The 30-30-30-10 budget rule is perfect for anyone who needs a simple approach to budgeting. It has been proven to work for those of us who struggle to stick with more restrictive forms of budgeting and who want a little bit of splurge money on hand each month.
Is the 30 30 30 10 budget rule right for me?
Rising inflation and record-high credit card debt (particularly among millennials) have made it painfully obvious that everyone old enough to have a job needs to know how to budget.
However, creating a budget is not always as simple as putting pen to paper.
Because, trust me, while a spending plan may look good on paper, if it doesn’t line up with your money goals, it will be pretty much impossible to follow.
With all of the budgeting methods out there, e.g., zero-based, 70-30-10, the cash envelope system, and so many more, how do you know which one is right for you?
Unfortunately, the only way to find out which budget plan is right for you is to test out a few different methods.
That said, you may want to start with the 30 30 30 10 method because it’s easy to follow and can be a good way for people who struggle to know the difference between ‘wants’ and ‘needs’ to learn the basics of budgeting.
What Is The 30-30-30-10 Budgeting Method?
The 30-30-30-10 budget rule is a budgeting method that encourages you to allocate specific portions of your take-home income into four primary ‘spending buckets’.
According to the 30-30-30-10 budget method, you should divide up your monthly income as follows:
- 30% on housing (mortgage payment, rent, minor house repairs, home insurance, and taxes)
- 30% on essential expenses (groceries, transportation, utilities, school fees, taxes, health care, etc.)
- 30% on your financial goals (i.e., emergency fund, long-term savings, student loan payments, credit cards, and loan repayments, etc.)
- 10% on yourself (i.e., dining out, entertainment, leisure, fun money, vacation, etc.)
The 30-30-30-10 budget rule can help you cover your monthly bills, pay off debt, build an emergency fund, and ultimately reach financial freedom.
How To Use The 30-30-30-10 Budgeting Method
Follow the steps below to see if the 30-30-30-10 budget will work for you.
Step 1: Calculate your total income
This step is easy for most people because the majority of people make the same (or close to) amount of income on a monthly basis.
So, calculating their total income is as easy as locating their most recent paycheck stubs.
However, if you work on commission, get paid by the hour (and your hours vary), or work in an industry where you receive gratuities (tips), you should make these calculations based on your lowest average total monthly income.
Suppose you are a college student. In that case, your total income would be the monthly financial support you get from your parents (if any) added together with the money you have available each month from your student loans, scholarships, gig work, or part-time jobs.
Step 2: Calculate your budget percentages
Work out the amount you should spend for each category based on your net income.
Your net income is your take-home pay after taxes, health care, and 401K deductions are made.
So, if your income is X dollars per month, you’d calculate 30% of X. The answer is the amount you should plan to spend on each of the (3) main categories of housing, essential expenses, and financial goals.
Next, calculate 10% of your monthly earnings. This amount is how much you get to spend on your ‘wants’ (aka fun money) for the month.
Here’s the math:
A quick way to work this out is simply multiplying your income by 0.3 to see how much should go towards housing, essential expenses, and your financial goals.
To determine the amount of money you can spend on entertainment or non-essential purchases, multiply your income by 0.1.
Step 3: Calculate your current expenses
For this step, you’ll need to gather up all your bank statements, credit card statements, and receipts for items you purchased with cash for the past 3 months.
If you do not already keep track of your monthly expenses through an app, spreadsheet, or old-school pencil-and-paper system, then this step may take some time.
Next, separate these expenses into one of your (4) budget buckets of:
- Necessities (Needs)
- Financial Goals
- Wants (Fun Money)
Finally, calculate the total in each category and divide by (3) to get the average amount you spent per month over the last 3 months.
Be careful how you categorize your expenses.
Some payments are not so clear-cut, like when you are dining out. You must eat to survive, so it is seemingly an essential expense. However, while food is a necessity, dining out is not.
Therefore, restaurant meals count towards your ‘wants’ bucket.
Do not try to make your expenses look better than they actually are – be honest with yourself.
Step 4: Compare your target expenses to your actual expenses
I’m not gonna lie. This part of the 30-30-30-10 budget method is the hardest.
Why? Because it requires that you take a good, hard look at your spending habits.
Carefully pry your eyes open and compare your actual spending to your goal amounts of 30% for housing, 30% for necessities, 30% for financial goals, and 10% for wants.
Are you still with me? Good!
The first thing to remember is not to panic!
If the numbers do not match exactly (and there’s a good chance they won’t), it is perfectly normal. This is why you are learning to budget, it may take some time (several months or more) to get it right.
And that’s okay!
Most people, especially if they are new to budgeting, find that they are much higher or even lower in some categories than they should be.
For example, you might be overspending on yourself (i.e., more than 10%) and not contributing enough to your financial goals (i.e., less than 30%).
Step 5: Adapt Your Spending
If you threw your calculator out the window in the last step, go get it, because you’ll need it for this step.
Look at your expenses and see where you can make some cuts or increases in order to reach the targeted amounts for each category.
Start small, like cutting down on takeout food and cooking more at home.
Tip: these frugal living tips may help.
