-based budget plans, the 30-30-30-10 budget rule assumes that all your expenses will fit into the buckets prescribed. What if your house expenses or ongoing medical expenses push you over the 30% threshold for the housing or necessities expense category?
While simplicity is generally a good thing when it comes to personal finance, sometimes keeping it simple just isn’t possible. If you live in a place like San Francisco, Honolulu, or New York, limiting your housing spend to 30% of your take-home pay might be unrealistic. If your income varies, you get paid irregularly, or you’re working a job that doesn’t pay well, percentage-based rules might not work.
If you can’t make the numbers work, you might be better off finding another way to budget that suits your circumstances without issue.
Steps for Creating Your 30-30-30-10 Budget
Ready to give the 30-30-30-10 budgeting system a try? Here’s are the steps for setting it up:
- Clarify your financial goals. With 30% of your money going toward your goals, you should be clear on what you want to achieve financially. Your budget should be a reflection of your financial plan for meeting your goals.
- Tally up your household income. If you’re salaried, adding up your income should be easy enough as it probably doesn’t change much if at all. If you’re self-employed, work for tips or commissions, or have multiple sources of income, you’ll have to use an average or base your budget on your lowest earning month in the past year.
- Add up all your expenses. Review your credit card and bank statements. Note what you spent money on and how much. Document your fixed expenses like rent, average out your variable expenses like electricity, and don’t forget annual or irregular expenses like school tuition.
- Split your expenses into the proper categories. Your mortgage or rent goes into the housing category, utilities and transportation costs go into your needs category, the money you invest in mutual funds goes into your goals bucket, and entertainment falls into your wants bucket. Not all of your spending will be so clear-cut. For example, you could put your regular debt payments in necessities, but you might place the extra payments you make as part of your debt payoff plan under goals.
- Adjust as needed. Once you have everything totaled up and categorized, you might discover that not everything fits perfectly according to the 30-30-30-10 budget rule percentages. If that’s the case, you can either reduce expenses or increase income. In setting up your budget, you’ll probably spot a few bad spending habits or things to stop buying to save money. If there’s not a single expense you can cut, it might be time to try earning some extra money by asking for a raise, starting a side hustle, or getting a second job.
Should You Try the 30-30-30-10 Budget System?
Living on a budget is a financially sound decision that can help you live below your means, get out of debt, reach your financial goals, and build wealth. Choosing a budget method you can stick with is critical to getting your finances in order and ridding yourself of financial uncertainty.
If you’re looking for a straightforward way to budget your money that isn’t too time-consuming and won’t have you slogging through spreadsheets or feeling guilty about spending a little cash on your wants, the 30-30-30-10 budgeting system might be perfect for you. It can help you with debt repayment, putting more toward your investments, and reaching your money goals.
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