If you are a habitual saver with very few discretionary spends, saving up a huge chunk of your earnings may be second nature to you. However, most people tend to have at least some level of difficulty in saving up consistently for their future. 

The reasons for this could vary from one struggling saver to another. Some people may have too many expenses weighing down on their finances. Others may be prone to impulsive spending. And yet others may simply not know how to start saving up. 

Whichever category you may fall into, it always helps to have a solid, quantifiable budgeting rule guiding you each month. That way, you know exactly how much you should save each month. 

One such effective budgeting benchmark is the 30-30-30-10 rule. When followed diligently, it can work wonders for your savings. Let’s take a closer look at what it is, and how it can be incredibly beneficial to you.


What is the 30-30-30-10 rule?

The 30-30-30-10 rule is a benchmark that helps you save a specific portion of your earnings each month. It is a percentage-based budgeting trick that sets a benchmark for expenses in different essential categories. Here are the details of how you can break down your earnings according to the 30-30-30-10 budgeting strategy. 

  • The first 30% of your earnings go towards your housing
  • The second 30% of your earnings are used for necessary expenses
  • The third 30% of your earnings are for your financial goals
  • The last 10% of your earnings are for your discretionary spends


The 30-30-30-10 rule: An illustration 

An example can always help make things clearer. So, let’s take up a hypothetical scenario and understand how this budgeting rule works. Let’s say your monthly income is Rs. 50,000. In that case, here is how your earnings will be split across your budget according to the 30-30-30-10 rule.

  • The first Rs. 15,000 will be spent on housing costs
  • Another Rs. 15,000 will be used for essential expenses
  • Yet another Rs. 15,000 will help you meet your short term and long term goals
  • The last remaining Rs. 5,000 will be used for your wants or discretionary costs


Decoding the expense categories in the 30-30-30-10 rule

So, you now have a basic idea of the 30-30-30-10 rule. But to truly incorporate it into your everyday finance, you need to thoroughly understand the different categories of expenses in this strategy. Let’s decode them for you.

Category 1: Housing costs

These costs include the expenses you incur to meet the basic human need of shelter. If you are a homeowner, your home loan EMI costs will fall under this category. And if you are a tenant, your house rent is a part of your housing costs. These expenses aside, the costs you incur for taking care of minor home repairs or for purchasing housing appliances are also included. 

Category 2: Essential expenses

All the other essential costs except housing expenses are included in this category. Some common examples of essential expenses that are a part of this group are grocery bills, transportation costs, utility bills, your children’s school fees, purchase of household essentials and clothes, and fuel costs and taxes. 

Category 3: Your financial goals

You may have different financial goals in life. For instance, you may need to create an emergency fund, or pay for life and health insurance. There may be loan repayments and you may have to build your retirement fund. All these goals can only be accomplished by disciplined savings and investments. And that’s what this category is all about.

Category 4: Discretionary expenses

The last 10% of your budget is for your wants - or your discretionary expenses. A ticket to the movies, dining out with your family, taking a planned or an impromptu vacation, or even making an impulse purchase - all of this falls under the category of discretionary expenses. 

How does the 30-30-30-10 rule work wonders for your savings?

If you’ve been serious about saving up as much as you can, you may have no doubt come across several savings and budgeting strategies. What sets the 30-30-30-10 rule apart? And how does it work wonders for your savings? Let’s find out.

  • It allocates a sizable portion for your savings and investments

Category 3 is of interest here. It is the portion allocated to your investments and savings. As you can see, this rule assigns 30% of your monthly income to your savings. So, the savings rate is quite high. The end result is that you’ll find it easier to achieve your financial goals faster, thanks to the sizable amount directed towards your savings.

  • It is stricter than most budgeting rules

This rule only assigns 10% of your income to your wants and discretionary spends. In this regard, it is stricter than most budgeting rules. To put this in perspective, if you earn Rs. 1 lakh a month, only Rs. 10,000 would be used for your wants. By contrast, in the 50-30-20 rule, 30% or Rs. 30,000 goes towards discretionary spends!

  • It separates housing costs from other needs

Most other budgeting rules club housing costs with other essential expenses. This can be a challenge because housing costs take up a huge portion of the essential costs for most people. By separating the housing costs from other essential needs, the 30-30-30-10 rule makes it easier for you to allocate the essential amount of funds for all your basic needs.


Summing up

If you are keen on utilising your prime earning years to save up as much of your earnings as you can, this budgeting rule may be ideal for you. It encourages frugal living while simultaneously helping you save aggressively for your future. This may just be the encouragement you need to start building the future you have been dreaming of. 

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.