Navigating personal finances can be quite a challenge, particularly in the current era of soaring living costs.
It’s essential to have a budget in place to attain financial stability and make progress towards your financial aspirations, whatever they may be.
However, developing a budget that truly suits your needs can feel overwhelming, and many people find it difficult to adhere to their financial plans despite their best intentions.
Enter the 30-30-30-10 budget rule.
This straightforward and powerful budgeting approach enables you to effectively manage your finances, allocate your income, and conquer your most significant financial objectives.
In this blog post, we’ll delve into the intricacies of the 30-30-30-10 budget, understanding how it operates, and uncovering how it can pave the way to financial security in today’s demanding times.
Are you ready to take charge of your financial journey?
Let’s dive right in.
The Power of the 30-30-30-10 Budget Method
Why is it important to have a budget?
A budget holds a pivotal role in effectively managing your finances. It serves as an indispensable tool that empowers you to take charge of your money and make informed decisions about your financial journey.
First, a budget allows you to identify key areas where you can streamline your spending.
By examining your income and expenses, you gain valuable insights that enable you to make conscious choices, allocating your resources wisely and edging closer to your financial goals.
Whether your goals revolve around debt repayment, building an emergency fund, or saving for a house deposit, a well-crafted budget acts as a guiding compass, transforming your dreams into tangible realities.
A budget also brings immense relief by alleviating financial stress and anxiety.
With a comprehensive budget in place, you can proactively plan for the future, anticipating upcoming expenses and setting aside funds accordingly. This ensures that you are prepared to handle any unexpected circumstances that may arise, offering you peace of mind and financial resilience, something we could all use right now!
What is the 30-30-30-10 budget rule?
As the name would suggest, the 30-30-30-10 budget rule is a budgeting method based on percentages.
It divides your income into the following 4 categories:
30% for housing
This category includes expenses related to housing, such as rent or mortgage payments, property taxes, home insurance, and maintenance costs.
30% for necessities
This portion covers everyday essentials, the things you can’t live without.
Examples of necessities include:
- Groceries
- Fuel/public transport
- Healthcare
- Clothing
- Utility bills
- Phone plan
- Internet
- Child support
- Essential household products
30% for goals
This category emphasises the importance of saving for future goals, emergencies, and long-term financial stability.
Examples of this may include:
- Debt repayments
- Making contributions to retirement accounts
- Investing in the stock market
- Building an emergency fund
- Saving for your first home
- Bonds
10% on wants
This remaining 10% is dedicated to discretionary spending on non-essential items and activities that enhance your lifestyle.
‘Wants’ may include:
- Eating out
- Travelling
- Shopping for non-essentials
- Concerts
- Nights out
- Subscription services like Netflix, Spotify etc.
- Hobbies
- Memberships (gym, clubs)
Why budget by percentage?
Budgeting by percentages is fantastic because it empowers you to allocate your income based on your personal needs and financial goals.
After all, everyone’s income and expenses differ, so budgeting by percentages enables you to adapt your spending to match your earnings and prioritise your expenses accordingly.
Budgeting by percentages also helps you steer clear of living beyond your means. When you budget by percentages, you assign your income to the most crucial expenses first, ensuring that you always have enough money to cover your basic needs before indulging in treats like visits to cocktail bars and exotic vacations.
Additionally, budgeting by percentages, especially with the 30-30-30-10 budget, provides a clear framework for saving.
By assigning a percentage of your income to savings, you are consistently working towards your financial goals, which the 30-30-30-10 budget places particular emphasis on.
How to get started with the 30-30-30-10 budget rule
Getting started with the 30-30-30-10 rule budget is simple.
It just involves working out exactly how much money you take home every month, knowing your outgoings, and dividing those outgoings into categories.
Work out your take-home income
The first thing you need to do is work out exactly how much income you receive after taxes.
This includes your salary, any income you receive from side hustles or freelance work, child support, government benefits (stimulus payments), interest on your current savings, and even money you may make from apps like Poshmark and Mercari.
Get clear on your financial goals
Outline your goals, because you’re going to be dedicating 30% of your income to them.
Are you saving for a house deposit? How much money will you need to save to do that?
Get super clear on exactly what your financial goals are.
Analyse your spending habits
The next step is to sit down and review all of your spending habits.
This might take a bit of time, but it is an essential part of the process, so don’t skip this part!
Write down everything you spend your money on each month, from big things like rent and utility bills to your daily Starbucks, dining out, public transport etc.
Organise your spending into categories
When you know exactly what you’re spending your money on, sort everything into categories based on whether it’s a housing cost, an essential need, or a want.
For example, utilities, groceries, and your phone bill would go into the ‘needs’ column, and things like chocolate, streaming services, and brunch dates would go into the ‘wants’ column.
I recommend doing this using a spreadsheet like Google Sheets.
Adjust your spending accordingly
Now it’s time to work out whether the 30-30-30-10 budgeting rule is for you.
If you can’t cover your mortgage payments with 30% of your income, you might want to consider a different budgeting plan.
Additionally, putting 30% of your income straight into savings might not work for everybody, depending on your lifestyle.
If you’ve decided that this budget rule is doable, the next step is to adjust your spending habits to fit within the confines of this new budget.
For example, if you take home $3000 per month after tax, you’ll be spending:
– $900 on housing costs
– $900 on all essential bills and spending
– $900 into savings
– $300 on whatever you want
Pros and cons of the 30-30-30-10 budget rule
The 30-30-30-10 budget rule is not for everybody.
It’s difficult to maintain a good social life on only 10% of your budget, and many people struggle to cover their essentials within the 30%.
