If you haven’t had a great experience with budgeting or are ready to give budgeting a shot, you’ll want to have a look at the 30-30-30-10 budget rule.
Creating a budget – or spending plan – for your money before it arrives in your bank account is a crucial part of achieving financial wellness.
There are many different ways to budget your money so if you’ve tried traditional budgeting in the past and weren’t successful it’s possible you just need to try some different options until you find the right fit.
What is the 30-30-30-10 Budgeting Method?
While it may have a bit of a strange name, the 30-30-30-10 method of budgeting is simply a way of dividing up your money each budget period according to specific percentages.
The intention is to create a simple budget plan by dividing your disposable income up into categories – or buckets – in an effort to help you maintain good financial health and more easily manage your money.
This budgeting rule dictates you split your income into four specific buckets: housing expenses, necessary expenses, financial goals, and unnecessary expenses (often referred to as “fun”).
If you’ve never used a bucket-based budgeting system before or you’ve previously used something like the cash envelope system in the past, this may feel like an over-simplified (and almost too easy) way of preparing your budget.
However, if you’ve found traditional ways of budgeting to be too confusing or tedious, then the act of allocating your take-home pay into only a handful of categories may be a good way to reduce the overwhelm you feel when budgeting.
How to Allocate Your Money Using the 30-30-30-10 Budget Method
When using this method, you’ll need to make some decisions as to how different bills or expenses will be categorized.
In an effort to eliminate any possible confusion, let’s review which types of expenses should be included in each of the four categories.
The rule of thumb with the 30-30-30-10 method of budgeting is to break out your income into the specific categories as follows:
Housing Expenses – 30%
This first bucket will include any expenses pertaining to your housing costs.
This would include things like your basic house expenses like your mortgage or rent payment.
If your mortgage payment does not include taxes and insurance then your property taxes, school taxes, and homeowners (or renter’s) insurance would also be included in your housing expenses.
Many also include home maintenance costs, appliance and furniture repair or replacement costs, and landscaping costs in this category as well – more on this in a bit…
Necessary Expenses – 30%
Next, you’ll allocate 30% of your net income to covering your necessary expenses.
Things like your fixed expenses (most of your bills that have a due date are considered “fixed” expenses) plus any costs that would be considered basic needs would be included in this bucket.
Most debts that have minimum payments would also fall into this “needs category”.
As well as utility bills, cell phone bills, car payments, childcare costs, insurance premiums (health insurance, auto insurance, etc.), other health care costs such as doctor visits or co-pays, and prescriptions.
Lastly, any variable expenses that are considered basic necessities such as food, and basic clothing (designer jeans and the newest Yeezee’s not welcome here) would also go in this category as well as fuel for your vehicle or bus fare.
Financial Goals – 30%
Another 30% of your take-home income will go toward reaching your financial goals, whatever they may be…and here’s where you get to start putting any extra money to good use.
Or maybe you want to start saving for a new car or to begin working on your new investment strategy by increasing your retirement contributions.
Note: Whether you’re trying to hit your savings goals or working to pay off your credit cards, focusing on one main goal at a time is going to allow this 30% to give you more momentum than if you split it up to put a small amount towards each of the goals you’d like to achieve.
Unnecessary Expenses – 10%
Lastly, the 30-30-30-10 budget calls for the remaining 10% of your income to be used for unnecessary expenses – consider this your “wants category”.
This bucket will allow you to have a little fun without busting your budget each month!
This category will house all of your discretionary spending – the stuff you want to do with the money you have left over after covering all your other bills and expenses from the other categories.
Additional monthly expenses that are not considered to be essential such as gym memberships, those pricey jeans, and sneakers mentioned above, any trips you’ve been wanting to take, or date nights will be covered by the money in this spending category.
How Do You Know Which Budgeting System to Use?
Any personal finance expert will tell you that a budget is a great tool to help you pay attention to where your money is going.
There’s no doubt you should be budgeting consistently, regardless of how much money you make or how much credit card debt you may have.
Budgeting is not about control or restriction; it’s simply about being intentional with how you spend, save and invest your money by creating a plan.
That being said, there is no one “right way” to budget.
In fact, the “right way” to budget is the way that actually works for you.
A budget won’t serve you if you can’t stick to it so a good place to start is by trying out a few different budgeting techniques to determine which one is right for you and your specific financial situation.
Don’t feel as though you need to budget the exact same way as your favorite financial experts do in order to be successful.
Believe it or not, the way you budget really doesn’t matter all that much…
Instead, the important thing is that you understand how to create, maintain, and balance your budget.
This will ensure your budget offers you financial clarity.
When you’re clear on how your money flows in and out of your bank account you’ll be equipped to make better financial decisions.
30-30-30-10 Budget Example
The good thing about budgeting your money in this manner is that it is very low-maintenance.
Simply split your after-tax income (not your gross income) into the four categories and use the money in each to pay the specific expenses covered above.
Let’s have a closer look at an example of a monthly budget prepared using the 30-30-30-10 budget rule so you can see how it may look on paper.
