What is the 30-30-30-10 budget method? It might sound like complicated, but it’s really not! Whether you need to learn how to budget on a low income or are just looking to save more, the 30-30-30-10 budget method is a strategy to save money that everyone should try.
Read on for more on the 30 30 30 10 budget method.
What is the 30 30 30 10 Budget Method?
The 30 30 30 10 method is a budgeting strategy that allocates a certain percentage of your income towards specific budget items. 90% of your income goes towards necessary purchases, saving and investing, while the remaining 10% goes towards fun and entertainment.
While it may be easier to take a more extreme measure like a no spend month – completely cutting out any unnecessary spending for thirty days – the 30-30-30-10 budget strategy is more sustainable.
Why? After covering all your essential expenses, you’ll still have some money leftover for fun stuff. Don’t cut out the things you love and don’t deprive yourself. Extreme frugal living might be admirable, but being too cheap is no fun.
If you’re disciplined, you can still treat yourself to that hard-earned night out to the movies or takeout with the family. The purpose of budgeting is making frugal fun. While saving money takes some work, it shouldn’t be a drag.
Saving and being frugal shouldn’t be a burden, and the 30-30-30-10 budget method is another way to help you achieve your goals this year and enjoy life.
Using the 30-30-30-10 Budget Method to Save
While most of us aren’t thinking about retirement, it’s more important than ever to. Humans are living longer than ever. Between 2009 and 2019, the average lifespan increased by approximately 6 years. What does this mean for someone’s finances? Generally, if people are living longer, they will need to cover a longer period of time during which they’re not working.
While working longer is the most obvious solution to making more money, it’s also important to keep the reality of life in mind. We, as humans, are only getting older. There are only so many years that we can spend working. After working for 30, 40 or more years, it’s simply not feasible to continue down this path.
The Role of Saving and Compound Interest
With saving, investing and allowing the power of compound interest to work its magic, the average person can have enough to retire on if they’re disciplined with saving money. Saving money benefits your future self.
Compound interest? Investing? Saving? “So confusing! I don’t know what any of these things mean!” you might say. Ok – fair enough! Let’s get started with the first and important piece to the puzzle: saving.
Saving a percentage of your income is crucial to getting ahead in life. We need money to survive – whether it’s for a car, household items or new clothes, unexpected occasional purchases come up every once in a while. While it might be easier to just put the money on a credit card, this isn’t best idea. Why? Due to interest, you’ll end up spending more money on the item. You’ll have to pay back the credit card company for both the amount you paid for the original item and interest on top of it.
While one can just start saving, it’s important to have a plan. This is where the 30-30-30-10 budget method comes into play. Starting a budget is not always easy, which is why it’s a good idea to give a tried-and-true strategy a go.
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Who Is the 30-30-30-10 Budget Method For?
While anyone generating a monthly income can participate in the 30-30-30-10 budget method, it’s especially good for people in specific demographics, including:
- Students with a limited income from student loans and other financial support
- Seniors and persons with disabilities on a fixed income
- People on a low income who need to have a larger emergency fund saved up
- Those who have a large expense coming up in the relative short-term (6 to 12 months) and need to save money towards this purchase
- Couples who are looking to get on the same page with their finances
- Anyone looking to get on track with saving money and have leftover funds to enjoy life
In short, 30 30 30 budgeting is for everyone, but it’s especially important for those with lower or fixed incomes and who need to save for large purchases.
How Does the 30-30-30-10 Budget Work?
Here is the recommended way you should break down your money according to the 30-30-30-10 budget strategy:
- 30% towards your rent or mortgage payment
- 30% for utilities, groceries and gas
- 30% towards saving and investing
- 10% for fun purchases like entertainment, clothing and travel
Read on for more details on how to determine which of your monthly expenses should go in each category.
Category 1: Rent or Mortgage Payment (30%)
With the 30-30-30-10 budget method, if you have $6000, you’ll spend $1800 on your rent or mortgage payment ($6000 x 30% = $1800). If you’re living in a more expensive area of the world – such as a big city – your percentage might be larger. For example, if your rent is about 35% of your total income, allocate the additional 5% towards saving/investing or entertainment.
If you currently don’t have a rent or mortgage payment i.e. you’re living at home with your parents, why not get started with positive saving habits? One great way to get into the habit of paying for non-negotiable life expenses is to pretend that you have a rent or mortgage payment due.
Set aside a specific amount of money that’s close to what you’d pay for rent in your area. Put that amount in a separate bank account. After 6 months or more, you’ll be well-used to the habit of setting aside a significant chunk of change towards fixed expenses. Additionally, since you’re paying attention to market rental rates, you’ll have an idea how how much to save before moving out.
If setting aside a realistically-sized rent payment is too much, start with a smaller amount. Even if you put away just $200 or $300 per month over an extended period of time, you’ll see the money grow and will be motivated to keep saving. If you’re looking to move into your own place, the money you save can be saved for the apartment deposit.
What’s more, if you’ve saved up a significant amount of money and you’ve got the right income level, you may even be able to put a down payment on a house! Small saving habits add up to huge accomplishments in the long run.
