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Step-by-step beginners guide to creating a budget

Is budgeting a bore? It doesn’t have to be. Create a budget using these simple tips, to get more financial control while finding ways to save for the good things.

Jan 2022 – 7 minute read

Key ways to make a budget:

  • Confirm your net income
  • Review your fixed and variable expenses
  • Look for ways to save money
  • Consider debt repayment
  • Set your financial goals
  • Track your budgeting progress


When you create a budget, it gives you a snapshot of your financial situation. It shows if you're spending more or less than you can afford, and helps you see where you could be saving money for the things you really want.

Not only will this help you stay on top of bills and expenses, but it can guide you towards achieving financial goals, such as buying a car or home, or just having a regular holiday.

Budgeting doesn't need to be difficult. Just follow this step-by-step guide.

1. Confirm your income

First up, work out how much money you've got coming in. This is simple if you receive a monthly income or other regular payments. Just look at your bank statement or payslip to confirm your take-home (after tax) pay.

If you're self-employed or have an irregular income, establishing how much money you receive on average can be a little more complicated. Try looking at the net income on your last tax return and divide it by 52 to work out your average weekly income (or by 12 for your monthly income). You can also look at your quarterly BAS statement and divide by 13 – or average out a year’s worth of statements.

2. Review your expenses

Now you know what's coming in, the next step is to work out where all your money is going. A simple way to do this is to look at your credit card and bank statements and track your living expenses.

Some expenses, such as weekly rent or fortnightly mortgage repayments, will show up each month, as will monthly expenses such as your mobile phone bill and health insurance premiums. But you'll also need to factor in quarterly bills (such as gas and electricity) and annual expenses (such as car rego and insurance).

As you work through your living expenses, divide them into two categories – fixed and variable:

  • Fixed expenses are the ones that are much the same each month, such as your mortgage, rent and gym membership, or ongoing expenses such as car repayments.
  • Variable expenses are those that can change, such as groceries, petrol and going out

You may not be able to do too much about all your fixed expenses, other than shop around for a better mortgage or pay off some debt (see later). But the variable expenses category is important as it's where you'll most likely be able to make tweaks and savings.

Now do the maths

Now you know what you have coming in and what your variable and fixed expenses are, simply subtract what's going out from what's coming in.

How's it looking? If you've got money left over, you're on the right track. If you've got more money going out than you've got coming in, your next budgeting step is to look at where you can start making savings.

3. Look for ways to save money

Your aim should be to have a larger amount of money coming in than going out and to have enough money left over to save for short- and long-term goals. It's also a good idea to put money aside in an emergency fund for unexpected expenses, potentially in a separate savings account.

Start by taking a look at your variable expenses, as there might be some obvious areas where you can cut back. Perhaps you're spending more than you'd like to on eating out. Or maybe you could use the car less and the bus more, cutting down on petrol. Working through a couple of credit card statements will help you see where all the money is going.

It's also worth taking a look at your monthly bills and fixed expenses, as you may find you're paying more than you need to in some areas. Aim to trim your household budget by shopping around for cheaper services. For example, you might be able to get better deals on things like your mobile phone plan and health insurance premiums.

For more ideas on ways to save money, check out our savings tips article.

Avoid major changes

Although you're aiming to cut back on spending money, make sure you don't set yourself up to fail by being too hard on yourself. Making drastic changes to your spending habits, such as cutting your entertainment budget to nothing and deciding you'll only eat at home, will inevitably lead to failure.

Instead, perhaps one week you could give up that extra afternoon coffee. The next week you might have a night in with friends instead of going out. You could consider a spending limit on clothes each month too.

4. Consider debt repayment

The ability to make savings and debt repayment are closely linked. Reduce your repayments and you could be increasing your savings.

Some debt might be considered an investment. If you take on debt to buy something that has the potential to increase in value and to contribute to the health of your financial future, then that is ‘good debt’. Buying a home or investment property are examples.

‘Bad debt’ is debt that doesn't contribute to your financial future. Credit card or store card debt that you don't pay off quickly could be considered bad debt. This kind of debt generally has a higher interest rate, so it's often a good idea to prioritise paying it off.

Check and change

Even if you've got a lot of debt, it's worthwhile making sure you're getting the best deal. Check what’s available, and consider switching to a credit card with a lower interest rate or consolidating all your card debts into one personal loan – which could take the hassle out of multiple payments by streamlining your debt into just one monthly repayment.

If you line all your financial statements up side by side, it'll be easier to spot opportunities for debt repayment.

5. Set your financial goals

If your sums show you have more money coming in than going out, it’s time to start saving and kicking financial goals. Even if you haven't got a savings goal in mind, saving can be a good habit to get into. For one thing, showing a regular savings history helps if you ever want to take out a personal loan.

Aim to save what you can, even if it's a small amount. When you see your balance grow, chances are you'll feel motivated to save more, helping you reach your goals sooner. It’s worthwhile looking for an account that could reward you for saving. A Westpac Life account, for example, pays a competitive base rate as well as bonus interest for regular saving when certain conditions are met. You could also put your savings on autopilot by setting up a regular transfer every payday to your savings account.

Seek advice

Managing personal finances can be a little bewildering for many of us. That’s quite natural. Or something that gets put off in favour of more interesting ‘jobs’ around the home.

You might want to take this opportunity to share the task, by getting professional financial advice to help you plan for your future. Or even just bounce ideas off a trusted friend who seems to be on top of their finances.

6. Track your budgeting progress

Budgeting isn't something you do once and never again. Track your progress at least every couple of months and tweak as needed or update with a new budget.

Perhaps you've found areas where you're able to cut back, allowing you to increase what you save, or pay off debt quicker. Or maybe you found you were too ambitious in certain areas and need to give yourself more leeway.

A weekly or monthly budget (whatever timeframe works for you) should remain a work in progress, adjusting to your life as your needs change. It takes a little effort to make a budget, but the reward of having more control of your finances is worth it.

Help’s at hand

Finally, do please remember you’re not alone. If you're having trouble making ends meet or struggling under a pile of debt, there are services available. You can find out more by reading what to do if you're experiencing difficulties with credit.

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