How to budget in 3 simple steps

Why do you need a budget?

A budget clearly shows how much you’re earning, how much you should be spending and what you’re spending your money on.

Your budget can identify areas where you may be overspending or could potentially spend a bit more. This could help you to prioritise between essential (non-discretionary) and lifestyle (discretionary) expenses.

Your personal budget will calculate either a surplus (meaning you have enough income to cover projected expenses) or deficit (meaning your expenses are greater than your income).

Managing your budget and aiming for a healthy surplus (saving more than you spend) can help you achieve goals big and small-whether you’re saving up for a long-weekend getaway or a down payment on a home.

How to create a budget in 3 easy steps

Calculate your income

Income can come from many sources, such as your regular pay, any side income you have and government assistance you might receive. Don’t forget to include savings and earnings from any investments. To get an accurate financial picture, make sure you account for every source of income you have—even temporary income or a small sum.

Work out your expenses

Start by reviewing your bank and credit card statements, bills and receipts to work out what you’re spending money on and how much you’re spending.

Your expenses will include things such as:

• home loan or rent
• groceries and dining out
• utilities such as gas, electricity, internet, phone bills and water
• transport costs like public transport, petrol and tolls
• medical expenses, such as health insurance or regular medications
• school fees and costs
• pet ownership costs, such as vet expenses and pet insurance
• pay TV and music subscriptions
• gym memberships
• entertainment.

Don’t forget to include expenses you may pay quarterly or yearly, such as home or car insurance, car registration and servicing, and property rates.

Set up your budget

An online budgeting tool, such as AMP’s Budget Planner calculator, can help you easily build a budget and get a better understanding of your finances. By simply adding your income and expenses, and how frequently you earn or incur them, you can create a view of your total weekly, fortnightly, monthly and annual income and expenses.

Once your budget is set up, it’s important to monitor your spending to make sure you’re on track.

Making digital payments and automating many of your regular payments via direct debit can be helpful when budgeting, because you’ll create electronic records of your spending that are easy to track.