What Is the 30-30-30-10 System, and Can It Help You Save Money?

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.