(We’ll use generic round numbers to avoid any confusion)
NET HOUSEHOLD INCOME – $4,000
HOUSING EXPENSES 30% – $1,200
NECESSARY EXPENSES 30% – $1,200
FINANCIAL GOALS 30% – $1,200
UNNECCESSARY EXPENSES 10% – $400
Using this example, you can see you would have $1,200 in each bucket except for the spending categories, where you’d have $400.
How to Set Up a New Budget Using the 30-30-30-10
Ready to give this method a shot?
The first step is to go through each expense you currently have – be sure to include any quarterly and annual expenses too – and place each expense into one of the four categories.
You’ll end up with a list that may look something like this:
- Mortgage payment (includes taxes + insurance)
- Gas bill
- Electric bill
- Cell phone bill
- Cable/Internet bill
- Water bill
- Car payment
- Pet food
- Doctor visit
- Contribute to Christmas sinking fund
- Debt repayment – extra payment to student loans
- Happy hour
- Birthday gift
- Miscellaneous spending
- Amazon Prime
Next, determine the budget period you’ll be using: this could be monthly, bi-weekly, weekly, or any other variation that works for you.
Then total up your household income for that time period – you’ll want to be sure to use your net income when creating your budget.
Note: If your paycheck amounts fluctuate, grab your bank statements and take your average income for the past year. A full year will give you the best estimate but if you’re short on time and you don’t work a seasonal position, six months will suffice. Get more help on how to budget with irregular income.
This quick calculation will help you determine the amounts that will go in each bucket:
TOTAL INCOME x PERCENT (as a decimal) = BUDGET AMOUNT
Using the numbers from our example budget above your calculation would look like this:
$4,000 (TOTAL INCOME) x .30 (PERCENT) = $1,200
Calculate the amount you’ll need for each of your four budget categories and use it to pay the expenses in each respective category.
You’ve now prepared your budget using the 30-30-30-10 method.
How Do I Execute the 30-30-30-10 Budget?
Now that your budget is ready to go you may be wondering how this system actually works for budgeting your money?
How do you keep yourself organized and make sure you’re spending the right amount each month?
How you set up your budget, finances, bank accounts, etc. is completely up to you.
If it seems as though all of your income living in one singular account may be difficult, a good solution may be to use multiple accounts to house your different categories.
Some options to consider:
- Your regular checking account would be a good option to have your monthly income deposited in to – use this as your “operating account”. The money that remains in this account will be used to cover your “needs” category.
- A high-yield savings account is the best place to save your emergency fund, sinking funds, and any other savings goals you’re working towards.
- Retirement accounts such as a Roth IRA, Traditional IRA, or 401K are options for investing goals.
- High-yield checking accounts are perfect for housing expenses (set up automatic withdrawals for mortgage/rent payments) and fun money – a debit card would be helpful for this account.
Once your budget is prepared, simply make separate bank deposits into each respective account according to each category’s total amount for that budget period.
Referring to our example budget above here’s how this would look:
1) All paychecks and income would be deposited into your operating account
2) Use the calculation above (or this free 30-30-30-10 budget worksheet) to determine the amounts to be allocated to each category
3) Transfer $1,200 (30%) from your operating account to your housing account. For convenience, set up automatic payments for your mortgage, rent, insurance, etc.
4) Transfer $1,200 (30%) from your operating account to your savings and investing accounts (in whichever increments you prefer)
5) Transfer $400 (10%) to your wants account to be used how you see fit for “unnecessary” expenses throughout the month.
Note: For convenience, you can set up automatic payments for things like gym memberships or streaming services and use your debit card when shopping or dining out.
6) Use the $1,200 (30%) remaining in your operating account to pay all of the expenses you’ve categorized as “necessary”.
What to do if Your Expenses Don’t Fit the Recommended Budget Percentages?
When using percentage-based budgeting systems there may be some instances where you have “leftover” money in each category.
Again, using the numbers from our example budget above, if you are creating a monthly budget and your income is $4,000, which as we saw would give you $1,200/month in your housing expenses bucket.
What do you do if the monthly payment for your mortgage/rent is only $1,100?
That would leave you an additional $100 remaining in this category each month.
You may be wondering what you will do with this money?
You have a few options…options are good.
1) Roll the Money Over to the Next Budget Period
If you’re a fan of KISS (Keep It Simple, Stupid – an old military adage) you may want to just let it roll…
This option may be a great way to handle leftover funds, particularly when looking at the “needs” and “wants” categories of your budget.
It is likely these categories will vary the most.
Your utility bills will ebb and flow according to the seasons, essentials such as food and fuel will vary due to economic factors, and your “fun” spending is also likely to change from month to month.
Any extra money left in these categories will act as a buffer to protect your budget should you experience a low-income and/or high spending month.
Note: Typically you wouldn’t have any leftover income in your goals category as the full 30% should be put towards your goals each budget. If you have leftover in your “housing” category you can either use that money to save up for any increase or additional housing expense you may incur in the future.
Think: Tax/insurance/escrow increases, rent increases, refinance costs, home imiprovements, outdoor maintenance, etc.
Any additional money that carries over each month can function as a “Housing” sinking fund.
