Try This Simple 5-Category Budget

Random little white piggy banks
Photo: PM Images / Getty Images

You know that a budget is an incredible tool for reducing your debt and building your savings. But the thought of creating a budget from scratch can be overwhelming.

It's possible to start with something simple. The simplest budget, the 80/20 budget, advocates committing 20% of your income to savings and 80% to everything else. Similarly, the 50/30/20 budget has you put 20% into savings, then divides the remaining portion into 50% for needs and 30% for wants.

But if you need something a little more specific and structured than that (but don't want to commit to a full budget worksheet), there is a happy medium. The following five-category budget allows you to break down your spending into simple, basic categories, so you can see where your spending should line up and make adjustments if necessary. If you follow this budget, you'll automatically be putting aside a portion of your money to both debt pay-down and savings, helping you reach your financial goals that much sooner.


One of the most important budget categories is what you spend on the place you live. Ideally, housing should take up no more than 35% of your take-home income.


Your housing budget includes the mortgage or rent, plus every other housing-related expense: home repairs and maintenance; property taxes; utilities such as electricity, gas, water, and sewer; and homeowners or renters insurance.

If you live in a high-cost-of-living area, hitting this figure might be more of a struggle. If you truly can't trim your housing costs to 35% or less of your overall budget, you must look for ways to trim the other categories of your budget. Or, you may even reconsider your living situation: Could it be time to refinance, downsize, or take on a roommate? The important thing is that you have room in your budget for the necessities of life, including saving for the future.


You might love luxury cars, which is fine as long as transportation expenses take up no more than 15% of your take-home income. If you have a car, you also have to account for the maintenance and upkeep of that car—not just the expense of your auto loan, if you have one.


Remember, transportation isn't just your car payment. It includes everything: gasoline, oil changes, car washes, tune-ups, and car repairs such as a new radiator or timing belt.

Your transportation costs also include the amount you pay for parking, and if you ride public transportation, the amount that you pay for bus, train, or subway fare.

Other Living Expenses

Other living expenses, which are predominantly discretionary expenses, should take up to 25% of your income. This includes recreational activities such as eating at restaurants, buying concert tickets, buying new clothes, going to sporting events, and taking the family on a nice vacation.

Your cell phone plan, cable bill, and other monthly subscriptions also fall into this category, unless you need them for work. Look for ways to cut down on miscellaneous expenses if your spending outpaces your earning.


The saying "pay yourself first" is a good motto. With each paycheck, budget to save 10% of your pay. You might even set up a separate account that's less accessible, to reduce the temptation to spend this money; consider putting it in a money-market account or high-yield savings account so you can earn a little interest.

Your savings are predominantly for an emergency fund, retirement, and investments such as a new home or the kids' future education.

Debt Payoff

Debt payoff should consume up to 15% of your income. This includes your credit cards or student loans. It does not include your mortgage payment or car payment, which are listed under "housing" and "transportation." It does include any extra payments you're making toward your mortgage and car loan beyond the minimum.

The 80/20 budget and the 50/30/20 budget both advocate savings rates of 20%, but under these budgets, "savings" included debt pay-down.

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

This is even more aggressive and ambitious than the other two budget models recommend. Use this five-category budget if you would like to create a workable budget that's slightly more detailed and effective, but not overly detailed or complex.

Was this page helpful?
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. "Budgeting: How to Create a Budget and Stick With It."

  2. "Rental Burdens: Rethinking Affordability Measures."

Related Articles