Do you hear the word budget and think “Yeah, I should do that, but how?” or do you think “Ugh, I can never stick to my budget!”
This article outlines how to create a budget plus how to stick to it. Let’s face it a budget is useless if you don’t stick to it.
Disclosure: This post contains affiliate links to products or services we use and recommend.
What Is A Budget?
It’s about creating a plan so you know where your money is coming from and where it is going. Having a solid plan gives you freedom because it reduces your stress and improves your finances.
Your budget is essentially your income minus expenses. A simple budget has all your sources of income listed plus all your expenses listed. You can see what is being paid when and whether you are living within your means.
A good idea is to get fee-free banking and sort out accounts for specific purposes in your budget. I like Up (get a $8 bonus instantly) or Ubank (get $20 when you sign up with the code S7VL6WF and use your card 3 times) or ING who often have a bonus too with the code CNW116.
Different Budgeting Systems
There are 4 main systems I like and you can use the one that works for you or feels best. Here they are, including links for further information on each.
Cash Envelope System
It’s how our grandparents and previous generations did it since they got paid in cash. One great benefit is it makes money more real. As in, you see yourself spending it and once it’s gone, it’s gone.
Whereas with tap and pay or credit cards, you don’t feel it as much as you do when you pay cash.
Basically, you split all your expenses and get the cash out for each every pay. Put the cash amount into envelopes labelled with your expenses e.g. groceries, petrol, etc. Anything you can pay in cash is done this way.
These days, so much of our money is done automatically online so some people find it useful to have separate bank accounts for different purposes. Up Bank is great for this, it’s fee-free and you get $8 as soon as you sign up.
Bucket System: The Barefoot Investor
Scott Pape is The Barefoot Investor. His advice and system is aimed at Aussies making it easy for most of you here. In a few dates, you can overhaul your finances and implement a new system. Check out The Barefoot Investor book for the full details of this system.
Simply put, his system is a bucket system and who doesn’t love buckets of money? As your money comes in, it’s split into 3 buckets: Grow, Mojo and Blow.
The Grow Bucket is for investing and building long-term wealth. Mojo is to provide some safety money and Blow is your daily expenses, including a little spending money for yourself (splurge money).
Most people find it easier to put their splurge money, an amount you get to spend on whatever you want, in it’s own account though.
You also need to have a $2,000 emergency fund or get that sorted asap. The book really covers it all in more detail, especially how to do each step so you set your system up well and don’t need to stress about money anymore.
Money With Jess – Your Ultimate Guide to Household Budgeting
I feel Money With Jess provides a more in-depth look at every area of the budget and things that pop up. It’s also nicely visual and has space to add in your own details. This is the book that shows you everything in detail to make it easy to create a budget.
Jessica Irvine is a money expert and her book has won multiple awards including: Book of the Year, Personal Development Book of the Year and it was a Finalist of the Finance and Investment Book of the Year at the Australian Business Book Awards 2022.
How do you Work out Your Budget?
You can use software online, create a spreadsheet or use pen and paper, whatever you prefer. There are plenty of apps such as WeMoney.
Write down all your net income (income after tax). Include wages, Centrelink payments or any other regular income.
If you have variable income, as many who are self-employed or work casual do, try to work it out based on the minimum you averaged for the past 12 months or if you are new to a variable income, look at your last few pays to see what you might expect to have as income for now.
Once you know your income, work out your expenses. This is the part that people usually underestimate.
What Expenses do you Have?
Write down every single expense from your rent or mortgage through to dental work, medical and those ‘unexpected’ large bills. Here are some ideas:
Housing costs are usually easy to work out as you either have a mortgage payment, rental payment, board or similar. There is a contract in place outlining what you have to pay.
Check out how to make your home pay for itself.
The cost of groceries has gone up significantly. Most people had a set budget and now need to revise that. Go over your bank statements and receipts to see how much you are really spending on groceries.
Whatever mode of transport you use, it will cost unless you walk absolutely everywhere. If you use a car include petrol, insurance, registration, maintenance and replacement costs.
Public transport prices if that is how you get around. Or if you use a bike you’ll still need to take care of it, replace tyres, have a puncture kit etc.
If you can’t afford to replace it, you need to insure it. We all hope we won’t lose our home, get robbed or have serious health issues but if the last few years are anything to go by, we now know it can happen to anyone.
Include the cost of each insurance you have such as home, contents, health, boat, pet or any other insurance you have.
