Last updated Apr. 9, 2024 by Jessica Green
While everyone agrees on the importance of budgeting, no one points a finger at the specific budgeting rule/method to adopt. There are tons of budgeting rules, and it can be difficult to decide which one would work for you.
The 30-30-30-10 is a percentage budgeting method that enables you to decide how much of your income goes to certain spending categories.
If you’re thinking of adopting the 30-30-30-10 budgeting rule, here’s everything you need to know about it.
What Is A 30-30-30-10 Budgeting Rule
The 30-30-30-10 budgeting rule is a simple way to allocate your income. It is a percentage method that divides your income into categories.
According to this rule, allocate 30% of your income to housing, 30% to expenses, 30% to savings or debt payment, and the remaining 10% to wants.
Here’s a breakdown of the rule:
1. 30% Towards Housing
Once you receive your income, set aside 30% for rent or mortgage payments. It can also be used for home appliance repair/maintenance. Most people include the cost of gas and transportation in this category.
2. 30% To Expenses
Expenses such as groceries, utilities, food, internet, gas, and everyday bills are included in this category.
3. 30% To Savings, Investment, or Debt Payment
Direct 30% of your income towards debt repayment. If you don’t have loans to pay off, save for emergencies, IRA, 401(k), or make investment plans. Overall, 30% must go into achieving your financial goals.
4. 10% To Wants
Wants include all sorts of entertainment. Use 10% of your income for travel, eat-outs, subscriptions, shopping, and fun.
30-30-30-10 Budget Example
If your after-tax monthly income is $3,500, here’s how to make budgeting plans using the 30-30-30-10 rule.
Housing expenses = $1,050
Groceries, Utilities, Internet, and other bills = $1,050
Savings, Debt payments, or Investment = $1,050
Unnecessary Spendings = $350
Here’s another example, if you make $5000 per month, spend $1,500 on rent or mortgage payments, spend another $1,500 on necessities, transfer $1,500 into an investment or retirement account, and spend the remaining $500 on whatever you like.
Will The 30-30-30-10 Work For You?
As you must have noticed, the 30-30-30-10 lays more emphasis on saving and things that are of utmost importance. Thus, it is a strict budgeting rule.
Will it work for you? The 30-30-30-10 rule will work for you if you are frugal and intentional about all your expenses. However, if you want more spending freedom, this rule will not work for you.
The 30-30-30-10 budgeting rule helps you to stay financially disciplined. It allocates a tiny percentage of your income to fun, thereby enabling you to build better money habits. If you’re not cut out for any of these, the 30-30-30-10 is not for you. Try out other budgeting rules that will be highlighted in this article.
Who Is The 30-30-30-10 Budget Right For?
The 30-30-30-10 budgeting rule is right for anyone who wants to be financially disciplined. If you are an overspender and want to develop good money habits, this budgeting rule is right for you.
If you fall under any of the following categories, the 30-30-30-10 is right for you:
The 30-30-30-10 budget is ideal for people bent on achieving their financial goals.
If you are into debt and cannot afford to pay it off, the 30-30-30-10 can help you find a footing.
If you want to put an end to your spending habits
Who Is The 30-30-30-10 Rule Not Right For?
While the 30-30-30-10 rule is great, it may not be the right budgeting method for you.
As you know, the 30-30-30-10 rule allocates 30% of income to housing costs (rent or mortgage). So if you live in an area with high costs of living, 30% of your income may not be able to afford rent or mortgage payments. And you may need to spend more.
In addition, the 30-30-30-10 limits how much you spend on things you like. If you want to travel more, dine out regularly, and seek entertainment, 10% of your income may be enough.
How Do You Know Which Budgeting Rule To Use?
Financial experts advise on making a budget regardless of how much you earn. But how do you know which budgeting rule to use?
If you find yourself in this situation, here’s a guide to help you discover what works best for you.
1. Consider Your Debts and Expenses
Track all your expenses, and list out how much you owe in debts. Doing this enables you to realize what your priorities should be.
If your debts and expenses suck up most of your income, you’ll need a strict budgeting rule that allows you to pay off debts and cater to your expenses. The 30-30-30-10 is a good budgeting rule for this situation.
