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
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.
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 investment strategy? ›
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 saving method? ›
This system can help you get better acquainted with what you earn and where it goes, while tracking your daily spending (that's the 70% of your after-tax earnings) plus debt repayment and saving (the 20% and the 10%).
What is the 60 20 20 saving method? ›
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 the 50 30 20 rule of money? ›
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 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 70 20 10 rule? ›
The 70-20-10 rule holds that: 70 percent of your after-tax income should go toward basic monthly expenses like housing, utilities, food, transportation, and personal living expenses; 20 percent should be saved or put into investments, leaving 10 percent for debt repayment.
What is a 70 30 investment strategy? ›
A 70/30 portfolio is an investment portfolio where 70% of investment capital is allocated to stocks and 30% to fixed-income securities, primarily bonds.
What is 12 20 80 investment strategy? ›
Set aside 12 months of your expenses in liquid fund to take care of emergencies. Invest 20% of your investable surplus into gold, that generally has an inverse correlation with equity. Allocate the balance 80% of your investable surplus in a diversified equity portfolio.
But amid ongoing inflation, the 50/30/20 method no longer feels feasible for families who say they're struggling to make ends meet. Financial experts agree — and some say it may be time to adjust the percentages accordingly, to 60/30/10.
What is the 20 10 rule for savings? ›
Allocate 20% of your take-home pay toward your savings and investment accounts, including your emergency fund and any sinking funds you use for other savings goals. Allocate no more than 10% of your take home pay toward debt management.
Which is better, 50/30/20 or 70/20/10? ›
The 70/20/10 Budget
This budget follows the same style as the 50/30/20, but the percentages are adjusted to better fit the average American's financial situation. “70/20/10 suggests a framework of 70% of your income on essentials and discretionary spending, 20% on savings and 10% on paying off your debt.
What is the 80 20 method money? ›
YOUR BUDGET
The 80/20 budget is a simpler version of it. Using the 80/20 budgeting method, 80% of your income goes toward monthly expenses and spending, while the other 20% goes toward savings and investments.
What is the 80-10-10 rule? ›
When following the 10-10-80 rule, you take your income and divide it into three parts: 10% goes into your savings, and the other 10% is given away, either as charitable donations or to help others. The remaining 80% is yours to live on, and you can spend it on bills, groceries, Netflix subscriptions, etc.
What is the 80 20 rule in saving? ›
The rule requires that you divide after-tax income into two categories: savings and everything else. As long as 20% of your income is used to pay yourself first, you're free to spend the remaining 80% on needs and wants. That's it; no expense categories, no tracking your individual dollars.
What is the 50 30 20 rule money saving expert? ›
A 50 30 20 budget divides your monthly income after tax into three clear areas. 50% of your income is used for needs. 30% is spent on any wants. 20% goes towards your savings.
How much money should I save before I turn 30? ›
If you're looking for a ballpark figure, Taylor Kovar, certified financial planner and CEO of Kovar Wealth Management says, “By age 30, a good rule of thumb is to aim to have saved the equivalent of your annual salary.
How does the 50 30 20 rule allocates for income? ›
The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings. Learn more about the 50/30/20 budget rule and if it's right for you.
Is the 30 rule outdated? ›
While the world of personal finance provides a percentage guideline for how much of your money should go toward housing, this rule is a little outdated in 2024. Rent prices are down from their peak in August of 2022, but they're still dramatically higher than before the pandemic.
