Meta Description: Success requires innovative thinking, and there are few models more capable of improving your finances than 30/30/30/10. Read on to learn more.
What will happen if you dedicate 30% of your earnings after tax to living expenses, 30% to investments, 30% to retirement savings, and the final 10% to your emergency fund? You can build the most “bulletproof” financial plan that helps you live comfortably today, supports your savings towards major purchases like a home or kids, and ensures you live comfortably during retirement. Let’s explore why and how this model will change your life when done right.
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30% to Living Expenses
Dedicating 30% of your earnings to living expenses might be a major task considering the current state of the economy; this can only be done if you earn enough and live sustainably. Here’s a breakdown of how to decide what to prioritize in this area.
Must Haves
What are the things you cannot live without if you tried? These are the expenses that should be in this subheading. Rent or mortgage should almost always be #1, then other things like food, cellphones, internet, and medications (where necessary) can also be considered in this section. Your must-haves might differ from your neighbor’s, but there’s significant overlap in most people’s priorities.
Can’t Live Without
What are the things you believe you cannot live without? Expenses that go into this section are more personal and can vary widely from household to household. Your image may be of great importance, and you can’t do without appointments to get your hair or nails done each month. For some people, it’s their gym membership or a streaming service. Whatever it is for you, you need to be true to yourself.
Cut Down On
Are there expenses you think you can cut down on? It’s important to consider reducing what and how you spend rather than cutting everything out. Is it possible to downsize your home or send the kids to public school temporarily? Decisions like these can seem harsh and hard to make, but they’re essential to making your financial goals achievable. Is it possible to eat out less while prepping meals in bulk?
What do you do when you cannot fit important payments into 30% of your earnings? First, you cut down where you can, then allocate more budget to this section.
30% to Investments
Living expenses cover your present and short-term goals, while the 30% you should allocate to investments helps you cover mid- to long-term goals. Interested in buying a home soon or investing in a new vehicle? This is where you save money for significant purchases.
Stocks and Bonds
It’s always going to be a good idea to invest in “traditional” assets and markets. Buy stock in a business you believe in will not go out of fashion anytime soon. The S&P 500 features the 500 most valuable public US companies, and most countries have their own variation. Investing in bonds from governments is also an excellent way to grow.
Assets and Businesses
The next step is investing in assets like gold, silver, agricultural produce, oil, and more. For some of these assets, you can take delivery of them while they grow. Investing in jewelry made with precious metals doubles as a way to improve your style.
It’s not out of the ordinary to invest in local businesses you believe in and patronize. A few thousand dollars invested in a local bar or hair salon not only helps grow your community, but you can get decent returns.
New Asset Classes
It’s 2025, and no investment portfolio is complete without “alternative assets” like cryptocurrencies, which can be managed on an online trading platform. People with limited information on this sector should not invest without guidance. If you’re knowledgeable enough and ready to invest in cryptocurrencies and related digital assets, you might be on your way to creating a portfolio that will stand out and give you incredible returns.
How you choose to divide your finances between different asset classes depends on your priorities and interests. Ensure your portfolio is as diversified as possible within reason, and you should be ready to win as a retail investor.
30% to Retirement Savings
Long-term saving and investment are perhaps the most important part of your spending strategy. Money invested while you work can help make life infinitely better during retirement. When it comes to retirement, you can start by allocating a little to it, but the key is starting early. There’s a big difference between saving for retirement at 22 and 32. The 32-year-old might have more money to invest in the beginning, while the 22-year-old will accrue a decade of compound interest. There are two main popular retirement savings plans in the US.
401(k)
401(k)’s are retirement plans where employers contribute a predetermined amount or percentage towards employees’ retirement accounts. With traditional 401(k)s, employee contributions are made with pre-tax income. With this retirement plan, employees commit a set percentage of their income, while employers contribute to the plan, sometimes matching employee contributions.
It’s never too early to start thinking about retirement. If an employer is offering to match your contributions, try to take advantage of their offer because not all employers offer favorable retirement contribution plans.
Roth IRA
A Roth IRA is a type of tax-positive (individual) retirement account that you can invest in with post-tax money. Roth IRAs are primarily designed for your earnings and contributions to grow tax-free. Account holders are also able to withdraw tax-free after the age of 59.5. There are other factors involved in such accounts – in some cases, accounts must be active for at least five years to benefit from such perks.
A simple way to view Roth IRAs is that you pay taxes today, invest your money, and avoid taxes when you’re older.
10% on Emergency Fund
The final part of the 30/30/30/10 puzzle is your emergency fund. If you can, try to put aside 10% of your earnings in an easily accessible emergency fund that offers good returns. Emergencies can be life-changing, like medical issues, but this doesn’t always have to be the case. If there’s a month where your income fails to cover expenses effectively, your emergency fund can help you break even.
Make it Work for You
You need to understand that the 30/30/30/10 strategy is supposed to fit your realities. You may choose to employ 40/40/10/10 in some years, 20/20/35/5 in other years, and 90/5/5/0 in tough years. Change your spending priorities when necessary, but never forget why you started.