2. Consider Your Actual Income
Knowing how much you make in a month after tax can help you decide on a budgeting plan to use. If your salary is high and affords you the luxury to save, go for a relaxed rule like the 50-30-20 budgeting rule.
3. Understand Your Debt-to-income Ratio
Debt-to-income (DTI) ratio is the percentage of your gross monthly salary used to pay off your monthly debts. This ratio enables you to compare your income to your debts.
For example, if you have $30,000 in debt and receive a gross monthly salary of $3000, your DTI ratio will be 10:1, which means you owe ten times your gross income.
Once you calculate and understand your DTI ratio, you can make better decisions on what budgeting rule to adopt.
4. Know Your Financial and Life Goals
Financial and Life goals are useful in deciding what budgeting plan to go for. If your goal is to enjoy life, eat, and travel, you may have to go for a budgeting plan that gives more room for entertainment and fun. The 50-30-20 is a good example of this.
5. Consult A Financial Expert
Meet with a financial expert, advisor, or someone with experience. Tell them about your income, goals, and financial difficulties if you want to get the best advice.
What To Consider Before Deciding On A 30-30-30-10 Budget?
Before you decide on practicing the 30-30-30-10 rule, here are some things to consider:
Income
Not all types of income can work with the 30-30-30-10 rule. Remember, the 30-30-30-10 rule states that 30% of your income should go to rent or mortgage payments. If 30% of your income cannot afford to pay your rent, this rule becomes inappropriate for you.
Analyze your income, and find out whether 30% of your income can cover rents, expenses, or debt payments.
Financial Goals
Before you decide to use the 30-30-30-10 rule, make sure your financial goal aligns with it.
Here are financial goals that require the use of the 30-30-30-10 rule:
Retirement: If your goal is to save for retirement, use the 30-30-30-10 rule since it directs 30% of your income to savings, retirement, or investment.
Buying a House: To buy a house, you need to save for a down payment. With the 30-30-30-10 rule, it can be possible to save.
Investment: If you want to make investments, the 30-30-30-10 allows you to invest 30% of your salary each month.
College: With the 30-30-30-10 rule, you can save up to 30% of your income for college.
However, if your goal is to travel, the 30-30-30-10 rule may not be advisable since it only allows you to use 10% of your income for travel and entertainment. It can only work out if your income is high.
Expenses
Do your expenses take up a huge chunk of your income? If it does, the 30-30-30-10 rule which suggests 30% for expenses may not be useful to you.
One way to go around this issue is by cutting down on your expenses to make sure that it only requires 30% of your income.
Here are 21 Good Ways To Cut down On Expenses
Debt
The 30-30-30-10 rule recommends using 30% of your salary for savings, investment, or debt payment. So if you owe a lot in debt, this budgeting rule can help you get rid of it.
In addition, if you don’t have any debt, you can direct the 30% towards achieving your financial goal.
Strict Lifestyle
The 30-30-30-10 budgeting rule is heavy on saving and spending less. So if you are not ready to give up your fun lifestyle for a strict financial life, do not consider going for the rule.
How To Set up a 30-30-30-10 Budget
If you finally decide to use the 30-30-30-10 rule, here is a step-by-step guide on how to get started.
Step 1: Calculate Your Total Take-home Pay
Before you execute a budgeting rule, you need to know the exact amount you earn as a salary.
If you are a salaried employee, calculating your monthly income is very easy. However, if you earn on an hourly basis, know how to convert hourly wage to monthly and annual salary. In addition, if your salary differs each month, calculate the average and use it during budgeting.
Another Interesting Article: $13 an Hour is How Much Per Year? [Before and After Taxes]
Step 2: Calculate Your Expenses
If you make all your payments or transactions with a bank card, get your bank statement in order to calculate expenses.
Look through 3 to 6 months of your bank statement and get an average amount you spend each month.
Step 3: Categorize Your Expenses
Once you get a list of all your expenses, categorize them in order to calculate the percentage of your income spent on each category.
