Mozo guides

How to create a budget

Group sitting at a table organising budgets with piggy bank in the foreground.

You’ve probably been told that you’ve got to budget your finances, and with good reason. If you ever find yourself constantly low on funds or you just never seem to be able to save up enough cash for that shiny new kitchen appliance, then a budget might just be the ticket. 

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. But if you’re not sure how to even get started when building a budget, then don’t worry. We’re the budgeting experts, and we’ve laid it all out for you.

First of all, what is a budget exactly?

You might have heard people talk about budgeting before, but you might not have a clear definition in your mind. Essentially, a budget is a forecast of your earnings versus your expenses over a set period of time—this could be a week, a month, or even a year. Having a budget allows you to review how much of your paycheck you might be spending on rent, bills, groceries and entertainment, and then make adjustments so that you’re not spending outside your means and can hit your savings goals.

Where to start: building a new savings budgeting

Before you dive into calculations and start analysing your latest bank account statements, you should first decide on how you want to layout your budget. It’s important to get this step right so that your budget is as successful as possible. Some great options are:

  • A neat spreadsheet: If you love laying things out in an orderly excel or google spreadsheet, then you may like to build a spreadsheet to keep track of your income and expenses.
  • Good old fashioned pen and paper: It could be as simple as that, if maths and formulas aren’t for you then try drawing up a budget in your notebook. Top tip: dedicate a notebook to your budget and don’t mix it in with other notes or you’ll lose track.
  • Download a budget app. There are a bunch of great options to choose from, but if you need help picking one here’s our review of seven budgeting apps everyone should try.
  • Check out Mozo’s budget calculator. It’s simple to use and will help you break down all your different expenses, so you don’t forget anything.

Next, think about what time period you want your budget to cover, and whether you’ll work to a weekly, fortnightly, monthly or annual budget. Some important factors to take into consideration are:

  • How often you get paid. If you receive your paycheck weekly then you may want to set up a weekly budget plan so that you can plan to stash money away every time you get paid.
  • How often you pay your bills or loan repayments. If you have multiple bills due monthly then you may want to review your outgoings once a month, so that you know exactly how much you have left over after you’ve paid everything, for either fun stuff or savings.
  • Whether you’re saving for something big. If you’re saving for something big, like a car or even your first home, then you may have a goal to save a certain amount over one year, in which case it might be handy to draw up a yearly budget, which you can then break down into a weekly or monthly spending limit.

Keep in mind that if you want to budget monthly but you receive your pay weekly then an accurate way to figure out your monthly pay would be to multiply by 52 and then divide by 12. Or if you want to budget weekly and you receive your pay monthly then you will have to multiply by 12 and then divide by 52.

Create your budget in three easy steps

This brings us to actually creating your budget, which may seem intimidating, but is actually probably easier than you think. Here’s how to do it.

1. Start with your net income

It’s important to understand the difference between gross and net income. Gross income is what your employer pays you before tax or other deductions are taken off and net income is the amount you receive after all deductions like tax and superannuation are taken off.

Quite simply, your net income is the amount you receive in your bank account from your employer, so you need to budget based on this number. It may be written as “net pay” on your pay check, or you can simply check your bank statement to find it.

If your pay varies with each pay cycle, because you work part-time or you pick up a few extra shifts now and again, then you may want to work out an average net income for your budget. 

For example, if 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.

Net Income

1.$1,300 + $1,600 = $2,900
2.$2,900 ÷ 2 = $1,450

2. List and categorise your expenses

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:

  • Expenses such as rent, mortgage and car payments would be fixed payments. These are payments that you make regularly, they usually stay the same 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, like going to see your favourite band play, or money spent on new clothing, shoes and accessories.

Consider thinking about your expenses as a pyramid where the most important expenses make up the largest foundation, and the least important, discretionary expenses, are the cherry on top.

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 in the clear, with $584.01 left over for savings and other fun stuff.

Budget Plan Example

July
Net Income$4,000
Rent$1,500
Phone Bill$40
Energy Bill$233
Car Repayment$550
Internet$70
Groceries$450
Streaming Service Subscriptions$2,299
Eating out$300
Clothing, shore, and expenses$250
Savings$300
Total Remaining:$284.01
If however, your net income is $4,000 a month and you’re spending $4,005.99 each month, then you’re in trouble.

Overspending Example

July
Net Income$4,000
Rent$1,500
Phone Bill$40
Energy Bill$233
Car Repayment$550
Internet$70
Groceries$490
Streaming Service Subscriptions$2,299
Eating out$650
Clothing, shore, and expenses$450
Savings$0
Total Remaining:-$5.99
This is when you need to re-examine your discretionary costs and start cutting things out to get back in the black. Make sure all of your fixed and necessary expenses are taken care of before deciding how much you can afford to spend on the fun stuff.

Overspending Example

July
Net Income$4,000
Rent$1,500
Phone Bill$40
Energy Bill$233
Car Repayment$550
Internet$70
Groceries$490
Streaming Service Subscriptions$2,299
Eating out$650 Unnecessary Spending
Clothing, shore, and expenses$450 Unnecessary Spending
Savings$0
Total Remaining:-$5.99

How to budget better & save

Once you’ve worked out your budget and reviewed how much you spend on each category, then you might want to start thinking about how you could be budgeting your money better.

  • 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, then consider cutting down. Work out how much of your income is left after paying bills and adding to your savings stash, and then decide how much you can splurge on fun stuff – not the other way around. 
  • Make changes to your necessary costs. Just because they're necessary doesn't mean you can't get a better deal. If your phone bill is always high then think about changing plans, or if your electricity bill is a pain in the back pocket, think about switching energy providers or haggling for a better deal with your current one.
  • 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. You could even set up an automatic transfer to your savings account for the day or the day after you get paid.
  • Check up on your budget regularly. Once you’ve created your budget, reviewed all your expenses and thought about what you could be saving money on, make sure you keep coming back to it 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 to stick with your budgeting app.

Ready to put together a budget and start keeping track of your expenses?

Why not check out Mozo’s budget calculator to help get you on the right track. And don’t forget to pair your new budget with a high interest savings account for your new stash.

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Cameron Thomson
Cameron Thomson
RG146
Money writer

Cameron has a Bachelor of Creative Writing and History, and a background in broadcast media from his time at 2SER Radio. This diverse set of skills has informed his analytical yet creative approach to dissecting financial data and uncovering long-term trends in consumer finance. Cameron is RG146 certified for Generic Knowledge and keeps a keen eye on current and historical deposit and savings rates on the Mozo database. Cameron is also interested in tracking the investment space, particularly share trading platforms, to help Aussie consumers save and invest their money more wisely.

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