How to create a budget for better savings

If you've ever reached the end of your pay cycle and wondered "Where did all my money go?", you're not alone. Good news though, there is a solution! 

Keeping track of what you’re spending is the best way to stay on top of all your bills and still be able to enjoy the finer things in life. 

So let’s get started with building your budget!

Before we dive into numbers and calculations, let's first think about what your relationship with money is. Everyone's situation is different, and that's okay! Most commonly, savers tend to need a budget due to situations like: 

• Living paycheck to paycheck 
• Doing okay but hoping to save for something special
• Already saving but wanting to do better

1. Start with net income

Your first step is understanding exactly how much money you have to work with. We're talking about your take-home pay or net income - the amount that actually lands in your bank account after tax and super comes out.

Calculating net income: If your income varies, here's how to work out your average:

Say your net income for one fortnight is $1,300 but $1,600 the next fortnight, then you would add these two figures together and divide by two to figure out your average fortnightly pay. In this instance, the average would be $1,450 and you could build your budget around this figure.

Here’s the calculation: 

$1,300 + $1,600 = $2,900

$2,900 ÷ 2 = $1,450 average

For more: check out out budget calculator 

2. Track your spending

The next step is to figure out all your expenses and list them out, putting them into different categories to make them easier to prioritise. Broadly, the categories to work in are:

• Fixed expenses such as rent, mortgage and car payments are "set in stone", so to speak. These are payments that you make regularly and can’t be compromised on.
• Necessary expenses are payments that can change from month to month, but are usually a priority to pay. They’re often things that are necessary for your day to day life, including payments for your phone or energy bills.
• Discretionary expenses are optional and could include things like entertainment costs, or money spent on new clothing, shoes and accessories.

In short, think about your expenses as a pyramid where the most important ones make up the large base and the least important discretionary expenses are in the narrowest part at the top. You can often track these things in budgeting and savings apps.

3. Calculate your incomings vs outgoings

Once you’ve categorised all your expenses, subtract your total costs from your net income to see if you’re spending within your means.

For example, if your monthly net income is $4,000 and you’re spending $3,415.99  each month, then you’re left with $584.01 for savings and other fun stuff.

Instead of overwhelming yourself with dozens of categories, let's break your expenses into three simple layers:

You could also look at this like a food pyramid where the bottom layer is your most important stuff and the top is for treats. 

Once you’ve categorised all your expenses, subtract your total costs from your net income to see if you’re spending within your means.

For example, if your monthly net income is $4,000 and you’re spending $3,415.99  each month, then you’re in the clear, with $516 left over for savings.

A balanced budget example

When things get tight

If however, your net income is $4,000 a month and you’re spending $4,005.99 each month, then you’re in trouble.

Once you’ve worked out your budget and reviewed how much you spend on each category, think about how you can improve your money habits. There might be room to save even more!

Here are some quick tips:

• Review how much you spend on unnecessary items or fun stuff. If you’re shocked by how much you spend on eating out during the week or on clothing, shoes and accessories, consider cutting down.

• Make changes to your necessary costs. Just because they're necessary doesn't mean you can't get a better deal. Think about switching energy providers or haggling for a better deal.

• Make your savings goal a necessary expense. Think of it as a payment that you owe to yourself, and prioritise building up a savings buffer over shopping. 

• Check up on your budget regularly. This could be as simple as filling out your spreadsheet every week, keeping your notebook up to date or setting reminders on your phone.

Ready to start saving?

Remember, budgeting isn't about depriving yourself, It's about spending consciously on what matters most to you. Start small, be consistent, and help your savings grow!

You’ll want somewhere to park your savings and that’s where we can help. Head to the Mozo Savings Account hub page to start comparing some of the top savings rates in the Mozo database.