The 30-30-30-10 Budget: How to Make It Work for You

The 30-30-30-10 budget offers a straight-forward, percentage-based framework for managing your expenses:

  • 30% of your income goes to housing;
  • 30% to necessities, such as food and utility bills;
  • 30% to financial goals, such as paying debts or saving money;
  • 10% goes towards wants, such as entertainment and dining out.

The goal of the 30-30-30-10 budget is to simplify your financial planning. Most expenses clearly fit into specific categories, making it easier to allocate your money. Plus, you get to use part of your earnings on fun purchases or experiences, giving you a bit of flexibility.

Who Should Use This Budgeting System?

No approach to budgeting is perfect for everyone. Since that’s the case, it’s wise to determine if the 30-30-30-10 budget is genuinely the right fit for you before diving into the approach. Here’s how to figure that out.

Signs the 30-30-30-10 Budget Is a Good Fit

Generally speaking, the 30-30-30-10 budget is a solid fit for anyone that needs a clear structure to allocate their income effectively. This can include households that struggle with extraneous spending or are having trouble saving for the future or managing debt.

It’s also an excellent choice for anyone new to budgeting. It helps ensure you don’t accidentally over-allocate funds in specific categories, something that’s often easy to do when you’re first learning to manage your own money.

If saving is one of your top priorities, the 30-30-30-10 budget is also an exceptional fit. Unlike other budgeting strategies, it has you direct a significant amount of your income toward financial goals, so it may help you hit your targets faster.

When it comes to income level, it can work well for anyone near the middle of the spectrum. It may also be a solid choice for lower-income households if the local cost of living is low or high-income households in cities where the cost of living is high.

Signs the 30-30-30-10 Budget Isn’t Right for You

In most cases, the 30-30-30-10 budget isn’t a solid fit for low-income households in moderate to high-cost areas. The same can be true of middle-income households in high-cost areas, especially if the price of housing is far above the national average.

For example, the average rent in San Francisco is around $3,230 per month. That means you’d need to make around $10,766 per month ($129,192 annually) to cover that amount with 30% of your income. Since that’s the case, dedicating more than 30% of your household income to housing might be an outright necessity.

The 30-30-30-10 budget also doesn’t give much room for wants. For middle to high-income households that are financially comfortable, the strategy may be a bit more restrictive than necessary. That’s particularly true if debt isn’t an issue and they’re meeting their savings goals with ease.

You can always modify the system to fit your needs. If your rent costs more than 30% of your budget because you live in an expensive city, you might allocate 35% of your budget towards rent and only 25% towards your financial goals. Or, if 10% isn’t quite enough to cover your discretionary expenses, you could always shift 5% from savings to your wants.

How to Use the 30-30-30-10 Budget System

If you believe that the 30-30-30-10 budget system is a solid match for your needs, it’s reasonably easy to get started. Here is a step-by-step approach for setting up a 30-30-30-10 budget.

1. Review Your Income

Since the 30-30-30-10 budget involves allocating specific percentages of your income to various spending categories, your first step is to add up your income. If you earn the same amount every month, that’s relatively simple. You can use your paystubs as a guide and get a solid number fast.

If you’re a freelancer, gig worker, tipped employee, or an hourly employee with fluctuating hours, you may need to adjust your approach. One option is to use your annual income as a guide, dividing that number by 12 to see what you earn monthly on average.

That strategy is best if you typically earn the same amount every year and experience only slight financial fluctuations monthly. Otherwise, you’ll need to set excess money to the side during the high-earning months to cover the ones where your income falls a bit short.

If that isn’t an ideal fit, you might want to use your lowest earning month as the basis for your budget. That way, you can plan for lean times and, if you make more than that in a given month, can allocate more to savings, debt, or wants.

2. Divide Your Income

After you know your total monthly income, it’s time for a little math. You’ll need to know what figure represents 30% and 10% of your income. Usually, you can do this with ease with a calculator. However, if you need to do it manually, the simplest approach is to divide your income by 10. Then, you have the 10% figure right away, and if you multiply that amount by 3, you’ll get the 30% one, too.

If your income doesn’t divide evenly, your best bet is to round down to the nearest penny. That way, the total doesn’t exceed your monthly income. Plus, you’re only failing to allocate 4 cents, at most, so you aren’t losing much purchasing power inside your budget.

3. List Your Fixed Expenses

After you’ve divided your income, it’s time to list your fixed expenses. Typically, this is anything where you pay essentially the same amount every month. For example, rent, mortgage payments, car payments, insurance, streaming services, gym memberships, and similar costs usually qualify.

Don’t worry about the category at this point. What’s important is to capture the activity.

4. Outline Your Variable Expenses

Once you have your fixed expenses, move on to variable ones. These are monthly expenses with costs that can shift based on usage or consumption. For example, utilities may fall in this group if you don’t use bill averaging. Gas, groceries, and some entertainment spending does, too.

Since you’ll need some figures to work with, you can either record the average amount you spend each month or pick the highest cost month as your baseline. That way, you have a number to use when it’s time to move forward in the process.

5. List Your Periodic Expenses

Most households have costs that happen regularly but not monthly. For example, car maintenance is a prime example. The same goes for college tuition, pet vaccinations, and holiday gifts. These expenses are called periodic expenses.

If you want to plan for these, you need to see how much you spend annually. Then, divide that number by 12 to see how much you should set aside every month to cover those costs in cash.

6. Categorize Your Spending

Once you have a full list of your expenses, it’s time to categorize your spending. Housing is pretty straightforward. The same goes for savings and debt repayment.

However, things can get a little hazy when it comes to necessities and wants. Food and gas may be part one category, part another. Clothing is another tricky one. In some cases, the same can go for telecom services, including internet and smartphone plans.

In the end, you’ll need to decide where everything falls.

7. Add Up the Costs in Each Category

After categorizing, you’ll need to add up your spending in each category to see if your totals fall in the 30-30-30-10 budget framework. If so, then your budget is essentially done.

If not, you may need to cut back in some areas to create more room in others. That’ll depend on how the numbers shake out. So, compare the target percentages with the actual ones. Then, decide if adjustments are necessary or if slight modifications to the 30-30-30-10 budget are a better bet. That way, you can find an approach that works for you.

Closing Thoughts

When it comes to managing your money, few tools are as powerful – or widely recommended – as a budget. While picking a budgeting strategy can seem challenging, it doesn’t have to be. The 30-30-30-10 budget provides a simple framework for managing your finances. This percentage-based approach ensures you don’t overlook critical aspects of money management. For example, it reduces the odds that you’ll overspend in areas, all while creating beneficial habits – like saving – along the way.