Since you’re using the 30-30-30-10 rule, make four categories of expenses. The categories include:
Rent or mortgage payments
Expenses for example utility bills, car repair & maintenance, groceries, internet, gas, food, and other daily expenses.
Savings, Investment, or debt payment
Wants (subscriptions, travel, shopping, eat-outs.
Step 4: Cut or increase spending to fit the percentages
After categorizing your expenses, calculate the percentage of your income they require. If a category exceeds the required percentage, cut down on your spending.
For instance, if your expenses on utility bills, groceries, food, internet, and gas exceed 30% of your income, find a way to cut down on expenses. Similarly, if your expenses are below the required percentage, increase your spending.
What To Do If Your Expenses Don’t Fit the Recommended Budget Percentages?
The 30-30-30-10 rule specifies the exact percentage of your income to spend on rent, daily expenses, debts, investments, and fun activities. But there are certain times when you may encounter leftovers or the expenses may exceed the recommended budget percentage.
For instance, you earn a $3,500 monthly salary, and 30% ($1,050) of it is expected to go towards rent or mortgage payments. If your rent costs $900 per month, you’ll have a leftover of $150. What do you do with this?
Here are some suggestions:
1. Adjust Your Expenses
You have the option of increasing or decreasing your expenses in order to fit into the 30-30-30-10 percentage rule. For instance, if 30% of your income is too low to pay your rent, find a cheaper apartment that allows you to stick to your budget.
2. Get a Second Job
If 30% of your income can’t cover your rent, expenses, or debts, get a side hustle to increase your income.
Here are the top 15 Reasons To Get A Second Job
3. Save and Roll Over To The Next Budgeting Period
If there are leftover funds after budgeting a percentage of your income, save them for the next period when you may be low on funds.
Pros and Cons of The 30-30-30-10 Budgeting Rule
Here are the benefits and downsides of using the 30-30-30-10 rule during budgeting:
Pros
It allocates a high percentage of your income to savings, debts, and investments. Thus, it enables you to achieve your financial goals.
The 30-30-30-10 rule allows you to divide your spending into four categories – this is simple to do.
It is a good budgeting plan for salaried employees with a fixed and steady income. Once you receive your income, you’ll already have a general idea of how much to spend on the expense categories.
With the 30-30-30-10 rule, you can develop good money habits.
It enables you to cultivate a strict financial life.
It leads to financial stability
Cons
It may be difficult to cut down on expenses in order to fit into the budget percentage.
Unexpected expenses and emergencies can ruin the plan
The 30-30-30-10 rule only assigns 10% of your income to entertainment or wants. This can make your life a bit boring and strict.
Budgeting 30% of your income to rent or mortgage payments can be difficult due to high housing costs. It is only possible if you have a high income.
Other Popular Budgeting Methods
The 30-30-30-10 rule isn’t for everyone. And if you think it doesn’t work for you, here are other budgeting rules and methods to consider:
1. The 50-30-20 Budgeting Method
This is one of the most popular budgeting methods. It assigns 50% of your income to needs, 30% to wants, and 20% to savings or debt payments.
Unlike the 30-30-30-10, this budgeting rule is more lenient. It gives space for savings, but also allows you to spend on the things you want.
2. The 80-20 Budgeting Method
The 80-20 rule divides your expenses into two categories – needs/wants and savings or debts. It is similar to the 50-30-20 method, the only difference is that it combines your needs and wants into the same spending category.
3. The 70-20-10 Budgeting Method
This budgeting rule allocates 70% of your income to needs, 20% to savings, debt repayment, or investment, and the remaining 10% to wants. It is suitable for people whose needs take up a huge chunk of their income.
4. The 60-30-10 Budgeting Rule
The 60-30-10 budget rule is well-suited for people with no financial goals or debt. It states that you should dedicate 60% of your income to needs, 30% to wants, and 10% to savings.
If you have enough savings and need a less restrictive budgeting plan, use the 60-30-10 rule.
Final Thoughts
Overall, the 30-30-30-10 rule is a good budgeting strategy to adopt if you have a large debt balance or financial demands that need to be met. It is strict but allows you to achieve your goals.
