Danielle Austin - 22 Sep, 2020

Budgeting 101: How to build a budget plan

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Whether you’re a savings expert, struggling with a bit of debt or somewhere in between, having a personalised budget to keep you on track with your financial goals is always a good idea. Budgeting is the key to success when it comes to bumping up your savings or repaying those pesky debts.

What is a budget?

A budget is simply a way of tracking incoming and outgoing money and is a guide to your personal finances. Every budget is different, as it is based on your earnings and financial values. While  getting started on your budget can seem like a big task, but there are simple steps you can take to get the job done.

A budget shouldn’t simply be a list of your income and required, or non-discretionary, expenses but should also take into account your short-term and long-term financial goals and what is required to meet them. Your budget might also take into account the goals you have as a family and will likely change throughout different parts of your life as your goals shift.


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Why should you consider creating a budget?

A budget is a useful tool to help you take control of your finances and achieve your financial goals. Think of it as a roadmap of your financial situation.

A personalised budget is a particularly useful tool for those looking to ease out of debt or those not familiar with saving money, but budgets are useful no matter your financial situation. Once you’ve calculated your income and expenditure you’ll get a clear idea of whether you are in a financial surplus or deficit and where you need to adjust your spending habits.

How do you create a budget plan?

Step 1: List the ins and outs

The first step in creating any budget is to get a clear picture of how much money you have coming in and what your necessary expenses are. While your income will likely include a salary, you might also receive income from government assistance, investments and rental properties, or inherited income. Make sure to take all income into account to get a realistic picture.

Next you’ll want to list all necessary expenditure to work out your expenses. Non-discretionary expenses will include your mortgage or rent repayments, the cost of food, utilities such as gas, electricity, internet, phone and water, transport costs, insurance costs, regular medical expenses, schools fees, subscriptions and memberships, as well as big quarterly and annual payments like car registration and property rates.

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Step 2: Note your spending habits

You’ve already got an idea of how much you have coming in and how much you need to spend, but what happens to your leftover money? The next step to creating your budget is to consider you’re spending habits. Discretionary spending is money spent on purchases that aren’t essential, and while there is nothing wrong with spending money on the things we value it’s  beneficial to be aware of where your money is going.

This generally relates to our lifestyle preferences and could include entertainment costs, travel, luxuries such as alcohol, coffee and dining out, clothing, gifts and much more. A great way to do this is to review your past bank statements and assign each transaction as either non-discretionary or discretionary payments. Looking at your discretionary spending habits over a period of time will help you consider where your values are (likely where you spend the most money) and where you have potential to save.

Step 3: Assign your pay

Now it’s time to work out how your income needs to be split up to cover all your non-discretionary and discretionary expenses. Calculating your income and subtracting the total of your necessary expenses will leave you with the amount you can assign to savings and discretionary spending. Talking Money founder and financial coach Melissa Meagher has some simple tips to achieve this.

“When [my clients] work out their fixed costs, I then work out what those are annually. Then, say they get paid fortnightly; I divide that annual figure by 26 [fortnights in a year]. I then get them to open up a bills account, and that fortnightly figure goes straight into that account when their pay comes in,” she explained.

This should leave you with three bank accounts, one for fixed expenditure, one for savings and one for spending. The amount you assign to spending and saving from here will depend on your financial goals and values. You can also use the MoneySmart savings goals calculator to help you work out your savings goals and how long it will take you to achieve them.

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Step 4: Look for savings

Now that you have a complete overview of your financial situation you can start to look for places or payments where you can save money to help you achieve your savings goals. This might mean allocating less funds to entertainment or dining out or seeking out cheaper deals on insurance and phone costs. If you are spending a substantial amount of money on something that you don’t value, consider if you can cut this cost.

Step 5: Keep it up

With your budget in place, you’ll hopefully feel more financially aware and empowered and ready to stick to your plan. According to Melissa, you’ll be more motivated to do this than you might think.

“People think they won’t like doing this, and sometimes they just don’t want to know. But [creating a budget] really empowers people because it lets them know their current position and that allows them to move forward and make educated and informed decisions about their money,” she said.

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How could you budget for food in a week?

Budgeting for food expenditure can be on of the hardest parts of creating your budget as it’s not necessarily a set amount like other bills.

A good rule of thumb is to allocate around $100 per week per person in your food budget. However this will vary depending on how much each person eats and any dietary requirements that might increase the cost of foods, so allow for some flexibility while you adjust to your new budget. You might also place a higher value on dining out and feel comfortable allocating a higher percentage of your budget to food to cover this.

If you want to calculate more specifically what you’re spending on food commit to keeping a food diary for a week and calculating the cost of each meal that you eat to become more aware of how much your food is costing. If you’re food expenditure is coming in higher than you’d like it might be worth shopping around for some better deals, buying and cooking in bulk, and taking stock of what you already have in your kitchen to use up.

What online tools are available to help you create a budget?

There are a number of online tools available to help you track your income and expenditure and create a personalised budget. The Money Smart website has a useful budget planning tool that tracks your income and non-discretionary and discretionary spending to get you started with your budget planning.

How often should you review your budget?

How often you review your budget will depend on your circumstances and your financial goals, although it’s a good idea to review it regularly.

While you might review and adjust your budget regularly, it’s a good idea to have a thorough yearly review. Sit down with your partner or family and consider what your financial goals are for the next year and how they’ll fit into your budget, as well as how your expenditure might have changed over the last year. Big life changes like a new job or promotion, redundancy, marriage, divorce, purchasing a house or having a baby will all impact your budget.

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How can you track your spending habits?

Tracking your spending can seem like one of the most overwhelming parts of creating you budget but there are some ways to simplify it:

Use an app. There are plenty of money tracking and budgeting apps available, and many will sync with your banking apps and produce great visual graphs for you to view your spending habits more easily. Check out apps like MoneyBrilliant, Pocketbook and Spendee.

Save your statements and receipts. Your bank will electronically record all transactions on a credit or debit card making it much easier for you to go back and review. If you make cash purchases you’ll also need to collect those receipts.

Make a note of it! Track your spending as you go by noting down every purchase as you make it, making sure to include the amount, the item or store, and the date, tracking both cash and card purchases for accuracy.

Words by Danielle Austin


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