Try This Simple 5-Category Budget

Savings in a piggy bank
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You want to create a spending plan, otherwise known as a budget, but you don’t want to make an intricately detailed line-item budget, like the type that could be facilitated through these budgeting worksheets. Instead, you just want a budget that represents a "broad overview."

At the same time, you don’t want to make a budget that's as broad as the type we outline in the 80/20 budget or the 50/30/20 budget.

 You want a budget that's a little more specific and structured. You want the Goldilocks budget, a happy medium between the two. You want the type of budget that allows you to break down your spending into five or six categories: not too few, but not too many. What should you do?  

Here’s a breakdown of what your budget should look like when it's stated in five categories. This budget is the one that Today Show editor Jean Chatzky unveiled on Oprah’s debt diet.  Here we go:


Housing should comprise of 35 percent of your take-home income.  That includes the mortgage or rent, all home repairs and maintenance, property taxes, utilities such as electricity, gas, water, and sewer, and homeowner’s or renter’s insurance.  In short, it includes every housing-related expense.


Transportation should take up no more than 15 percent of your take-home income.  That includes any car payments that you’re making, gasoline, car insurance, all the repairs and maintenance, the amount that you pay for parking, or (if you ride public transportation) the amount that you pay for train or subway tickets.

Remember, transportation doesn’t just include your car payment. It includes everything: your car payment, your oil changes and your tune-ups, your new radiator and timing belt.

Other Living Expenses

Other living expenses, which are predominantly discretionary expenses, should take up 25% of your income.

 This includes eating at restaurants, buying concert tickets, buying new clothes, going to sporting events, and taking the family on a nice vacation.


Savings should consume 10 percent of your budget. This is predominantly for retirement as well as building an emergency fund.

Debt Payoff

Debt Payoff should consume 15 percent of your income. This includes your credit cards or student loans. It does not include your minimum mortgage or car payment, which are listed under "housing" and "transportation." (It does include any extra payments that you're making towards your mortgage and car loan, above-and-beyond the minimum.)

You might be thinking: Wait a second, why are you only advocating a savings rate of 10 percent? Didn’t the 80/20 budget and the 50/30/20 budget both advocate savings rates of 20 percent?  Yes, they did, but as you’ll notice under the 80/20 budget and the 50/30/20 budget, "savings" included debt paydown.

In this five category budget, your savings and debt are listed as two separate categories.  With 10 percent for one and 15 percent for the other, you’re actually spending 25 percent (in total) on a combination of savings and debt pay-down.

This is even more aggressive and ambitious than the previous two budgets recommend.

Use this five category budget if you would like to create a budget that’s slightly detailed, but not overly so.