Following a strict financial plan BUT still not getting fruitful results? There may be many loopholes or you are not following it properly. Among them, the major reason is people include different types of costs into the budget plan, which makes it difficult to follow.
Creating a budget does not mean you include various types of cost whether it is related to household expenditure or an external one. You can include but when you start to follow it, then it seems impossible. Consider each expense is actually not practically possible. Always try to include large one, which may affect your monthly income if you fail to follow it.
Let understand this by an example…
Suppose you buy a packet of milk once in a month and you are including in budget too. And at the same time, you are considering paying various types of bills too. In this way, you can easily mess up and feel pressurised to follow it.
You can see you can reduce the stress if you remove the milk’s cost. You should take only large expenses to maintain an effective budget plan.
We understand that people often confuse to understand which one is small and which one is a large expenditure? You do not have to worry because here in this blog, we have discussed ‘5 CATEGORY BUDGET’ that will bring a positive change in your house.
First, let’s understand this in a few lines, and then we will discuss how to apply for it in your daily life.
What are the five category budgets?
Whenever we talked about the budget plans, we have to be very specific and structured. Here, this budget plan will help you a lot. In this, you have to learn to avoid too many categories on your budget list and add categories that need your immediate money attention.
As you can instinct from the term that it is divided into FIVE AREAS. We have mentioned all areas below with proper details.
Housing: You have to mention all necessary house-related costs such as rent (if you have a rental house), property taxes, insurance and many more. Make sure this area does not cover more than 35% of your income.
Transportation: It does not exceed more than 15% of your income. You have to consider all the costs related to travelling.
Living Expenses: Sometimes people often forget to mention the ‘joy’ part. But following the budget does not mean you forget about enjoyment. In this category, you have to mention all your discretionary costs such as having dinner at a restaurant, watching movies, trips and many more such types of expenditure.
Make sure it does not cover more than 25% of your monthly income. If you are exceeding this, then reduce the living expenses.
Savings: This one is the major motive behind creating a financial plan. No matter what the reason is that you have to make at least 10% of saving every month. If you think that you are not able to save that much, then you can start with something. But you have to start otherwise you will fail to manage surprising costs in the future OR you will not able to fulfil your dreams.
Debt: In this, you have to show all debt such as credit card bills. And make sure this part does not cross the 15% of your income. If it exceeds, then consolidate with the help of instalment loans for bad credit people fromdirect lenders only. In this, you can take assistance even with a less-than-perfect score. And you can get the best interest rate even with no guarantor is involved.
The above-mentioned way may be an ideal choice to clear all debts at once.
Why this budget is effective as compared to other types of budgeting?
For instance, there are ten works you have received from your office. And you have to do them all. It seems daunting. Right?
It is very hard for an individual to do all the tasks alone within a given time. But what will happen when that same work will divide into five people? It becomes easy because you have to do two tasks instead of ten.
This is the same thing happens in the case of the FIVE CATEGORY BUDGET. In this way, you can easily manage your expenses. And not only this, you can track where you are doing mistakes. Sometimes people spend more than they earn and that creates a problem for them.
You can see how effectively you can manage both large and small expenses whether it belongs to external or internal. In this, you do not have to mess up between which part is ok and which is not. All you have to divide the budget into five categories we have mentioned above.