Electricity, gas, water, land rates, mobile phone, internet, landline etc. Every bill you have needs to be included. Use old bills to confirm how much you’ve been spending and need to allocate while also adding a bit more as a buffer for increased costs.
Another area most underestimate is the cost of raising kids. School fees, clothing, sports, hobbies, tutoring, extracurricular activities, childcare etc. Check out how to afford school expenses and the real cost of raising kids and how to reduce it.
Doctor visits, dentist, medication, and treatments such as physiotherapy or preventative treatments. Include everything even if you don’t use them regularly.
Hair cuts, waxing, makeup, all of it adds up and can be extremely expensive. Be realistic about how much you are spending and include it. Also, check out these 7 tips for beauty on a budget.
Clothing, Shoes and Accessories
Even if you shop in sales or at the op shop, you still spend money on it. Include the cost in your budget or you will easily leak money.
When it comes to entertainment and hobbies, include the total expenses. Anything you are invited to, birthdays, Christmas, holidays, date nights. You might not think you’re spending much but when you add up all the little things, it can get expensive.
Whether you want to acknowledge how much debt you have or not, it’s there. Personal loans, credit cards, AfterPay, ZipPay, BeforePay, Payday loans etc.
Most people are horrified when they add it all up because those ‘little debts’ such as AfterPay and BeforePay get you into a lot of trouble. Even worse are the loans such as WalletWizard and Nibble which charge extremely high interest.
This might be an area of the budget you haven’t thought about yet. Replacement costs cover things you need to replace or upgrade, so when it happens, you have the cash.
Often, this is lumped into a separate account to use as needed and continually added to.
This would cover appliances such as your fridge, a new phone etc.
Treat your savings the same as any other bill. Otherwise, you will always be trying to save what’s left and there probably won’t be anything left.
Paying it first enables you to put aside even 1% regularly and get in the habit.
Creating Your Budget
List every single expense you have, even the annual ones as outlined above. The book Money With Jess helps significantly with working out your budget.
Next, work out how often these expenses occur plus how much they are based on your bank statements and bills, not just what you think you spend, then work out an annual total for them.
Once you have your annual totals for each expense, divide the amounts by how often you get paid to know how much you need to put aside for each expense every time you get paid.
For example, if my electricity bill is $650 a quarter I would do $650×4=$2,600. If I got paid fortnightly, I would divide that by 26 to get my fortnightly amount.
So every payday, I need to put aside that amount for electricity (or have it automatically deducted so I am ahead in my bills).
Getting Your Budget Organised
This might seem like a lot of work but it is worth it to get organised, reduce your stress and have your money working for you. Once set up, it should be fairly straightforward and automatic.
Each week we have an Abundance Meeting aka budget meeting to review our expenses, goals and upcoming expenses to ensure we are on track. We discuss money coming in, bonuses, everything.
How do you Manage to Start Living Within Your Budget?
In an ideal world, you’d be able to split the expenses each payday into the sections you need and it would work beautifully from the start.
Generally, it takes weeks to get the budget on track as some weeks you will have big expenses, and other weeks expenses will be smaller.
Look at your expenses and the ones which will be due soon, for example, is car registration due next month and now you suddenly need to find $1,000?
When are your quarterly bills due and how many things have to come out of this pay?
For the first few weeks, focus on the big expenses coming up while trying to allocate smaller amounts to the other expenses to help build them while staying on top of all your expenses.
If your pay simply is not going to cover the expenses right now and allow you to work out a budget properly, look at how you can make a little extra money right now to cover the larger expenses and allow you to start budgeting properly each week.
Maybe you can take on extra work, do cleaning or any other side hustle to get extra income for now? Check out how I made $33,277.57 on the side in 12 months, 10 ways to make $10,000 or 10 ways to make $1,000 this month to help you.
How to Cut Back if You Need to
When setting up your budget you might be surprised by how much money you spend in some areas and you may need to cut back. Or, you might feel you have cut back as far as possible.
Either way, here are some posts to help you cut back:
31 Ways to save $200 or more plus ways to make money
50 ways to live for free
How we live a fun and frugal lifestyle
18 tips to keep your groceries under $150, including alcohol and cleaning supplies!
How to afford a house when the average Australian home costs over $600,000!
How we cleared $90,000 debt (reader story from friends of mine)
What to do with leftover sausages
The best Australian cash back and discount sites
Funky Food is a new delivery service offering boxes of produce that are heavily discounted compared to the supermarkets. The fruit and vegetables are high quality but all different shapes instead of ‘supermarket perfect’. Check out Funky Food and get discounted fruit and veg now.
