The 3% Rule

Walk into any bookstore and you'll find countless personal finance books promoting specialized budgets. In these texts, authors provide step-by-step plans for monthly income allocations.


For example, in 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.


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.


Other prominent budgeting plans include the pay-yourself-first budget (address savings and debt first and then spend the rest), the envelope system budget (establish a cash limit for each spending category), and the zero-based budget (income minus expenses equals zero).


I’d like to present a different type of budgeting plan – a plan that is unlike any other. This budgeting plan:


Only has one category.

Only applies to school leaders.

Only appears in this book.


This budgeting plan 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, principals with a $100,000 salary should expect that $3,000 will go back to their school in the form of donations, fundraisers, gifts, and other work-related expenses. The same ratio can be used for assistant principals ($80,000 = $2,400), superintendents ($150,000 = $4,500), and administrators at all levels.


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


Unfortunately, this mentality hurts the perception of school administrators. Even though they make three, four, and even five times as much as their employees, school leaders have earned a reputation for being cheap when it comes to opening their personal pocketbooks.


Whether or not this perception is accurate is irrelevant. What matters is when they are elevated to the administrative level, school leaders must understand that their spending habits will suddenly be placed under the public microscope.


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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 of my dad’s modest salary, we got used to living on a tight budget.


In our house, “special occasion” meant going to McDonalds, “new clothes” meant getting hand-me-downs, and “family vacation” meant a trip to Adventureland.

Smith Family Vacation 1995: Adventureland in Des Moines


When my parents separated in 5th grade, things got especially tight. Suddenly my mom was waiting on tables at Applebee’s 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.


I can vividly remember going to one of my affluent friend’s houses one day after school. When we opened the kitchen cabinets, I was shocked by the snack food selection: Gushers, DunkAroos, Handi-Snacks, Pop Tarts … our options were endless!


Noticing my surprise, my buddy asked me what I normally ate after school. Recalling a recent conversation with my mom, I explained that we were often told to “go out back and pick an apple off the tree” (true story – ask my siblings).


When I went to college, it was more of the same. Whereas most peers received financial assistance from parents, it was understood that scholarships, loans, and getting a job would be my source of income. Being a broke college student meant you learned how to mooch off others and how to cut your own hair (would not recommend).

These booklets were my best friend from 2000 to 2004.


Whereas I will forever be appreciative of my humble upbringing, one side-effect of being raised in a working-class family was that I was trained to always look for ways to save money. Even when I started to make the “big bucks” as a school administrator, this frugal mindset persisted.


For example, as a young assistant principal, students would often try to sell me t-shirts or cookie dough as part of a school fundraiser. Programed by my parents to never spend money on frivolous items, my natural reaction was to tell kids “come back later” with hopes that they would never return.


Another example was employee gifts. Growing up, I was taught to spend as little as possible on presents. Rather than buy expensive gifts for friends and family, we learned how to make gifts for others because – in the end - it was the “thought that counts.”


So, when it dawned on me that I was expected to buy my secretary a birthday gift, my thriftiness kicked in. Whereas I should have been excited about doing something nice for my assistant, instead I was more concerned with limiting the cost of the gift.


However, six years into school administration I experienced a turning point in my spending philosophy. In Learning Curve, I shared how one administrative team I worked with was so cheap that we decided against buying individual holiday gifts for office staff. Instead, we used the district credit card to purchase juice and donuts.


“We make so much more than our secretaries,” I thought to myself. “Couldn’t we have done something a little more thoughtful?” Embarrassed by my actions and general attitude toward spending, I vowed to stop being so cheap from that point forward.


Almost immediately, I began looking for opportunities to give back to our school in the form of donations, fundraisers, and gifts. Rather than worry about the money spent, I began to treat each purchase as an opportunity to build strong relationships and improve organizational culture.


I found these moments to be hugely gratifying. Whereas buying things for myself initially made me happy, these moments were short-lived. On the other hand, giving back to students and employees produced moments of prolonged joy.


One story that illustrates this thinking occurred in April of 2020. It was at this time I heard that one of our para-educators and her husband were both struggling with COVID. Figuring they could use some help, I sent the family a check for $50 along with a handwritten get-well card.


A few weeks later, the employee visited the district office to drop off medical paperwork. When finished, she popped her head into my office and told me how thankful she was for the gift. “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 did I build a close bond with the employee, I feel contentment every time I recall the story. 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 buying new Nike shoes or Lululemon leggings could provide initial bursts of happiness, those feelings are likely short-lived compared to the happiness felt 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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Curious as to where three percent of a school administrator’s salary might go? Assuming a $100,000 salary, here is a possible breakdown:


Gifts ($1000): 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 assistant - generous gifts for birthdays and the holidays. Furthermore, thoughtful bosses who purchase tokens of appreciation matching employee interest areas can take relationships to extraordinary levels.


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 their pocketbooks and make purchases even if they don’t really want more chocolate covered peanuts or magazine subscriptions.


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 lifelong 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.

You jelly? Hundreds of dollars have been spent giving away free donuts.


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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.

 

Did you find value in this article? My book Learning Curve is full of useful ideas on leadership, education, and personal growth.

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