Katy Holliday - 4 Aug, 2021

Budgeting 101: How to build a budget plan

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For many Australians, the dream of becoming a homeowner can be tarnished by the practicality of saving a hefty deposit or keeping up with ongoing mortgage repayments. Learning solid money management skills and building a budget plan you can stick with, while saving your down payment, is essential to achieving your goals.


It’s important to remember that learning how to keep to a budget isn’t just about saving for the deposit. Once you’ve attained your mortgage, reevaluating and continuing with your budget is vital in order to maintain repayments and still have money left over for when unexpected expenses arise.

Read on for our tips and strategies to help create your budget plan and save money more efficiently to get into your first home sooner, and repay the mortgage without financial stress.

What is a budget?

A budget is a plan that maps out how to spend your money. When creating a budget, you will keep a record of what money you have coming in and what money is going out.

This spending plan will help you determine whether or not you have enough money to cover the essentials and whether there’s any money left over for the items you want. A budget can also highlight where you may need to cut back in order to attain more important financial goals.

When you implement a budget, you are prioritising your spending and determining what you can afford to put towards your savings goals.

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Why should you consider creating a budget?

Whatever your financial aspirations, having a budget is a better way to manage your money. With a solid budget plan in place, you will have a clearer understanding of what your income is versus how much you’re spending, and clarity about what exactly you’re spending it on.

Whether you want to save for a home deposit, get on top of existing debt or repay your home loan faster, the insights your budget provides can help free up money for the bigger items you want and reduce the financial burden.

By calculating whether you have a surplus or deficit in your budget, you’ll know whether you have the extra money to put towards your savings or whether you need to cut back on discretionary spending to create a surplus and actively reach your goals.

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How do you create a budget plan?

Are you ready to get serious about creating a budget plan? Here are five easy steps to follow to get you on the path to financial success:

Step 1: List the ins and outs

On your budget spreadsheet, record the income you have coming in (after tax and super) and whether it’s a weekly, fortnightly or monthly cycle. Plan your budget around this cycle. If you don’t have a regular income because you’re self-employed or a contractor, work out an average weekly net income using your most recent tax return (taking into account your business expenses).

Consider all your income sources — from investments or rental income to government payments, child support or earnings from a side venture. Even small irregular sources of income should be accounted for so you have a solid reflection of your overall available income.

After you’ve calculated your income, make a list of your regular expenses. Track your spending with your bank or credit card statements to determine realistically where exactly your money is going — and be really specific!

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Step 2: Note your spending habits

To be really clear on your budget, you need to go into detail with your daily spending habits. Often, we underestimate how much money we are spending on certain items.

Note the details for each item individually, considering what it is, how much it costs, and the frequency in which you pay for it. These items include:

  • Rent or mortgage repayments
  • Groceries — including dining out, takeaways, coffees and snacks
  • Bills — electricity, internet, telephone, gas, water
  • Transport costs — public transport, petrol, tolls, parking
  • School fees and related expenses
  • Medical expenses
  • Gym membership
  • Music and entertainment subscriptions
  • Miscellaneous — clothing, beauty, childcare, entertainment, etcetera.

Remember to include yearly, quarterly or monthly expenditures, such as property rates, car registration and car services, and insurances like health, car and property.

Step 3: Assign your pay

Next, you need to subtract your total weekly expenses from your total weekly income.

How’s it looking? Ideally, you’ll have more coming in (a surplus) than going out. With that surplus, over time you can save and build up your emergency buffer.

Set up regular direct debits for your essential expenditure to be taken out just after your salary is paid so you don’t spend more than what you’ve budgeted for. You can divert money to separate accounts for your quarterly or yearly bills, and for your home deposit savings.

The key is to not withdraw any money from your savings account under any circumstances, and where possible keep a secondary savings account to act as your financial buffer.

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Step 4: Look for savings

If you’re fortunate enough to have a surplus in your budget or if you can easily “cut the fat” in some of your discretionary spending habits, you can create a safety net for yourself with a solid savings plan.

