How do I make a budget?
Budgeting is made up of a few simple steps. Here is one approach we suggest.
1) Determine where your money currently goes.
The first step in creating a budget is understanding (and writing down) what exactly you’re spending your money on. You can do this with a notebook and pen, on a spreadsheet, through a fancy app or with an online tool. Sorted has some good suggestions on how to track your money.
If you already have a bank account, and have been using a debit card, you can track your money directly through your account. Sit down and take a look at the last three months of your transaction history from the banking app or your statements. Figure out three things:
- Your income or earnings.
- Your needs, or how much you spend on bills, including rent, phone bill, electricity and energy bills, etc.
- Your wants, or your discretionary spending that's optional or for fun (clothes, cafes, going to the cinema, etc).
2) Set some money goals.
Working out what you want to achieve with your money is important so you can make it happen. Your goals could include anything, though a few examples are:
- a (new) phone
- a car
- education or other courses
- paying off your debt in full
- house savings.
As you can tell, some of these will take longer than others to save up for. It’s helpful to divide your spending goals into three categories: Short-term goal (less than 2 years to accomplish), medium-term goals (2-5 years to accomplish) and long-term goals (more than five years to accomplish). Remember that your goals should be oriented around what you want to achieve, not anyone else, otherwise you won’t work towards them as well.
3) Determine where you want your money to go.
This next step is where the change comes. Are you spending money on things that don’t mean so much to you and don’t have enough for the things that do? Determine where you want to make changes in your spending and document this in the same format as your current spending (notebook and pen, spreadsheet, fancy app or online tool).
If you find you are spending more than you earn and still aren't able to pay for all your needs, use the following links to find out what financial support you might qualify for from the government.
4) Automate your money.
Next, set up separate bank accounts for some of your different needs. It helps to get your accounts to do most of the work for you. It is ideal to have a minimum of three, and all should be free of fees.
- Your day-to-day spending account linked to your only debit card. This will be for your discretionary spending (remember those are ‘wants’)
- A bills account that your regular expenses come directly out of (remember these are ‘needs’)
- Savings accounts to be used for your other goals. You can always have multiple savings accounts for various goals
Then, have your income deposited into your bills account, and based on what you calculated you actually spend:
- Transfer an amount (aim for at least 20% total if you can) to your savings account/s
- Keep enough in your bills account to cover your bills and expenses
- Give yourself whatever's left to spend on your discretionary expenses, i.e., whatever you want. Put this amount in your day-to-day spending account linked to your only debit card
Finally, set your bills and payments up as direct debits or automatic payments. You'll want these to be as automatic as possible.
5) Monitor and manage as necessary.
If you're looking for ultimate success with your budgeting, make a time every week or every month to track your spending and make sure you're tracking towards your goals. If you overspent in one area, adjust it by taking some funds from another.
If you need more budgeting advice, tools and/or tips, check out the links below.
Remember: This is just one example of a budgeting plan. The important thing is that you decide what you want to try and save for, and budget in a way that works for you.