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”).
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.
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%
In a 30-30-30-10 budget 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 cover 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 with 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 into 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. The money in this category can be used towards saving for an emergency fund or for extra payments on your car loan.
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.
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.
There is No “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. 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. Using this example, you can see you would have $1,200 in each bucket except for the spending categories, where you’d have $400.
Net Household Expenses – $4,000
Housing Expenses 30% – $1,200
Necessary Expenses 30% – $1,200
Financial Goals 30% – $1,200
Unnecessary Expenses 10% – $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
Determine Your Budget PeriodThis 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.
Fill Your Buckets
This quick calculation will help you determine the amounts that will go into 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 To 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 ensure 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.
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, 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 K.I.S.S. (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.
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?
Referring 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 left in this category, you could move any additional housing expenses to your “needs” category instead. 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, 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 four 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
- It 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
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