Put a spending limit on your surplus and set a savings goal where you squirrel away a certain amount each pay day in order to reach that goal.

Cutting discretionary spending can be a hard feat as those items often bring us the most pleasure. However, in time the money you save will be worth it. Consider eating out less, making your coffee at home, buying fewer clothes, or purchasing second-hand items on a “needs” not “wants” basis.

Step 5: Keep it up

Keeping to a budget can be a challenge, and it’s easy to get discouraged and end up having a bad month. You may think you can manage your budget in your head, but the truth is that most people can’t.

Reaching your goals with a clearly outlined budget will be a valuable exercise to master, and you’ll need to stay motivated. Creating healthy habits with your spending will get you there faster.

Here are some ways to help you maintain your budget:

  • Don’t make impulse spending decisions. When you want to make a big purchase, sleep on it or give it a few days to consider the item’s value to your life and whether it would exhaust your budget.
  • Don’t spend more than you have. Debt is a vicious cycle. If you want something you can’t afford, like a holiday, save up for it instead.
  • Lower your credit card limit. Eliminate temptation and lower your credit limit while paying off its use more frequently.
  • Embrace minimalism. This beneficial trend will help you assess what you need versus what you want.
  • Online shop for your groceries. Never shop on an empty stomach. Shopping online saves you time and helps you stick to your list.
  • Shop around for better prices and cheaper brands. Comparing prices and opting for generic brands can save you hundreds of dollars.
  • Plan your meals in advance. Keep from overspending by planning exactly what you need each week.
  • Treat yourself when you reach a financial milestone. When you have a reward to look forward to, you will feel incentivised to keep going with your goals.

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How could you budget for food in a week?

According to the Australian Bureau of Statistics (ABS), the second-largest household spending item goes to food, which comes after housing and before transportation. We have to eat to live, but how can we do it more economically?

A general rule of thumb in Australia is to allocate approximately $100 a week per person in your household to your food budget, and that includes coffees, takeaways and dining out.

Here are the main tips for setting your food budget:

  • Become aware of what you spend on food each week by checking your receipts
  • Keep a food diary for a week to calculate the cost per meal
  • Complete an inventory of what you have in your fridge, freezer and pantry and the value of those items
  • Meal plan and don’t overspend on your grocery list
  • Eat at home and limit money spent on takeaways and restaurants.

Eating at home and planning your meals weekly, while sticking to the grocery items on your list, can save you hundreds of dollars each month.

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

Creating a spending plan helps you prepare for the future. With technology on our side, there is a wealth of budgeting software tools available to help you plan and implement your budget, and many of them are free to use.

The Moneysmart budget planner and savings goals calculator are two resources that you can use to take charge of your finances effectively.

How often should you review your budget?

A regular monthly review of your budget is not only healthy so you adjust to changes in your expenses and savings, but it will also keep you up-to-date in terms of changes to your circumstances and income.

Whether you’ve had a job loss or promotion, bought a house, are expanding your family or getting married or divorced, all of these life changes will affect your budget and available income.

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How can you track your spending habits?

Track your spending habits by reviewing your bank and credit card statements over the course of a month. For a clearer picture, track your spending over a longer period to cover all those extra incidentals and luxury items that might not always come up.

Once you’ve created a budget, continue reviewing your transactions periodically. Using cash can make tracking spending more difficult so if you don’t want to save receipts and record your spending manually, consider paying electronically for goods and services for a while. 

Some people keep a notebook with them to log every dollar spent in real-time. You can also use an app for this purpose. Other people prefer the envelope system where they withdraw cash and put it in separate envelopes for each of their budget items each week. Then they see how much is left in each of the envelopes at the end of the week. This can help you track your cash spending without detailing each transaction.

Ultimately, money management is all about what is right for you. Find a method that suits your needs and set goals to work towards to make your money work for you.

Words by Katy Holliday

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