How to Actually STICK to Your Budget
So you have an idea now of how much you spend, how much you are bringing in, where you need to cut back and ways to make more money if needed.
That is all well and good but how do you actually stick to the budget?
It comes down to delayed gratification and discipline.
Delayed gratification as in, instead of buying that impulse buy, you manage your money better to get what you really way.
Discipline with spending, avoiding the shops both online and in-person, saving your money and looking to the future for what you really want. Find 5 tips to reduce temptation here.
To Stick to Your Budget, Implement Rules and Strategies
It is easier said than done but if you start implementing good habits, pretty soon they will be second nature and your finances will look much healthier.
1. Leave Your Cards at Home
How often do you spend mindlessly because you have your cards or available cash? Leave it at home. If you don’t have it, you can’t spend it.
At one point, I went as far as not having anything on my phone either so I couldn’t just tap and pay. Everything had to be planned out properly.
2. Plan Your Outings
Do all your errands in one day instead of making multiple trips to the shops. Plan to catch up with friends at a park or somewhere other than the shopping centre.
3. Have A 30 Day List
If you see something you want to buy, put it on a list for 30 days. At the end of that 30 days if you still want it you can look at how you can incorporate it into your budget. Most of the time, you’ll find you no longer want it.
4. Have A Goal
My main goal in life is financial freedom so my children and I can do what we want, I get quality time with them and we get to travel as much as we want.
What is your goal? Are you saving for a house deposit, paying off debt or saving for a new car?
Anytime you are tempted to spend, ask yourself “Do I want this now or do I want my holiday?” this is usually enough to stop me from spending.
5. Have Visual Reminders
When I am working on a goal I have reminders everywhere.
– Goals are written in permanent marker on my mirrors
– I write my goals in my journal every day
– I have a vision board with everything I am working towards
– I have debt repayment graphs or saving graphs I colour in as I put the money where it needs to be to help me achieve those goals
– I have my screensavers and backgrounds on all devices set to a list of my goals or a picture of my vision board
– I change my passwords to match my goal
– I meditate daily and spend time visualising my goals
– I have a calendar up that has everything I am working on, dates I expect to achieve my goals and lists of what I need to do each day to achieve them
– When I had a purse, the photo section held a list of my goals
– Write your goal in permanent marker on your credit card to stop you spending. You’ll see it every time you pull it out
– Work out the compound interest. Download an extra payments loan calculator to your phone and put in it how much your loan is, the interest rate and how long the loan is.
Then whenever you want to spend money on something, put that amount into the calculator to see how much sooner you’d pay off your debt if you put that money on debt (or do it with savings if saving for something.)
I take this a step further and transfer the money. I was going to spend it anyway, so I imagine it gone and transfer it to debt or savings. This way the money is actually working for you, not just hypothetically working.
6. Block The Temptation
Download and use blockers for your browser. On Chrome you can get one call self-control which you download, then when you need or want to, you can set the site you want to be blocked and time frame you want it blocked for.
If you’re having a down day and likely to want to shop up a storm, this can help a lot! Other tips to reduce temptation can be found here, or how to resist the urge to splurge is another article to help.
“Yeah, great, but my money doesn’t cover my expenses! What do I do?”
If you have cut back as far as possible, you need to find ways to make more money. Otherwise, you will continue to go backwards and the further you get in debt, the harder it is to dig yourself out.
Common Budget Questions and Issues
We covered a lot above already. Here are some specific questions or issues from readers about budgeting.
“I can’t budget, I have no money!”
Most articles about budgeting discuss working out your expenses, and splitting your pay into different accounts as your money comes in so you can pay for bills as they come up.
What happens if your income is variable or you are so far behind on bills they are going to cut off the electricity?
The variable income I’ll address further down, right now, I want to help you get on top of things if you are in a situation where you are behind.
1. Be Aware
The bills aren’t going away by themselves. Get all of them out, find out how much you owe on each one, when they are or were due, and write down if you have a payment plan set up, or asked for an extension to pay as well.
2. Call to Negotiate Payment Terms
Call each provider and ask for an extension or ask if you can do a payment plan. If you go on a payment plan, do not agree to an amount until you have worked out how much you can afford to pay. Check out 6 tips to easily reduce debt for more on this.
When you are speaking with them, also make sure any discounts you might be eligible for such as a pension discount have been applied, and ask if they have a pay on time discount so you can aim for that in the future.