Here are the main advantages and disadvantages of the 30-30-30-10 budget rule:
Advantages of the 30-30-30-10 budget
- Financial Balance: The 30-30-30-10 budget rule promotes a balanced approach to managing your finances. By allocating 30% of your income to needs, housing costs, and savings, and 10% to lifestyle choices, you create a framework that allows you to prioritise essential expenses, save for the future, and still enjoy a portion of your income for discretionary spending.
- Goal-orientated Savings: With the 30-30-30-10 budget rule, 30% of your income is dedicated to savings. This enables you to make consistent progress towards your financial goals, whether it’s building an emergency fund, paying off debt, saving for a down payment on a house, or investing for the future.
- Flexibility and Adaptability: The budget rule is adaptable to different income levels and lifestyles. It allows you to adjust the percentages based on your individual circumstances, ensuring that you allocate resources according to your specific needs and goals. This flexibility makes it suitable for a wide range of financial situations.
- Conscious Spending: The 30-30-30-10 budget rule encourages mindful spending. By setting aside specific percentages for needs, wants, savings, and lifestyle choices, you develop a heightened awareness of how you allocate your income. This helps you make more intentional choices and avoid impulsive or excessive spending, leading to improved financial discipline.
- Financial Stability and Security: Following the 30-30-30-10 budget rule promotes long-term financial stability and security. By consistently saving a portion of your income, you build a safety net for unexpected expenses or emergencies. Moreover, by prioritising essential expenses and avoiding overspending, you reduce the risk of accumulating debt and establish a solid foundation for your financial wellbeing.
Disadvantages of the 30-30-30-10 budget
- Rigidity: The fixed percentages in the 30-30-30-10 budget rule may not accommodate everyone’s unique financial situation or priorities. It may not allow for necessary adjustments based on individual circumstances, such as higher living costs or specific financial goals.
- Unrealistic for Low-Income Individuals: The 30-30-30-10 budget rule may not be feasible for people struggling to make ends meet. Allocating 30% of a limited income to savings may not be achievable for everyone, potentially causing frustration and discouragement.
- Neglecting Individual Spending Patterns: The budget rule overlooks individual spending patterns and preferences. It assumes that everyone’s needs and wants fit neatly into these predetermined percentages, disregarding personal variations in spending habits and financial priorities.
- Overemphasis on Savings: While saving is crucial, the 30-30-30-10 budget rule heavily emphasises saving 30% of your income. Depending solely on savings without addressing other financial obligations may hinder overall financial progress.
- Limited Flexibility for Life Changes: The fixed percentages may not easily accommodate major life changes, such as starting a family, pursuing higher education, or dealing with unexpected expenses.
Tips for sticking to the 30-30-30-10 budget
The key to budgeting successfully is staying motivated at all times, which isn’t always easy.
One way to stay motivated is to get really clear on why you’re doing what you’re doing.
By outlining what is your why, you will find it easier to make short term sacrifices for the long term result.
You should also focus on developing a growth mindset, and spend time educating yourself about the world of money.
When you do all of these things, remaining motivated to stick to your budget will be so much easier.
Who is the 30-30-30-10 rule for?
You might be wondering, ‘Is the 30-30-30-10 rule right for me?’ and that’s totally understandable.
If you’re on a low income and living in an expensive area, dedicating 30% of everything you earn to your savings may be impossible, as might only spending 10% on the socialising and entertainment.
The 30-30-30-10 budget is ideal for anybody who wants to prioritise saving money, while cutting back on unnecessary expenses.
This budget is also pretty straightforward and therefore ideal for first-time budgeters, unlike some of the more aggressive budgeting rules, such as the 60-30-10 rule budget.
In order to evaluate whether the 30-30-30-10 percentage method is for you, you should ask yourself the following questions:
- Can you cover your necessary expenses, including utility bills, on 30% of your income?
- Are you willing to cut out almost all of your more frivolous spending?
- Are your living expenses very low? If so, this could be a good budget for you.
- Do you have a short term goal that you are willing to make short term sacrifices for in order to achieve?
- Are you able to increase your income? If you can easily pick up a part-time job or side hustle, you could make this budget work for you.
- Do you have a large income that can easily cover your expenses? In this case, you’ll easily manage on this budget.
Alternative percentage budgets
If the 30-30-30-10 budget rule doesn’t align with your financial circumstances, there are several alternative approaches to consider.
One such method is the 50-30-20 rule budget, which provides a more flexible allocation of percentages.
In the 50-30-20 budget model, you allocate 50% of your income towards your essential needs, 30% towards your discretionary wants, and 20% towards savings. This approach recognises that individuals with a higher cost of living may need to allocate a larger portion of their income towards necessities while still allowing room for savings and some indulgences.
Another simplified option is the 80-20 budget plan. With this approach, you allocate 80% of your income towards both wants and needs, covering all expenses, while setting aside 20% for savings. This straightforward budgeting method allows for greater flexibility in spending while still maintaining a consistent savings habit.
Remember, you can customise these percentages based on your current lifestyle and make adjustments as your income fluctuates.
The key is to ensure that you are consistently saving, meeting your debt obligations, paying bills on time, and avoiding unnecessary expenditures that don’t align with your priorities.
The 30-30-30-10 Budget | Final Thoughts
As with anything in life, the 30-30-30-10 rule budget isn’t for everyone, but for those on a mid-range income living in an area where the cost of living isn’t too high, it can be the perfect way to achieve your financial goals while still paying all your bills on time.
If you’re not at a place where the 30-30-30-10 budget works for you, don’t worry!
The main things to take away from this article are that no matter how much you earn, a budget is a great way to keep track of your spending and organise your finances. You should also always be thinking about your long-term financial goals, and try not to splurge too much of your income on things that aren’t essential.
That’s it for today, but as always, if you have any questions then don’t hesitate to leave them in the comments below and I will do my best to help.
Until next time,
XOXO
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