Most financial experts agree that you should have a budget, but when you’re just getting started, that seems easier said than done. You might sit down to create your first budget and realize you have no idea how much you should spend on anything. That’s where the 30-30-30-10 budget comes in.
The 30-30-30-10 is a percentage budget that directs you to spend certain percentages on certain spending categories. Budgeting by percentages is a popular strategy for budgeting since it creates rules of thumb to help you figure out how much to spend.
And when you’re just getting started with budgeting, it can help give you the structure and guidance you need.
What is a 30-30-30-10 budget and how does it work?
The 30-30-30-10 budget is a percentage-based budget that has you break down your spending by the following categories:
- The first 30% of your budget is for housing, meaning either rent or your mortgage.
- 30% of your budget is for other necessary expenses like utilities, groceries, gas, internet, etc.
- 30% of your budget is for financial goals like paying off debt or saving.
- 10% of your budget is for wants, which includes dining out, entertainment, travel, and more.
Who is the 30-30-30-10 budget right for?
The 30-30-30-10 budget method is just one of many that are available. So how do you decide if this method is right for you, or if it’s better to find an alternative? First, the 30-30-30-10 budget is a great option for someone who needs a bit of help reigning in their spending.
If you frequently find that too much of your budget is eaten up by unnecessary spending, then this budgeting method could help provide the structure you need to cut back.
The 30-30-30-10 budget is also ideal for someone who wants to prioritize financial goals in their budget. Other budgeting methods devote a smaller percentage to savings. But if your financial goals are your priority, then consider this budget method.
Who is it not right for?
While the 30-30-30-10 budget method is great for certain people, we should also talk about who it may not be right for. First, this budgeting method probably won’t work for people in high cost of living areas. The problem is that in areas where the cost of living is high, rent tends to be very high.
And in those areas, most people struggle to limit their housing to just 30% of their income. If you live in a place like New York or Los Angeles, spending more of your budget on housing might simply be unavoidable. That’s okay as long as you’re comfortable with your spending.
This budgeting method is also more restrictive than most in terms of spending on wants. For someone in a more financially comfortable place who wants to splurge more on themselves, 10% for wants may simply seem too low.
How to set up a 30-30-30-10 budget
Are you ready to set up your 30-30-30-10 budget? Here’s how to get started:
Step 1: Add up your income
The 30-30-30-10 budget has you devote certain percentages of your income to certain purposes. Because of that, it’s important that you start by adding up your monthly income.
For some people, adding up your income will be easy. If you are a salaried employee, it’s probably the same each month. But if you’re an hourly employee, a tipped employee, or self-employed, then figuring out your monthly income might be a bit trickier.
If your income changes from one month to the next, you can either use your lowest typical income for your budget or simply an average of all months. Keep in mind that if you use your average income, then during the months when your income is above-average, you’ll have to set money aside to use during those months when you have below-average income.
Step 2: Add up your expenses
Next, add up all of your expenses. An easy way to do this is to go through your bank and credit card statements for the past 3-6 months and document everything you spent money on. Once you’ve figured out the total you spend in each budget category, you can run the numbers to find the average for each month.
Step 3: Divide your expenses into the correct categories
Once you know what you spend your money on each month, divide those expenses into budget categories. Some are pretty clear. For example, your monthly rent or mortgage payment clearly goes into the housing category. And monthly payments like insurance and utilities clearly go into the needs category.
But other expenses might not be so clear-cut. For example, what about food? Sure, you have to eat. But not all of your food spending is likely to be necessary. You’ll have to decide for yourself which food spending is necessary and which counts as a want.
You might run into the same question when it comes to clothing, especially if you’re required to wear certain clothes for work. If you’re buying clothes to wear to work, does that count as a need or a want? Only you can decide for certain.
Step 4: Set specific financial goals
A big part of the 30-30-30-10 budget is devoting money toward financial goals. In fact, using this budgeting method, nearly one-third of your budget goes to your financial goals like paying off debt and saving for the future.
