Budgeting can be complicated and time-consuming, especially if you don’t know where to start. The 30-30-30-10 budget is one of the easiest and most effective strategies for understanding your finances and setting up a financial plan that works for you.
In this article, we look at how to manage your monthly expenses and after-tax income with this simple budgeting system.
What is the 30-30-30-10 budget rule?
The 30-30-30-10 rule is a simple, percentage-based budget plan that divides your take-home pay into four categories: 30% for living expenses, 30% for flexible/discretionary spending, 30% for savings, and 10% for debt repayment or investments.
The idea is to allocate a percentage of your money to different areas of spending so that you can prioritize what’s important and make sure you’re still able to save for long-term goals. It’s a simple way to budget that helps you keep track of how much you’re spending and how much you have left over.
Here’s a breakdown of the four categories:
This portion of your budget is dedicated to housing expenses, which include rent or mortgage payments, property taxes, homeowner’s insurance, and maintenance.
Allocating 30% of your income to housing ensures you can afford a comfortable living situation without stretching your budget too thin.
This can be a bit challenging in areas with high living costs (e.g., San Francisco, New York City)—in these areas, other budgeting techniques are usually more helpful.
The necessities category covers all those essential expenses you can’t live without. Think groceries, utility bills, transportation, insurance, and healthcare.
Setting aside 30% of your income for these necessities allows you to meet your basic needs while still having money left over for other goals.
Beyond basic necessities, there will probably be some gray area here. Essentials to some are discretionary expenses to others. To properly allocate your funds in this category, you have to be honest with yourself about what really matters to you.
Financial Goals (30%)
Your financial goals are an essential part of achieving long-term financial freedom. This category includes paying off debts, building an emergency fund, saving for retirement, and investing.
If you have a goal of starting a business or purchasing an investment property, that would typically fall into this category as well.
Allocating 30% of your income to these goals helps you focus on the bigger financial picture and ensures you’re actively working towards a secure future.
The “Wants” category is all about treating yourself. This is the fun part of your budget, where you can indulge in entertainment, dining out, vacations, and hobbies without feeling guilty.
By reserving 10% of your income for these activities, you can enjoy the fruits of your labor without derailing the rest of your financial life.
Who should use the 30-30-30-10 budget rule?
Of course, no budgeting rule is perfect for everyone’s financial goals. As is true with all percentage-based budget plans, you must determine whether the 30-30-30-10 method is the right fit for your financial situation.
In general, the 30-30-30-10 budget rule works best for those who are somewhere in the middle of the spectrum. In areas with higher living costs, the 30-30-30-10 budget is too restrictive.
For example, San Francisco’s average rent costs are now above $3,300. For the 30-30-30-10 budget to work, a San Francisco resident’s total monthly income would have to reach over $11,000.
More realistically, these individuals need to allocate more than 30% of their income to the housing category—and that requires a different budgeting method.
Signs the 30-30-30-10 Budget is a Good Fit
- You need a clear structure to allocate income effectively.
- You struggle with overspending or trouble saving for the future.
- You’re new to budgeting and need guidance.
- You prioritize saving and managing debt and want to reach your savings goals faster.
- Your net income is somewhere in the middle (e.g., high income with a high cost of living or low income but low cost of living).
Signs the 30-30-30-10 Budget Isn’t Right for You:
- Your average income is low or middle, but housing costs are far above average.
- You are financially comfortable and don’t have to pay off debt (or you have very little).
- You already have a financial cushion and don’t need a restrictive budget method.
How to Use the 30-30-30-10 Budget Rule Effectively
To get the most out of the 30-30-30-10 budget method, you have to track your spending and make adjustments if/when necessary. This requires patience, discipline, and dedication as you work towards financial freedom.
Here is a step-by-step guide to get started:
1. Assess Your Monthly Income
The 30-30-30-10 budget requires you to allocate specific percentages of your income to different spending categories.
You will start by calculating your monthly gross income, then determine your net income. For those with a consistent monthly income, this process is straightforward. Simply refer to your paystubs to determine your monthly earnings.
If you’re a freelancer, contractor, gig worker, tipped employee, or hourly employee with variable hours, you’ll need a different approach.
One option is to calculate your average monthly income based on your annual earnings. This strategy works best if your annual income remains fairly consistent, despite minor monthly fluctuations.
Set aside extra money during high-earning months to accommodate for months when your income falls short.
Alternatively, base your budget on the lowest-earning month, ensuring you’re prepared for leaner times. Any additional income earned in other months can be allocated to savings, debt reduction, or discretionary spending.
2. Highlight Fixed Expenses
Your fixed expenses will include housing, health insurance, car payments, gym memberships, and other recurring bills that remain the same each month.
Don’t worry about adjusting the amounts here. Simply total them up to determine your fixed expenses total. This is important because it allows you to create a budget that factors in your essential costs.
3. Track Variable Expenses
Variable expenses change each month. They include groceries, transportation costs, and utilities.
You will need a little bit of leeway in this category, as you can’t accurately predict how much you’ll actually spend from month to month. Especially in the case of utilities (which spike during the summer months), it’s essential to plan for these costs beforehand.
For the 30-30-30-10 budget plan to work, you will need to keep your variable expenses at or below what is allotted for them in the budget.
You can do that by either averaging your spent money in this category over a 12-month period or using your highest month’s total as your baseline.
4. Pinpoint Your Periodic Expenses
Your periodic expenses happen semi-frequently but not monthly. If you have pets, doctors’ appointments, car maintenance (e.g., smog checks, oil changes), or childcare, these will count as periodic expenses.
The easiest way to budget for these is to tally your annual total and divide it by 12 to get the average.
5. Divide and Categorize Your Income
Once you decide how you are going to measure your fixed and variable expenses, you can break them down into their respective categories.
For example, let’s say you’re a freelancer who earns $48,000 annually, with monthly earnings ranging between $3,000 and $5,000. Your average monthly income is $4,000.
Using the 30-30-30-10 rule, you’d allocate:
- $1,200 for housing
- $1,200 for necessities
- $1,200 for financial goals
- $400 for fun money
If you base your budget on the lowest-earning month ($3,000), you will allocate:
- $900 for housing
- $900 for necessities
- $900 for financial goals
- $300 for fun money
What exactly you put into your spending categories is straightforward for the most part. You might run into trouble with items like streaming services or gym memberships (considered nice-to-haves by some, necessary expenses by others).
In the end, you have to decide how much wiggle room you want to give yourself in each category. The 30-30-30-10 budget rule is just a guideline—it’s up to you to make adjustments as needed.
Quick Tips for Saving Money With the 30-30-30-10 Budget Rule
If you want to get the most out of the 30-30-30-10 budget rule, here are a few budgeting tips to help you reach your money goals:
- Automate your fixed expenses. Set up automatic transfers or payments for recurring expenses like rent or mortgage, utilities, and debt payments.
- Use budgeting tools. Online apps help you monitor your spending, categorize expenses, and create customized budgets based on your lifestyle. They can also help you save money faster by gamifying the process.
Pay off debt first. Focus on paying off high-interest debt before allocating money to discretionary spending. By tackling your debt first, you’ll save on interest payments and work towards financial freedom more quickly.
Final Thoughts on the 30-30-30-10 Budget Rule
If you want to accelerate your saving, the 30-30-30-10 budget rule is an excellent way to reach your personal finance goals.
It takes discipline and planning. But if you follow it strictly, you can save for retirement, build up an emergency fund, and still have enough to enjoy your life.
I have more budgeting tips and a whole resource library in my free 30-page guide here.