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Budgeting. It’s a word that strikes fear into the hearts of people who see it as a strict set of money rules designed to stop you enjoying life. But, as many experts would argue, budgeting is the opposite: instead, it’s a ticket to financial freedom. And with inflation still stubbornly high, Australians are feeling the pinch more than ever.
A recent report from CommBank iQ, reveals cost-of-living stress “has been steadily increasing since late 2022”, with renters and those under 35 feeling it the most. According to aggregated and de-identified payments data of CBA customers, those under 35s are generally tightening their belts, while older Australians, who are less exposed to interest rate rises and price shocks, are buying more. Doubtless, many of those feeling the strain have revisited their budget in recent times.
Tammy Barton, founder and director of MyBudget, says a budget is “the most important tool you can have for getting your finances in order, which lays the foundation for good financial health”.
“A budget will help you to make good decisions, it can show you where you can cut back or, better yet, where you can create savings,” Barton adds.
But Lody Stewart, subject matter expert at Financial Counselling Australia says that budgeting is not a quick fix, describing it as akin to exercise: “the more often you do it, the better the results are”.
If you’re inspired to finally put in some hard yards and tackle the budget, read on for our ultimate guide to budgeting in Australia.
Begin With a Plan
1.Set a Goal
The first step to creating a budgeting is to establish a goal.
“It could be that you’re tired of living week-to-week, you’re trying to pay down debt or you’re saving for a home or holiday,” Barton says. “There’s no wrong answer, just be sure to outline your goals because they’ll continue to motivate you throughout your budgeting journey.”
Stewart adds that if you’re not sure what your goal is, ask yourself why you’ve decided to budget. “The answer might be that you want to be able to pay your bills in full and on time. That’s a goal,” she says.
While people will have different financial goals, Ms Barton says it’s essential that you’re honest with yourself and that your goals are realistic. “Getting started can be quite a confronting process. But once it starts to provide clarity, you’ll wonder why you ever went without a budget.”
2. Choose your Budgeting Method and Frequency
There are many tools available to help you budget, such as free budgeting templates, spreadsheet computer programs or pen and paper.
Barton says there’s no right or wrong tool, the key is to find the method that works for you.
In recent years, many budgeting apps have also been launched however Stewart cautions their use. “They require ongoing access to your bank account data and while they’ll use this to help you with your budgeting, they’ll also use it to target advertisements at you.” If you want to use an app, she suggests seeing what your banking app has to offer instead.
Stewart says that the other key thing to decide at this stage is the frequency of your budget, be it weekly, fortnightly, or monthly. If you’re not sure, she suggests you base it on how frequently you get paid and convert your expenses to match that cycle.
You may want to try your hand at budgeting apps to help you track your spending and save for a particular goal. You can read more in our guide to the best budgeting apps for Australians.
How to Create a Budget
Learning how to budget is a crucial step on the path to financial freedom and, like most challenges, requires practice before it can become an ingrained habit. Follow these steps below to create a budget you will stick to.
Step One: Calculate Your Income
Start by calculating your total after-tax income, including income from work, government payments, child support payments, side hustles or passive income from investment properties, shares, or other assets. Looking back at bank statements can help you identify the income you receive and its frequency.
Barton says that if your income varies from week-to-week or month-to-month, due to factors like casual work or overtime, you should underestimate your income, rather than overestimate it. “It’s best to work off your base income and during periods when you have surplus you can put it towards fast-tracking your financial goals or paying down debts faster.”
If your income varies from week-to-week or month-to-month, due to factors like casual work or overtime, you should underestimate your income, rather than overestimate it
Step Two: Work Out Your Expenses
Next, work out your regular, ongoing expenses such as credit card, home loan or personal loan repayments, utilities bills, rent, groceries, insurances, transport expenses and any direct debits such as mobile phone bills, gym memberships or streaming services. Looking back through three months of bank transactions can provide visibility over this and ensure you don’t leave anything out.
Stewart says that at this stage, people sometimes get a shock at where their money has been going and how much they’ve been spending, but it’s important to persevere. Make sure you cancel any subscriptions, too, that you no longer need.
Step Three: Factor in Savings and Balance your Budget
The next step is to consider your savings.
“It’s really important to make sure that your income covers your expenses, and that you’ve left some room for savings as well,” Barton says.
If you’re spending more than you earn or want to cut your expenses to pay off debt or save more, Stewart says the first step is to separate your expenses into essential and discretionary spending.
Look for savings in your essential spending by renegotiating bills or refinancing debts, shopping around or switching providers. To trim your discretionary spending, rank it from most to least important to you and cut from the bottom up, she suggests. This step may take a number of months, but the aim is to consolidate and/or pay off debts and trim your spending so that you are able to save more than you spend each month.
Step Four: Draw Up Your Monthly Budget
Now that you have a good idea of your monthly incomes, your expenses, and are able to save, you can confidently draw up a monthly budget. Remember that just as it’s important to allow a financial buffer in the form of savings, it’s equally important to allow some wriggle room for discretionary spending wherever possible. This ensures that you’re still able to enjoy the occasional treat and it will also mean you’re more likely to stick to your budget if it isn’t overly punitive.
How to Stick to a Budget
Having a budget is one thing, but sticking to it is another thing altogether. Barton says providing they are realistic and affordable, your financial goals should motivate you to stick to your budget, but you’ll also need discipline and commitment.
She recommends tracking your budget whenever you get paid and updating it whenever your circumstances change, such as when interest rates increase or you have a new income stream. “It’s definitely not a set and forget thing.”
Stewart agrees that setting time aside for regular budget check-ins will help keep things on track. She says: “Budgeting is not a quick fix, it’s an ongoing exercise. It will take time and a little bit of effort, but your budget can help you become financially fit.”
After three months, review your budget and see what you need to change or improve upon. Continue to do this periodically to ensure that you’re staying on track and saving money for your future.
Frequently Asked Questions (FAQs)
What is the 50-30-20 rule of budgeting?
The 50-30-20 rule is a popular budgeting strategy. It suggests allocating 50% of your income towards essential expenses, such as housing, bills, transport and food, 30% of your income to non-essential expenses such as entertainment, hobbies and eating out, with the remaining 20% of your income to be spent on debt repayment or saved.
How do you budget for beginners?
To get started with budgeting as a beginner you should track your expenses for a month or more and categorise them into essential or non-essential spending as well as fixed or variable spending. You can then look for any areas to cut back on to ensure your spending does not outstrip your income. Doing this will also enable you to allocate some money for saving. Next, use a spreadsheet or budgeting app to list all of your expenses and income, and refer to it regularly to make sure your budget is on track. At the end of each month you should review and adjust your budget if necessary.
What are the golden rules for budgeting?
There are a few golden rules of budgeting including: spending less than you earn, tracking your expenses, budgeting for unexpected expenses and reviewing your budget on a regular basis. By following these golden rules you can achieve financial stability, reduce financial stress and enjoy the peace of mind that comes from knowing you are in control of your finances.
What is the best simple way to budget?
There are many simple ways to budget, but one of the most popular is the 50-30-20 rule. This rule involves allocating 50% of your income towards essentials, such as bills, 30% of your income to non-essential expenses, such as entertainment, with the remaining 20% spent on debt repayment or saved. You don’t need a sophisticated app or chart to budget, you can use a spreadsheet to track your earnings and expenses. The main points to note will be your expenses and debts, your income and your savings.
