If you want more money in your bank account, you've probably heard that you need to make a budget in order to make that happen. After all, creating a spending plan should allow you to avoid relying on credit cards and use your money more wisely.
The problem is, pretty much no one actually likes budgeting. It can be a giant pain to sit down and figure out where every dollar should go, so most people don't consistently do it. And even if you make a budget, it can be hard to stick to it.
The good news is, there are alternatives worth considering -- like the 30-30-30-10 system. Never heard of it? Here's how it works.
This is how the 30-30-30-10 system works
The 30-30-30-10 system is a percentage-based system for allocating your dollars. It's similar to other approaches, like the 50-30-20 system, but tweaks them slightly. With the 50-30-20 system, you keep fixed expenses to 50% of income, save 20%, and use the other 30% for discretionary spending.
The 30-30-30-10 system breaks things down a little more. If you follow it, here's how you'd use your money:
- 30% of it would go toward housing
- 30% of it would go toward necessities
- 30% would go toward financial goals
- 10% would be used for personal spending
Financial goals could be investing for retirement and saving for a house or for big purchases. Necessities would be the purchases you have to make, like groceries and a car payment. And the remaining 10% would be yours to do what you want with.
So, for example, if you brought home $5,000 a month, you'd want to spend $1,500 per month on housing and the same on necessities. You'd transfer another $1,500 into retirement accounts and other savings accounts. Then, you'd have the remaining $500 left to spend on whatever you'd like.
Pros of the 30-30-30-10 system
There are some definite benefits to the 30-30-30-10 system.
For one thing, it allocates more money to financial goals than other approaches like the 50-30-20 percentage based budget. Since you ideally should be saving around 15% of income for retirement, saving only 20% of your income won't give you much extra money to use toward other goals. But if you aim to set aside 30%, you'd end up with more money to set aside for both long-term and short-term objectives.
The simplicity of this system (and any other percentage-based budgeting technique) is also a big advantage. As long as you set up your housing costs and other essential costs so you can stay within the 30% limits for these categories, you could have the money for these expenses (and for your goals) taken directly out of your bank account. That would make it easier to stick to your plan -- and you'd be able to spend the remaining 10% of your money guilt-free.
Cons of the 30-30-30-10 system
There are some downsides too, though. First, it's really hard for many people to put 30% of their entire income toward financial goals -- especially people who live in a high-cost-of-living area and who may not be able to limit housing costs to only 30% of income. Second, keeping personal spending to just 10% of what you earn doesn't leave you a whole lot to enjoy life. It may be easier to reduce fixed expenses (or housing costs, depending on where you live) rather than constantly limiting what you can spend on fun purchases.
Ultimately, you should consider whether this budgeting breakdown looks like the way you'd want to allocate your funds. If not, you can try the 50-30-20 system or devise a percentage-based system of your own that allows you to save enough for a secure future.
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FAQs
It means you should try to put 30% of your income toward housing, 30% to food and other bills, 30% to saving, investing or paying off debt, and 10% to nice extras like entertainment and travel. Of course, this isn't something everyone can do right away — it's a goal.
What is the 30 30 30 rule for saving money? ›
According to the 30:30:30:10 rule, you must devote 30% of your income to housing (EMI'S, rent, maintenance, etc.), the next 30% to needs (grocery, utility, etc.), another 30% to your future goals, and spend rest 10% on your “wants.”
What is the 30 30 30 10 budget plan? ›
The 30:30:30:10 income planning rule offers a structured approach where individuals allocate 30% of their income to living expenses, another 30% to retirement savings, 30% to investments and 10% for unexpected needs.
What is the 70 20 10 rule of money and how is it used? ›
The rule states that you should allocate 70% of your income to monthly rent, utility bills, and other essential needs to improve your financial well-being. 20% of your income should go to savings. The remaining 10% can go towards your investments or to debt repayment.
What is the 30 20 10 rule saving? ›
The most common way to use the 40-30-20-10 rule is to assign 40% of your income — after taxes — to necessities such as food and housing, 30% to discretionary spending, 20% to savings or paying off debt and 10% to charitable giving or meeting financial goals.
What is the 50 30 20 rule for savings? ›
Do not subtract other amounts that may be withheld or automatically deducted, like health insurance or retirement contributions. Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings.
What is the 50 25 25 rule in saving? ›
Set up a plan where you do the following: Invest 50% of your salary for your future. Set aside 25% for taxes. Spend the remaining 25%
What is the 70 10 10 10 rule for money? ›
10% – Short Term Savings – Saving for a holiday, or for an emergency fund to handle unexpected expenses. 10% – Charity – Helping others and making the world a better place through some form of giving. 70% – Living Expenses – Bills, food, daily travel, etc.
What is the 40 40 20 budget rule? ›
The 40/40/20 rule comes in during the saving phase of his wealth creation formula. Cardone says that from your gross income, 40% should be set aside for taxes, 40% should be saved, and you should live off of the remaining 20%.
What is the 60 40 30 rule? ›
60/40. Allocate 60% of your income for fixed expenses like your rent or mortgage and 40% for variable expenses like groceries, entertainment and travel. 30/30/40.
If you have a large amount of debt that you need to pay off, you can modify your percentage-based budget and follow the 60/20/20 rule. Put 60% of your income towards your needs (including debts), 20% towards your wants, and 20% towards your savings.
What is rule 69 in finance? ›
The Rule of 69 states that when a quantity grows at a constant annual rate, it will roughly double in size after approximately 69 divided by the growth rate.
What is the 80 20 saving method? ›
The 80/20 rule breaks out putting 20% of your income toward savings (paying yourself) and 80% toward everything else. Once you've adjusted to that 20% or a number you're comfortable with saving, set up automatic payments to ensure you stick to it.
How much savings should I have at 50? ›
By the time you reach your 40s, you'll want to have around three times your annual salary saved for retirement. By age 50, you'll want to have around six times your salary saved. If you're behind on saving in your 40s and 50s, aim to pay down your debt to free up funds each month.
What is the 50 30 20 rule for 401k? ›
Key Takeaways
The 50/30/20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should be split between savings and debt repayment (20%) and everything else that you might want (30%).
What is one negative thing about the 50 30 20 rule of budgeting? ›
Some Experts Say the 50/30/20 Is Not a Good Rule at All. “This budget is restrictive and does not take into consideration your values, lifestyle and money goals. For example, 50% for needs is not enough for those in high-cost-of-living areas.
