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A good budget will show you if you're spending more or less than you can afford, so you can stay on top of your bills and start putting money towards any future goals.

Setting up a budget doesn't need to be difficult - just follow our step-by-step guide.

1. Work out your current income

The first thing to do is work out how much money you've got coming in. If you get paid regularly this is simple - just take a look at your bank statement or payslip.


If you're self-employed or don't have regular income, your earnings can be a bit more complicated to work out. The easiest way is to look at your last tax return and divide it by 52 to work out your average weekly income, or look at your quarterly BAS statement and divide by 13.

2. Working out your expenses

Now you know what you've got coming in, the next step is to work out where your money goes. A simple way to do this is to look at your transaction and credit card statement and track your expenses for a month. Some will be more frequent (you might pay your rent or mortgage weekly or fortnightly) whereas others you're likely to pay monthly such as your mobile phone bill. Others might be every three months (your power bill) or yearly (car registration).


Once you've worked out your expenses, divide them into two categories - fixed and variable. Fixed expenses are the ones that stay relatively the same each month, such as your mortgage or rent. Variable expenses are those that can change, like groceries, petrol and entertainment. The variable category is important as it's where you'll most likely be able to make adjustments.

3. Do the maths

You know what money is coming in and what's going out. It's crunch time - 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, the next step is to look at where you can make adjustments.

Time to adjust

Your aim should be to have more money coming in than going out and to have enough to save for short and long term goals. It's also a good idea to put some aside for the unexpected in an emergency fund.


Start by taking a look at your variable expenses. There might be some obvious areas where you can cut back. Perhaps you're spending more than you'd like on entertainment or eating out. Or maybe you could use the car less and cut down on petrol. Other savings might take a bit more planning such as finding a phone or broadband plan that's better suited to your needs.

Be realistic

Although you're aiming to cut back on spending, make sure you don't set yourself up to fail. Cutting your entertainment budget to nothing and deciding you'll only eat at home will inevitably lead to failure. Perhaps one week you could give up your morning coffee.


The next week you might have a night in with friends instead of going out. Find what works for you, but make sure it's realistic and sustainable.

Blitzing debt

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


Bad debt is debt that does not contribute to your financial future. Credit card or store card debt that you do not pay off quickly could be considered bad debt. This kind of debt generally has higher interest rates. It's often a good idea to pay this debt off first.


Even if you've got a lot of debt, it's worthwhile making sure you're getting the best deal. You could consider switching to a credit card with a lower interest rate, or consolidating all your card debts into one personal loan.

Get saving

If your sums show you have more money coming in than going out, it sounds like it’s time to start saving. Even if you haven't got a goal in mind, saving can be a good habit to get into - for one thing, being able to show a regular savings history is likely to go a long way should you ever want to borrow money from a bank.


It's also a good idea to have an emergency fund in case the unexpected should happen (and appliances and technology do have a habit of needing to be replaced from time to time). Find out more about setting up an emergency fund.


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. 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.

Track your progress

A good budget isn't something you do once and never visit it again. Make sure you track your progress at least every couple of months and tweak as needed. Perhaps you've found areas where you're able to cut back more on expenses allowing you to increase what you save or to pay off debt quicker. Or maybe you found you were too ambitious in certain areas and need to give yourself more leeway. Your budget should remain a work in progress, adjusting to your life as your needs change.

Budgeting help

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.

How Westpac can help

See how we can help you save
Westpac savings accounts

Financial Foundations Budgeting

This webinar is produced by the Davidson Institute, Westpac's home of free financial education resources, building confidence today for a better financial future.

Things you should know

It's important to read the detail about the conditions and any fees or charges that apply to any financial product before you decide to apply for it. Check the eligibility criteria too. Ask the product issuer for a copy of these. Credit criteria apply to approval of credit products.

This information does not take into account your personal circumstances and is general in nature. It is intended as an overview only and it should not be considered a comprehensive statement on any matter or relied upon as such.