Category 2: Utilities and Groceries (30%)
The rent and mortgage payment do not include any utilities like electricity or water – that goes into the next category of 30%. Utilities also include internet and your cell phone bill. However, they do not include your Netflix bill – that’s a luxury, not a necessity! Put that expense in the entertainment category, which we’ll discuss shortly.
In addition to utilities, include groceries in this category. Make sure to exclude takeout and instead, allocate this expense to the fun, entertainment and travel category. Is food essential? Yes, but you can make your own at home! Takeout is a luxury and a treat.
Category 3: Saving and Investing (30%)
For the saving and investing category, you’ll want to decide how much money to save and how much to invest. While I won’t write an essay on how to save money, I will explain some basics on saving versus investing. Read on for tips on how to determine how much money you should put away for each category.
How Much Should I Save and Invest?
When deciding how much you should save versus how much you should invest, you’ll need to keep several things in mind. First of all, there’s one key difference between saving and investing: short-term goals versus longer goals.
Saving
First of all, if you don’t have at least 3 months of living expenses saved up, investing should not be on your mind at all. It’s crucial to have 3 to 6 months of living expenses saved up. Why? It’s simple – life happens. While it might be scary or nerve-racking to think about, at any given time, something could happen. At the drop of hat, you could be unexpectedly laid off. Your car could break down. A family member could get sick and you need to fly to the other side of the country to visit them in the hospital.
What’s the common denominator with all of these scenarios? They all require money. Could you put these expenses on a line of credit or credit card? Of course, but they aren’t ideal situations.
Another alternative to putting expenses on a line of credit is borrowing from a family member. However, in my opinion, it’s best to be responsible and have the funds saved up yourself. It’s not the greatest feeling to owe money to family members – but that’s my opinion! If you have a family member that is willing to lend you money, all power to you. However, I still stand by my opinion that you should have some money saved up. It’s better for your mental health, too. Having a sense of financial security – funds to fall back on – provides a sense of comfort. The benefits of saving your own money cannot be understated. While money isn’t everything, it makes the world go ’round, and we all need it to survive!
30-30-30-10 Budget – How Much Should I Save For An Emergency?
If you’re a single person with minimal expenses or a dual-income household, you might be able to get away with 3 months of expenses saved up. If you have a lower income or if you’re living on a single income and supporting children, save up 6 months of expenses.
While it’s important to save 3 to 6 months of living expenses, it’s generally not a good idea to save too much. Why? If you keep too much money in cash, you’re missing out on valuable compound interest. There’s a fine balance between saving enough and saving too much.
What Else Should I Save For?
Outside of an emergency fund, there are many things to save up for. Maybe you’re attending a destination wedding in Mexico later this year. These things don’t pay for themselves. How do you cover these life events? Create a sinking fund – a savings account designated to a specific purpose. Each month, set aside a specific amount of money you’ll need to achieve your savings goal.
For example, if your trip costs $2000 and it’s 10 months away, set aside $200 per month.
If you have more than one savings goal, keep separate bank accounts for each goal. It’s much easier to achieve what you set out to do if you can see how close you are to reaching your goals – mainly, by a visual reminder of how much money you have left to save for each category. Take your strategy one step further by saving money in a jar. Week over week, you’ll be able to see the bills and coins pile up.
Investing
Once you’ve covered an emergency fund and have your sinking fund categories set, you can set aside the remaining percentage of the 30% in the saving and investing category towards pure investing.
Category 4: Entertainment (10%)
Last but not least, this is where the creative savings fun begins (if you’ve carefully budgeted throughout the month, of course!). After you’ve covered all of life’s necessities and put some money towards your future goals, it’s time to spend some hard-earned cash.
The entertainment category includes anything fun. This might include movie tickets, takeout, or other short-term purchases that you don’t need to survive.
How Do I Succeed With 30 30 30 10?
Just like any other goal that you’re working towards, to succeed with the 30-30-30-10 budget method, you’ll need patience and discipline.
If you are just starting out with investing and know that 30% is too difficult for you to set aside for saving and investing, reduce the number down to 20% and add an extra 10% to the entertainment category. As you become more experienced and develop good habits, slowly add an extra 1%, 2% or 3% to your savings category.
After you’ve mastered 30-30-30-10, you can try other strategies like the printable 52 week money challenge or the penny savings challenge. Experiment, have fun and enjoy trying different strategies. Pick one that works best for you!
Conclusion – 30-30-30-10 Budget Method
While the 30 30 30 10 budget method takes some time to get going with, is it worth doing? Absolutely! There’s no better feeling than looking at your bank account and seeing that you’ve saved 30 or 40% of your hard-earned money to do the things you love! Being frugal can be enjoyable and the importance of saving money cannot be understated. Save money, enjoy life and reach your goals this year with the 30 30 30 10 budget method!
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Janita is a frugal living expert and owner of Frugal Fun Finance. With over five years of personal experience finding and trying out the best ways to make and save more money, she's eager to share her knowledge. Janita's strategies have helped her save thousands of dollars for funding investments and traveling to over 20 countries.
Janita completed training in personal finance at The University of Western Ontario and McGill University, two prestigious Canadian universities. Her expertise has been shared on GoBankingRates, Yahoo Finance, and NASDAQ.com.
