Key takeaways

  • The foundation of any effective budget is calculating the total amount of income you receive on a regular basis to determine how much money you have available

  • Tracking your expenses can help you determine what you’re spending the most money on and where it might be easiest to save

  • Make a list of your short and long-term financial goals. These don’t have to be concrete, but they can help motivate you to stick to your budget.

Creating a budget is a great way to track your spending and work towards achieving a financial goal.

It can also make it a lot easier to achieve financial milestones such as saving for a home deposit or a holiday.

Here’s how to create a budget in six steps.

Step 1: Determine your income

The foundation of any effective budget is calculating the total amount of income you receive on a regular basis. This will give you a realistic overview of how much money you have available.

You want to include all income sources like your salary, investments, pension or government benefits. But make sure to calculate your net income—the amount of money you earn after tax.

If you don’t have a regular income, you can work out the average amount you would normally be paid per month.

Step 2: Calculate your expenses

Once you know how much money is coming in, the next step is to figure out where it’s going.
Tracking your expenses can help you determine what you’re spending the most money on and where it might be easiest to save.

Begin by listing your regular monthly bills such as:

  • rent or mortgage

  • utilities—electricity, gas, phone bills

  • subscriptions/memberships

  • insurance

  • personal loans/credit card repayments

  • transport payments—car registration/public transport

  • family costs—childcare, school fees.

Next, identify the expenses that may change from month to month, such as groceries, petrol and entertainment. You want to calculate an average amount you would typically spend on these per month. Your bank statements will often categorise these expenses, so it may be a good place to start.

Step 3: Set a spending limit and develop a plan

Making a plan for what you want to do with money left over after expenses will help you keep within your spending limit.

To do this you may want to consider the 50/30/20 rule which is a budgeting technique that divides your take home pay into three categories. It’s a very simple way to track your spending.

Essentially your needs cover 50% which includes things like your rent/mortgage and utilities. Your wants cover 30% which includes things like shopping and holidays. Then the remaining 20% covers savings or debt such as credit card payments or a home deposit.

Step 4: Set your savings goals

Make a list of your short and long-term financial goals. These don’t have to be concrete, but they can help motivate you to stick to your budget.

Short-term goals should take around one to three months to achieve and may include things like paying down credit card debt.

Long-term goals, such as saving for a home deposit or your retirement, may take a lot longer to achieve—may take several years or even decades to reach. These will require a lot more money and regular attention than short-term goals.

Step 5: Adjust your spending to stay on budget

Now that you’ve worked out your income and what you typically spend, you can make adjustments to achieve your goals.

  • Shop around for better deals: you may find a cheaper offer on your home loan, electricity and insurance by researching the market. This can end up saving you hundreds of dollars over the long-term

  • Cut back and take advantage of concessions: cut down on subscriptions or memberships you don’t use, and make sure you’re getting all the concessions you’re entitled to such as rebates and pensioner discounts

  • Reduce energy bills: check out government and council rebates to reduce your energy bill and consider switching to energy efficient lightbulbs

  • Reduce grocery spending: meal planning is a simple way to reduce wasting food. Finding recipes that use the same ingredients means you’re more likely to use up an entire bag of vegetables and reduce wastage.

Remember that even small savings can add up to a lot of money over time so it’s worth making small changes and searching for better deals.

Step 6: Review your budget regularly

Once your budget is set, it’s important to review it and your spending, on a regular basis. Your budget needs to work for you and your lifestyle, so it will need adjusting from time to time.

For instance, you may get a pay rise so you could potentially save more or reduce your debts.

Bottom line: you probably won’t always be on target to achieve your goals, but the important thing is to be consistent. If you’re hit with an unexpected car repair or medical bill which sets you back, don’t beat yourself up over it. Just get back on track as soon as you can.

Seek help from a professional

If you value the experience of experts in other aspects of your life, don’t discount it when it comes to managing your life savings.

A financial coach is not just someone who helps with investments. Their job is to help you with every aspect of your financial life—savings, insurance, tax, debt—while keeping you on track to achieve your goals.

More importantly, they can answer questions like:

  • What age can I stop working and retire?

  • What strategies can I use to build my wealth?

  • How can I reduce my tax?

If you have any questions, call us on 1300 765 811.

Important information and disclaimer

This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. NULIS is part of the group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (‘Insignia Financial Group’). The information in this article is current as at January 2023 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. The case study examples (if any) provided in this article have been included for illustrative purposes only and should not be relied upon for decision making. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the Insignia Financial Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.