The 3% Rule

Walk into any bookstore and you'll find countless personal finance books outlining how to budget your money. Often, authors will break down percentages for allocating income across areas such as housing, transportation, food, insurance, and savings.


For example, in their book All Your Worth: The Ultimate Lifetime Money Plan, Elizabeth Warren and Amelia Warren Tyagi propose the 50/30/20 budget. This plan suggests that income should be split three ways: 50% on needs, 30% on wants, and 20% on savings.


Say you bring home $6,000 each month. Under the 50/30/20 budgeting method, you’d put $3,000 toward living expenses and necessities, $1,800 toward wants and variable expenses, and $1,200 toward debt and savings.


Bestselling author Dave Ramsey also provides percentage guidelines. In The Total Money Makeover, Ramsey proposes that readers separate their budgets across 11 areas, with housing (25%), food (10% to 15%), insurance (10% to 25%) and transportation (10%) being notable areas.


This article also proposes a budgeting "rule of thumb." However, this guideline only has one category and only applies to school leaders. This rule is called The 3% Rule.


The 3% Rule reads as follows: “When educators accept an administrative position, they must assume that three percent of their salary will go back into the school or district.”


For example, school leaders with a $100,000 salary should expect that $3,000 will go back to the district in the form of donations, fundraisers, gifts, and other costs.


“Three thousand dollars?” you may be thinking. “That’s a lot of money!”


Unfortunately, this mindset gives school leaders the reputation for being cheap and greedy. Even though they make three, four, and even five times as much as their employees, school leaders are notoriously stingy when it comes to opening their pocketbooks.

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Like many educators, I grew up in a middle class family. While we always had food on the table and a roof over our heads, by no means did we live a life of luxury.


Typical of many 1980’s families, my dad worked full time while my mom stayed at home to take care of me and my three siblings. Given the fact that six people were living off one salary, we very much lived on the “budget-friendly” plan. This meant that eating at McDonalds was a "special occasion," “new clothes” were hand-me-downs, and "family vacation" meant driving to Adventureland for the day.


When my parents separated in 5th grade, things got especially tight. Suddenly my mom - who never earned a college degree - was waiting on tables at the local Applebees to make ends meet. Even though my dad paid child support, my siblings and I found ourselves eating free lunches at school and receiving other forms of financial assistance.


While we certainly didn’t have it as bad as others, we quickly learned that every dollar matters.


This thrifty childhood mindset carried into adulthood. When decisions about spending came up, I always looked to save a few dollars.


Even as I moved up the school leadership ranks, this frugal mentality persisted. When students came to me with fundraisers, I would tell them “come back to me later” with hopes they would never return. When our office hosted potlucks, I would bring a bag of Doritos and call it good. When I attended a conference, I made sure to get reimbursed for every penny.


However, about six years into school administration, I started to view spending differently. As was previously discussed, a turning point occurred when our administrative team gave our secretarial staff their holiday “gift” ... which consisted of placing juice and donuts in the conference room.


“We make so much more than our secretaries,” I thought to myself. “Couldn’t we have done something a little more thoughtful?” From that day forward, I vowed never to be so cheap again.


Beyond holiday gifts, I looked for other opportunities to give back to our school. "If I'm going to expect our employees to be generous, I need to model this mindset," I decided. So when opportunities arose to give back in the form of donations, fundraisers, and gifts, I became more charitable.


As I gradually gave more, I couldn't help but notice how gratifying this felt. Whereas buying items for myself - such as a new outfit or pair of shoes - gave me bursts of happiness, those moments were short-lived. On the other hand, I found that giving back to our school produced moments of prolonged happiness.


One story that illustrates this thinking occurred last year. During April of 2020, I heard that one of our para-educators and her husband were both experiencing severe COVID symptoms. Figuring they could use some help, I sent the family a check for $50 along with a get-well card.


A few weeks later, the employee visited the district office to drop off paperwork. When finished, she popped her head into my office and told me how thankful she was for the money. “We used your money to buy Casey’s pizza for dinner,” she told me. “We hadn’t been able to do that for a long time. Our kids were so happy!”


Not only do I smile every time I think of that story, I now have an incredible bond with the employee.


Research supports the positive effects of giving. In Happy Money, Elizabeth Dunn and Michael Norton report:


“Spending even small amounts of money on others can make a difference for our own happiness. ... Studies have shown that individuals who spend money on others are measurably happier than those who spend money on themselves. The more people spend on others, the happier they feel."


I encourage you to actively notice your levels of happiness when you make certain purchases. Whereas you may think a new Nike sweatshirt or Lululemon leggings will bring happiness, imagine the lasting pleasure if the next time a student offers you a World's Finest Chocolate candy bar you say, "I'll buy the whole box."

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Assuming a school leader makes $100,000 where does the three percent ($3,000) go? Here's a possible breakdown:


Gifts ($1000): As was previously discussed, gift giving should be viewed as a small - yet potent - type of ammo in the leader’s employee appreciation arsenal. Leaders should get in the habit of giving every direct report - not just their secretary - generous gifts for birthdays and the holidays.


Organizations ($500): Booster clubs, parent-teacher associations, scholarship committees, alumni organizations … schools are full of these groups. School leaders should contribute to these clubs on an annual basis. Given that influential parents and community members run these groups, administrators should view these as high-leverage giving opportunities.


Fundraisers ($500): Schools are full of fundraisers throughout the year. When kids (and parents) approach them with requests, school leaders must be willing to open up their pocketbooks and make purchases even if they don’t really want another tub of cookie dough or Homecoming t-shirt.


Donations ($500): There are times throughout the year when donations to different causes are needed. For example, families often collect money for students who are battling cancer or recovering from traumatic injuries. Leaders who give to these causes not only feel a sense of fulfillment, they build strong bonds with those families.


Other ($500): Mileage, parking, meals, snacks, flowers … over the course of the year, school leaders accumulate a number of costs in which they must ask themselves, “Do I ask for reimbursement or do I take the hit?" Rather than nickel and dime the district for every expense - which makes them look cheap - leaders must strategically select times for reimbursement.


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John F. Kennedy famously said “For of those to whom much is given, much is required.”


School leaders - stop being so cheap.


Rather than overthink every expenditure, assume that 3% of your salary will go back to your school district.

 

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