Creating a basic budget can help you spend your money more wisely and maximise your savings.
Create a basic budget
A budget is a record of all the money you have coming in and the money going out. Even if you can’t change what you earn, you can be smarter about how you spend it.
You don’t need a complex template or spreadsheet to set up your budget. All you need is a notebook, pen, and calculator. If you’d like to use an online tool, MoneySmart provides a free budget planner.
Follow these steps to create your basic budget.
Step 1: list your income sources
Income can include wages from a job, government pension or benefit, or any other money that you receive on a regular basis. Calculate your total weekly income.
Step 2: list your expenses
Expenses include everything that you pay daily, weekly, fortnightly, and monthly. Some bills only occur every three, six or twelve months – write these down too.
Next, calculate how much money you need each week to cover all of your bills. If you have difficulty working this out, ask someone you trust for help.
Step 3: Balance your income and expenses
The aim of a budget is to work out how much money you need to:
- cover your expenses
- prepare for unforeseen expenses or emergencies
- save for something you want or need.
Once you know how much money you earn, and how much you need, you can begin to look for ways to reduce expenses and start saving.
Find ways to reduce expenses
We all need similar things for survival – food, water, secure safe housing and health care. However, what are essential, important, fixed or flexible expenses can vary from person to person.
What is essential?
Essential expenses are things we must pay for. This might include rent, food, transport, vehicle registration, electricity, loan repayments and any essential health care costs.
What is important?
Important expenses are things that could have negative consequences if we ignore them. An example might be car repairs. Driving an unsafe car can be a threat to your safety and that of others, and delayed repairs is potentially more expensive.
Fixed or flexible?
Fixed costs are those you cannot change. For example, the cost of car registration. With most expenses though, there is some flexibility. Flexible expenses are where you might find savings. For example, while food and clothing are essential, their costs are flexible and can be reduced with smart shopping. Identify all those places where you can pay less for shopping.
Needs and wants?
Identify what you really need and what you do not. Does it make sense to pay for extra TV channels if you cannot afford to pay off a credit card? Asking yourself these questions can help you to find ways to spend less, and help you save money for the things you need.