Now you know when bills need to be paid, how much they are and which ones will give you an extension, put them in order of priority with the one due first being the first bill you focus on.
Do not miss payments on any of the other bills, but do put extra money on the first bill where possible.
Write the bills and their payments on a calendar and have it somewhere you can see it so you know where you are at all the time and can focus on getting it paid asap.
4. Work Out How to Pay Them
If you are behind on your bills, it probably means you aren’t earning enough, they were really big or you had an unexpected emergency. It happens and the main thing is you focus on what you can do from now on to put you in a better financial position.
If you don’t have enough money coming in, work out ways to get more money, even if it’s only short term to help you get back on your feet.
Also, check out my monthly side hustle updates here.
Next, pay that extra money on the bills. Don’t be tempted to spend it. You need to get your bills back on track and cleared before the next lot come in.
Another option is to talk to charities and see if you are eligible for assistance such as having your electricity bill paid, having someone negotiate your bills on your behalf or any other assistance to enable you to save money elsewhere and put that money on your bills.
You can also use this list to find lots of freebies in Australia.
5. Plan For Incoming Bills
Bills are guaranteed to come again. Get to know exactly what bills you have and start planning for when they come in next.
If you can get your budget sorted and set up a bills account to put money in so when the bills arrive you can pay it, you will feel a lot better.
6. Get Other Help
If you are struggling to pay bills, you are classed as being under financial stress. There are free financial counsellors to help with this. check out The National Debt Helpline website for more information.
I can’t budget, I have a variable income!”
My income has been variable for years and while it was trickier in the beginning, there are things you can do.
Many people have variable incomes including business owners, casual or contract workers, part time or seasonal workers etc.
Variable income is not uncommon but if you have been used to a regular pay it can be difficult to adjust. One thing that helps is if you have an idea of what the lowest amount you will get paid is.
Knowing that means you can budget around that and in better weeks, you can throw more at bills or into savings.
With a variable income, setting up an emergency fund is important because you might have weeks with no pay. Although, once you get used to having a variable income you need to be spreading it out so it covers the weeks of no pay instead of dipping into an emergency fund or savings.
When working out your expenses and how to live, budget as if you are living on the previous months’ income instead of living waiting for the next lot of pay. By living and spending what you have already made, it will be easier to manage in the coming months.
Too often people calculate in over time or bonuses before they get them. Then if they are late or get cancelled, the budget is ruined.
Calculate and work only with what you have not what you hope might come in.
“I had a bunch of emergencies that wiped my savings!”
Everyone faces emergencies at times and with budgets stretched beyond capacity at the moment, any emergency can be devastating.
They happen, the important thing to remember is you can get back on track and focus on the future. If an emergency has put you in debt and thrown out the budget, work on getting back on track as soon as possible.
We’ve faced numerous emergencies including health issues, surgeries, paralysis, cyclones, bushfires etc. Check out what we did to prepare for and overcome financial emergencies.
Cut all unnecessary spending and look for ways to make more money to help you build an emergency fund again then clear the debt. Check out the fast money challenge and see how much you can get in 5 days.
“I don’t know how much I spend!”
Start tracking your spending. Everyone should do this anyway. Write down everything you spend money on and get to see you spending patterns.
Take note of things like how you feel as sometimes we might be emotional spenders without realising it.
Basic Budgeting Tips Everyone Should Know
A budget can be as simple as writing down all your expenses and income, making sure you are spending less than you earn and setting up accounts to transfer money to when you get paid. Accounts such as bills, savings and every day.
Live Below Your Means and Take Baby Steps
Spending more than you earn is going to end badly. Learn to live on less than you earn. Start with saving an emergency fund of $2,000 to $5,000 to cover you. Next focus on clearing your debt as fast as possible.
Check out how these readers paid off $90,000 in a year (they started off unemployed), plus tips to clear debt here. Next, build up a larger emergency fund and save for a house or pay a chunk off your mortgage.
Those are the starter steps. Once you have savings, no debt and are sticking to a budget, you need to think about retirement planning and what sort of lifestyle you want now as well as the future, then do what you need to make that happen.
You might want to travel, invest, buy rental properties or be able to collect wine. Whatever it is you want, make a plan and get it happening.
Review Your Budget
A budget can be set and forget in many ways, but what happens if you have a pay rise, change jobs, one of you stops working or you want to renovate?
A budget should be reviewed regularly to ensure it still fits your needs. Check out how my annual review has saved me thousands every year.
How do you budget? What tips would you add?
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