Step 1: Calculate Income
The first step is to calculate all of your sources of income over a period of time (usually fortnightly, depending on how often you are paid).
Income often comes in the form of wages from work, Centrelink payments, board payments and child support etc.
Step 2: List Current Expenses
The next step is listing all your expenses.
Some of your expenses will be annual, monthly, weekly or randomly throughout the year. List the amounts in the timescale that fits best. If you are unsure of the exact amount, make an estimate to the best of your knowledge. Next, convert all the expenses into the timescale that matches your income (usually fortnightly).
For example, you can halve your monthly expense to get an approximate fortnightly expense. You can divide an annual expense by 26 (the number of fortnights in a year).
Step 3: Prioritize and Set Goals
Now that you have a clear picture of your current income and expenses, it's time to prioritize where your money goes. This involves making deliberate choices about how you allocate your funds to align with your income and your financial goals.
Wants
Things you desire but don't necessarily need, such as entertainment or dining out
Savings
If possible, setting aside money for future goals, such as Christmas expenses or a family holiday
First you should try to make your budget balance. That means the income amount should be higher than or equal to the expenses amount. If your expenses are higher than your income, you might first consider reducing some of your "wants", because they are often more flexible than your "needs". If you find that you don't have enough income to cover just the "needs", you might benefit from assistance from a financial counsellor.
Once the budget balances, you can set further financial goals by prioritizing your essential needs, and then allocating some funds to your wants, and also allocating some funds towards saving for the future.
Step 4: Follow and Adjust
Once you’ve developed a budget, the next step is to follow it. Monitor your spending as you go and track your progress. Make adjustments as needed.
If you’re finding it difficult to stick to your budget, you may have underestimated the amounts you need to set aside for items such as groceries or clothing. If you find you are overspending on "wants", you may also need to reevaluate your spending priorities.
It is ok to spend on the "wants" as long as your budget allows!
Hint: You don't have to use a template to make a budget. All you need is paper and a pen!
Bonus Step: Categorizing Expenses
Have you heard of the "envelope" or "bucket" strategy of budgeting? This is where you use different bank accounts (different buckets) for different categories of expenses. You put a certain amount of money into each "bucket" when you get paid, and then you only spend that amount on that specific category of expenses.
MoneySmart suggests that once you have decided on your different accounts, you can then automate your budget by setting up a regular transfer to your bills and savings accounts on your regular pay day.
You can categorize your expenses in whatever way makes sense to you. MoneySmart recommends three separate accounts:
- a transaction account for spending (for groceries, fuel and miscellaneous expenses)
- a transaction account for bills and expenses (this account could be set up for all of your direct debit bills)
- a higher interest savings account (savings for special occasions or an emergency fund)
Financial Wellbeing:
More Than Budgeting
Not all financial problems can be solved by budgeting alone. Other factors may be at play, such as job insecurity or mental health.
If you are struggling financially and you are unsure what to do, reach out to a free and confidential financial counsellor for tailored assistance.
Call the National Debt Helpline on 1800 007 007 for assistance or to find a financial counselor close to you.
