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Step-by-step beginners guide to creating a budget

Budget. Boring word? Not when you've got a budgeting system that works and you're enjoying the feeling of financial progress

May 2021 - 5 minute read

What's in this article:

  • Working out your income and take-home pay
  • Working out your variable and fixed expenses
  • Find out where you could save extra money
  • Being realistic about your spending habits
  • Blitzing debt and ramping up repayments
  • Time to save money
  • Tracking your budgeting progress


A good budget will give you a snapshot of your financial situation and show you if you're spending more or less than you can afford. This can help you not only stay on top of your bills, but also help you excel at saving money and achieve your financial goals. Budgeting doesn't need to be difficult - just follow our step-by-step guide to help get on top of your personal finances.

Work out your take-home pay

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 to find out your take-home pay. 

If you're self-employed or have an irregular income, your take-home pay 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 by 12 for your monthly income). You can also look at your quarterly BAS statement and divide by 13.

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 credit card and bank statements and track your living expenses for a month - they're often a good template for where your money is going. Some will be more frequent (you might pay your rent or mortgage weekly or fortnightly) whereas others you're likely to pay as monthly expenses such as your mobile phone bill or health insurance premiums. Others might be every three months (your power bill) or yearly (car registration).

Once you've worked out your living 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 or ongoing expenses such as car payments. 
  • Variable expenses are those that can change, like groceries, petrol and entertainment.

The variable expenses category is important as it's where you'll most likely be able to make adjustments

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 extra 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 make adjustments. 

See where you can find extra 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 some aside for unexpected expenses 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.

It's worthwhile also taking a look at your monthly bills and fixed expenses - you could find you're overspending on some of these. Shop around and you might be able to get a better deal on your mobile phone plan or health insurance premiums, for example.

Be realistic about your spending habits

Although you're aiming to cut back on spending money, make sure you don't set yourself up to fail. 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. Rather, 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. 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 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 - 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 - that could also take out the hassle of having multiple repayments to keep on top of and instead streamline your debt into just one monthly repayment.

Saving money and setting financial goals

If your sums show you have more money coming in than going out, it’s time to start kicking financial goals and saving. Even if you haven't got a savings 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.

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 to 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 and set up a regular transfer to your savings account every payday.

You might also want to take this opportunity to get professional financial advice to help you plan for your future. 

Track your budgeting progress

Budgeting 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 or update with a new budget. 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. A weekly or monthly budget (whatever timeframe works for you) 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 we can help

See how we can help you save

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Things you should know

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