Is The 40-30-20-10 Rule Too Ideal?

Sep 4

There are many sources out there for how to get money, how to invest money, how to save money, and so on and so forth. But in reality, money is a fairly simple concept that seems to get muddled and complicated because people have such a vested interest in it. And because analysts want to keep their job of explaining the complex to the uneducated.

Basically you earn money (or you find it, or you steal it, or whatever) so that is what is coming in, and then you spend it (or you give it away, or you lose it, you know) and that is what is going out. So what’s the best thing to do? Well spend less than you earn and you should do right fine. Makes sense huh?

A while ago I read about a basic rule for which one could ideally budget and limit one’s spending. It’s called the 40-30-20-10 rule for obvious reasons. The very quick among you would have already realized that those numbers add up to 100 and that would seem to represent 100% of your income. So what do the rest of the numbers represent?

• 40 - Savings

• 30 - Necessary spending such as rent, food, bills, etc

• 20 - Free expenditure allowing any possibility of spending on entertainment, gifts, and otherwise unnecessary for living types of things

• 10 - Tithe

When I first read that, it seemed pretty easy and straightforward to me! However, I am wondering if it’s too easy to look at on paper but perhaps a bit too difficult in reality. How many people do you know who only live on 30% of their income? It sounds extremely conservative doesn’t it? You’d require a much better income just to be living an average lifestyle. Of course, I think that’s kind of the point of this budgeting scheme. However, I honestly don’t think that too many people could adhere to this type of drastic budgeting change from their own methods because they have come to expect a level of “luxury” in their lives.

I think that this is a superb idea, and I will try to stick with it as much as I can. I’ve been working on The Budgeteer (although that’s not what this post is really about), and I’ve been using this budgeting as my budgeting inputs. It’s been going alright thus far, and I actually have personally increased my savings category since my necessary expenditures are currently not as high. It’s nice, but I’m wondering if it’ll always be so.

Have many people heard of this plan? Would/could/will many practically use it?