How to create a budget in 5 easy steps

How to create a budget in 5 easy steps
How to create a budget in 5 easy steps

We’re going to delve into creating a budget that is not only tailored to your individual financial situation and goals but one that is foolproof and easy to stick to.

We’re also going to take a look at 3 ways to keep track of your spending and budget as well as 3 of Australia’s leading budgeting apps.

Although we all know what a budget is and that it’s an important financial tool, few Australians actually have one and even fewer stick to the ones they have.

The real reason you need a budget

Most people will have you believe that you need to budget so that you can make it through the month and have enough for all the things you need and can then use whatever is left over on luxuries.

Looking at a budget in this way is detrimental to your finances and a simple shift in perspective may just be what you need to actually create and stick to a budget for the long run.

What a budget really is: a budget is a tool that allows you to keep track of expenses, reduce spending and maximise savings to assist you in achieving your financial goals and developing long term financial stability and wealth.

Step 1: Understanding your needs & spending habits

Creating a budget or working off of a standard budget that does not take your specific needs into consideration will prove to be a waste of time. You need to property document and assess your monthly spending and needs before you set up a budget.

How to assess your monthly spending

To assess your monthly spending it’s a great idea to download your banks statements and work from there. You should write out expenses based on amounts and work your way from the most expensive to the least expensive.

This will typically be rent or bond payments, car finance repayment, groceries, fuel, insurance, other debt repayments, banking and entertainment. You should go through each major category in detail and be very specific about how much you’ve spent on each for the last 3 months.

Pay particular attention to your debt and insurance categories and make sure that you include each and every expense that fit into these individually.

Analysing your spending is critical to developing a budget that will help improve your financial situation. This means that you need to review all of your expenses and decide on whether each and every expense is necessary, and if it is, whether there is a way to reduce it.

Step 2: Cut down expenses

Once you’ve put your typical monthly expenses down and included all the relevant categories, it’s time to review these and find ways of reducing expenses and saving money. For great tips on how to save money on expenses see our 12 tips to budget your way to financial freedom.

Here are some expenses you could look at reducing:

  • Downsizing your home or renting a smaller or cheaper unit could reduce housing costs.
  • A more fuel efficient vehicle or a pre-owned vehicle could reduce your vehicle and fuel expenses.
  • Shop in bulk, create weekly meal plans and look for specials and deals.
  • Cancel memberships that you don’t need or use and downgrade accounts.
  • Look for cheaper insurance deals.
  • Check your banking fees and look for cheaper alternatives.
  • Cook and eat at home and avoid buying coffee, lattes, teas and other budget killing expenses.

Once you’ve reduced expenses and have a list of your full range of monthly expenses it’s time to put these together into a budget. We’re now going to take a look at some of the budget tools that you can use.

Step 3: Creating a budget

There an a wide range of tools and methods you can use to set up a budget and keep track of your spending as you go along. We’re going to look at all these options in turn and you can decide which method or, combination of methods you want to use.

#1 Paper or notebook based budgets

This is one of the oldest methods of crediting a budget and keeping track of spending but many people still use it and are happy with it. All you need is a notebook of sorts and you’re ready to draw up a bunch of columns and rows and add your range of categories and expenses.

This notebook should be updated regularly to avoid forgetting about expenses or you need to keep receipts and use your bank statements to update it regularly.

#2 Using an Excel spreadsheet

This is one of the easiest ways to start and maintain a budget as there are numerous free Excel budget templates that you can download and use for free.

These will already have a range of categories added and will automatically populate an annual budget for you as well. You can easily print your budget but will have to remember to open up your spreadsheet and manually add expenses as the week or month progresses.

#3 Use a budgeting app on your Smartphone or IOS device

Since we almost always keep our mobile devices on us and use them regularly using our phones to keep track of your finances makes a whole lot of sense.

There are many different budget and finance applications available that you can certainly find something that will work for you. We’re going to take a look at three of Australia’s leading budgeting apps to help get you started.

This is by no means an exhaustive list or even a representation of the best apps on the market, they are simply three of the most popular apps on the market at the moment and you can do a Google search to find others that may work well for you.

Australia’s leading budgeting apps

Pocketbook budgeting app

Pocketbook is one of the leading budgeting apps on the market and can be used on both IOS and Android. It automatically syncs with your bank account and categorises most of your account transactions as well as with your credit card accounts and loans. This makes budgeting super simple since you don’t have to manually add transactions yourself.

Money Brilliant budgeting app

Similar to Pocketbook, Money Brilliant allows you to sync your bank accounts and credit cards or loans as well as investment accounts and superannuation. Insurance Tracking and Bill Watch are two really great features of the app.

You can create a budget on the app and pull reports that show you what you’re spending and saving. If you like the app you can also upgrade to a paid version which will open up other great features.

Spendee budgeting app

Spendee is another great budgeting app available on Android and IOS devices that can synchronise with your bank accounts and has great shared expenses features for partners and roommates. It’s also great for those who travel a lot as you can switch between currencies. You can also upgrade to a paid version of the app to unlock other great budgeting features.

Step 4: Make savings a part of your budget

On the same note that we started this article on, whether or not you save money regularly should not be based on how much you earn. Saving can and should be done by all Australians even if this saving takes the form of a simple ANZ Saver Plus account.

This savings programme allows you to set a 10-month savings goal and then have savings of up to $500 matched by ANZ. There are strict eligibility requirements for this account and savings can only be put towards studies for the account holder or their children.

Step 5: Review & boost your budget

Remember to review and tweak you budget on a regular basis. If you incur any new expenses or loans, open new savings accounts or pay off credit cards and debts, update these on your budget. You should also review you financial goals at least once every 3 months and this is a great time to review your budget and get them in line with your new goals.

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