But to make room for that money in your budget, it’s important that you actually set specific goals. Not only will setting goals ensure that you’re using that money toward things you really value and bring you toward your dream life, but having specific goals in place will keep you motivated to save.
Some financial goals you might include in your budget are:
- Paying off debt
- Preparing for retirement
- Saving for the down payment on a home
- Taking your dream vacation
- Paying for your child’s college education
- Starting a business
Step 5: Cut or increase spending to fit the percentages
After you set up your budget, you might find that some of your spending doesn’t quite fit into the category percentages. In that case, you might need to do some adjusting. For example, maybe you set up your budget and realize that wants currently account for more than 10% of your budget.
Go through your spending to see if there’s anything you can cut. On the other hand, you might find that you’ve been so restrictive with your spending that you aren’t even spending 10% of your budget on wants. That might be the permission that you need to spend a bit more on yourself.
Similarly, you might set up your budget and realize you’re falling short of 30% of your budget going toward your financial goals. If you’re far short of 30%, you may not be able to change it overnight. But now that you know what your target savings are, you can start slowly adjusting your spending to get to that goal.
30-30-30-10 budget vs. other percentage budgets
The 30-30-30-10 budget is just one option for setting up a percentage-based budget, but it’s not the only option.
There are also other percent budgets that can serve as rules of thumb for your spending. We’ll cover two others below so you can decide which is right for you.
30-30-30-10 vs. 50-30-20 budget
The 50-30-20 budget method is one of the most popular budgets there is. In fact, it was created by US Senator Elizabeth Warren. The method has you spend 50% of your budget on needs, 30% on wants, and 20% on savings. Here’s how that breaks down:
- 50% for needs covers your rent or mortgage, insurance, loan payments, utilities, groceries, and other necessary monthly expenses.
- 30% for wants covers everything optional in your budget, including dining out, travel, entertainment, new clothes, and other similar expenses.
- 20% for savings is for anything that helps you build your net worth. It can include money into your savings account to build your emergency fund or save for other goals, money into your investment accounts to save for retirement or even extra money to debt.
The 50-30-20 budget is similar to the 30-30-30-10 budget in that both help create structure in your budget and guide you on how much to spend in each category. But as you can see from the breakdown that there are some differences as well.
First, the 50-30-20 budget allows for more money going toward optional expenses. As a result, it might be better if you don’t want to feel restricted by their budget.
On the other hand, the 30-30-30-10 budget has more money going toward financial goals. This budget might be better if you have a large debt balance or a large financial goal, such as retiring early or buying your dream home.
30-30-30-10 vs. 80-20 budget
The 80-20 budgeting method is another easy way of breaking your spending down into categories. But as you can see, this one is the most simplified of all, since it has only two spending categories.
The 80-20 budgeting method is based on the well-known Pareto Principle that says 80% of your results come from just 20% of your efforts. The budget breaks down like this:
- 80% of your budget goes toward needs and wants
- 20% of your budget goes toward savings and financial goals
As you can see, the 80-20 budget allocates the same percentage of your budget to savings and financial goals as the 50-30-20 budget.
The big difference is that rather than putting needs and wants into two different categories, it puts all spending into just one category that accounts for most of your budget.
The 80-20 budget might be right for you if you want a general guideline to help you plan your budget, but don’t want to feel restricted between your needs and wants and would rather categorize all of your spending together.
Give the 30-30-30-10 budget a try!
When you start budgeting for the first time, you might feel overwhelmed with the number of options. Percentage budgets like the 30-30-30-10 budget provide a simple framework to help guide your spending.
And remember, as with any budgeting method, getting started is better than doing it perfectly. You can use the 30-30-30-10 percentages as a guide, but know that your exact numbers may look a bit different depending on your expenses and financial goals.
Learn how to create a budget that works perfectly for you with our completely free budgeting course! Also, be sure to follow Clever Girl Finance on YouTube, and Instagram for the best budgeting tips to help you save more money!