2) Adjust Your Expenses
If your income is high enough to cover all of the budget guidelines in the 30-30-30-10 budget rule, and you like the logic of budgeting this way but your expenses don’t quite fit within the parameters you do have the option of adjusting them.
Is this cheating a bit?
Maybe 😳 – but remember, the sole purpose of a budget is to make intentional choices about how you spend and save your money...
If we look at the category breakdown it does offer some room for interpretation, shall we say?
Note: If you find yourself adjusting things each month and constantly switching categories to try and make the numbers work for your finances, that’s a good sign this many not be the best budgeting method for you at this time – take a look at some of the other budgeting options below.
Referring back to our previous example, our Housing Expenses category has a total of $1,200 for the month.
If your numbers were the same and your mortgage payment (including tax and insurance) was $1,200, that doesn’t leave much room for other housing expenses.
However, if the remainder of your Necessary Expenses come in on the low end each month and you typically have $400 leftover in this category, you could move any additional housing expenses to your “needs” category instead.
Some experts may disagree with this option, but if it works for you consistently, does not lead to overspending, and you’re still contributing 30% of your income to your goals each month, then do it!
Remember, you are in charge of your budget…no one else.
3) Increase Income + Decrease Expenses
Your last option is to work to increase your income and/or decrease your expenses, whichever is applicable.
Signing up for overtime at work, getting a part-time job, selling stuff around your house, or starting a side hustle will all help you increase your income, thus increasing the amount of money divided into each bucket.
Researching ways to live more frugally (get 101 money-saving ideas here), saving money on groceries, and negotiating current bills and services are all ways to stretch your dollar and reduce your monthly expenses.
What Are the Pros and Cons of the 30-30-30-10 Budget?
As with any budgeting system, the 30-30-30-10 budget is not for everyone.
Maybe you’re working towards FIRE and saving 30% of your income each month simply isn’t enough or perhaps you struggle to keep your spending reigned in when you have too much freedom in your budget criteria.
Let’s do a quick review of the pros and cons to help you decide if this method is a good choice for you…
- Simple system with only 4 categories to manage – saves time and less math
- Works great if you have a steady paycheck and a good idea of how much money you earn each month
- Can help you spend less money
- Emphasizes the importance of focusing on financial goals
- Handling unexpected expenses may be confusing
- May be difficult to keep housing costs at 30% for many in certain markets
- Categories are broad, some may need more direction
- High minimum debt payments may eat up large amount of money
- Only 10% of income is allowed for expenses deemed “wants”
- Doesn’t specify any amount for giving
If this pro/con list showed you the 30-30-30-10 budget rule isn’t the best choice for you check out some other budget options below.
Other Popular Methods of Budgeting
If you like the idea of having a clear-cut plan laid out for you when it comes to budgeting but think the 30-30-30-10 budget isn’t the best fit for you, there are many other types of budget methods that follow the same theory but use different categories and percentages.
70-20-10 Budget Rule
70% – Spending…all of it
20% – Savings such as building an emergency fund, sinking funds, and investing
10% – Giving or debt
Great option if:
- You prefer your budget to stay as simple as possible
- You want to pay off your debt
- Giving is one of your top priorities
Probably not for you if:
- You prefer to split out your discretionary spending
- Giving is not a priority for you and you have no debt
60-30-10 Budget Rule
60% – Financial goals such as saving, investing, or paying off debt
30% – Needs such as housing, utilities, food, insurance, transportation, etc.
10% – Wants such as dining out, travel, gym memberships, etc.
Great option if:
- You’re a hardcore saver or a spender looking to become a saver 🤣
- 60% is obviously a large chunk of your income so for this budgeting method to work for you, you’d likely have a good amount of self-control to stick to your budget.
- You’re goal-oriented. Being more motivated by the big picture than the present moment, financially speaking, will serve you when using this type of budget.
Probably not for you if:
- You prioritize a higher amount of personal spending on wants.
- You have a very high cost of living that would far exceed 30%.
50-30-20 Budget Rule
Fun fact…this method of budgeting was actually made popular by Massachusetts State Senator Elizabeth Warren and is probably the most popular of all the alternative budgeting methods we’ve covered in this section.
50% – Needs such as housing, utilities, food, insurance, transportation, etc.
30% – Wants such as dining out, travel, gym memberships, etc.
20% – Saving and investing
Great option if:
- You like the freedom to easily categorize expenses with just a few options
- You appreciate having more margin in your budget for “wants”.
Probably not for you if:
- You need a bit more direction when it comes to allocating your money each budget
- You have a high cost of living, a large number of fixed expenses and/or large amount of debt
Now that you’re an expert on the 30-30-30-10 budget rule, be sure to grab your free pdf worksheet to walk you through the process so you can get started preparing your new budget and making progress on your financial goals.
Kristin Stones is the owner of Cents + Purpose, an online community dedicated to sharing practical personal finance content. Her mission is to equip women with the necessary tools and knowledge to take back control of their money and live a more purposeful life. She creates actionable content to help her audience achieve financial wellness using her simple approach to managing money - all learned through her personal experience of paying off almost $55,000 of debt in under two years.