Or, if you find that you are WAY over in your housing category you have three choices:
- You can start looking for a less-expensive home
- Look for ways to increase your income
- You can scroll down and follow step 6
Before you start cutting, first see if you can’t be a bit flexible with your spending categories.
Play around with it and see if you can move items from one budget bucket to another in order to even things out.
For example, you might put household cleaning products under housing rather than your general groceries (essential expenses).
Step 6: Adapt the budget ratios
Suppose you find it hard to cut your expenses (step 5) successfully. In that case, you may want to adapt the percentages for each spending category, instead.
First, consider what is most important to you.
Do you want to pay off your student loan, be able to put a down payment on a new car, or live in a safer neighborhood close to good schools?
Depending on your needs, you can adapt your spending category bucket percentages to suit them.
As long as your new budget percents add up to 100, you’re golden!
For example, your new budget ratios might look like this:
- 35% on housing
- 30% on essential expenses
- 25% on your financial goals
- 10% on yourself
Or even like this:
- 30% on housing
- 40% on essential expenses
- 20% on your financial goals
- 10% on yourself
If you do not know where to be flexible, start with the non-negotiables, i.e., write down expenses that are set in stone – for example, a set rate for loan repayment or rent.
Work out the percentage you need to cover those items, then see if you can adapt in other areas, like cutting out expensive grocery items or sacrificing gym memberships.
Step 7: Keep track of your expenses
As great as it is choosing a specific budgeting technique to follow, it won’t work if you are not keeping an eye on your monthly expenses.
You need to be detail-oriented with this task and record every penny that leaves your wallet (or bank account).
Sticking to your allocated spending amounts each month is so much easier if you stay in touch with your spending!
Rather than creating your budget template from scratch, search for free budget printables that you can download and use to track your monthly expenses.
Or, check out our list of the best budget planners for 2023 for some inspiration.
30-30-30-10 budget rule pros & cons
As with any budgeting method, there are pros and cons to using the 30-30-30-10 system.
The 30-30-30-10 rule compared to other ways to budget
When it comes to budgeting, one size doesn’t always fit all.
You need to use a budgeting system that will work for YOU, at this stage in YOUR life, according to YOUR personal financial needs.
You may find that the 30-30-30-10 method is not suited to you, and that’s okay.
Check out some more budgeting methods below.
30-30-30-10 Vs. 50-30-20
The 50-30-20 budget rule works on the same principle as the 30-30-30-10 method, except you divide your income as follows:
- 50% goes towards needs
- 30% goes towards wants
- 20% goes towards savings
Depending on your financial situation, this method seems more doable than the 30-30-30-10 budget rule.
Not only does it free up more money to spend on yourself, but it still allocates a decent percentage towards savings.
As long as you can be honest about what constitutes ‘needs’, this method should work just fine to get your money matters under control.
30-30-30-10 Vs. zero-based budgeting
The zero-based budgeting method is when you allocate all your money to your expenses. The aim is to subtract your monthly expenses and reach a zero total.
This budgeting method gives you complete freedom to divide your costs as you please, adjusting the portions of your salary according to your discretion.
This flexibility and freedom might seem attractive, but the method will not benefit you if you are not disciplined in putting enough money aside for a rainy day.
This method also does not work particularly well when you have a lot of variable expenses.
30-30-30-10 Vs. 70-20-10
The 70-20-10 budgeting method is also similar to the 30-30-30-10 method in that it allocates specific percentages to spending categories, except these expenditures, look like this:
- 70% goes towards living expenses
- 20% goes towards savings or paying off debt
- 10% goes towards your pleasures
Like the 30-30-30-10 budget, this method only allows you 10% to spend on your ‘wants’.
As such, it a offers a strict guideline to keep your impulse spending under control. While at the same time, it allows you to allocate more money to cover your housing and living expenses.
And let’s face it, if you are young and just starting an entry-level job, you may find that putting more money towards retirement and investments can be tough.
Especially since rents are higher than they’ve ever been, and meeting essential needs will likely need to take priority at this stage in your life.
30-30-30-10 budget rule examples
Let’s see what the 30-30-30-10 budget rule looks like with a few real-life examples.
For example, if you take home $2,890 per month (the median salary in the U.S for 20-24-year-olds in America), then you’d multiply that amount by .30 (30%) to arrive at $867. 10% of $2,890 equals $289.
After making the necessary calculations, your budget allocation would look like this:
- $867 would go towards your housing
- $867 would go towards your essential expenses
- $867 would go towards your financial goals
- $289 would go towards wants
Suppose you want to tweak this system a little bit to pay off more of your student debt or you want to save up for a new car, then your budget allocation might look like this:
- $867 would go towards housing
- $722.50 (25%) would go towards your essential expenses
- $1,011.50 (35%) would go towards your financial goals
- $289 would go towards fun money
Whatever your needs or financial goals, you can use the 30-30-30-10 budgeting method as an (adaptable) foundation in order to suit your needs.
Think long and hard about your current financial situation and what you want your financial future to look like. If you need to take more control over your finances, then you, of course, need a budget!
Why not give the 30-30-30-10 budget method a try? If it does not feel like a good fit for your lifestyle, it is perfectly OK to try different budgeting techniques.