Mozo guides

How to create a budget

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

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 get started with building a budget, don’t worry. We’re budgeting experts here at Mozo, so let's get into it together!

What is a budget?

A budget is a breakdown of your earnings versus your expenses over a set period of time. It can give you a forecast of your financial ins and outs, and could cover a week, a month, or even a year.

Having a budget helps you quickly review how much of your paycheck you might be spending on rent, bills, groceries and entertainment. From there you can make adjustments to improve your money habits. And it's here that a budget's purpose becomes crystal clear: it's a very good way to avoid overspending!

By knowing how much you should be spending, you’re less likely to make frivolous purchases. And more importantly, you can strive to hit your savings goals!

How to build a new savings budgeting

Before you start tapping numbers into a calculator or circling figures on your bank account statements, decide how you want to lay your budget out. It's important to start on the right foot!

Here are some great options:

  • A spreadsheet: Track your income and expenses neatly in organised sheets.
  • Good old fashioned pen and paper: It could be as simple as that. A drawn table, some subheads and dates, and you're off and running!
  • Download a budget app. There are plenty of options 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 easy to use and will help you break down all your different expenses.

But is budgeting better done weekly, monthly or another way?

Writing up your budget can be done in a weekly, fortnightly, monthly or annual format. So how do you decide?

Consider the following:

  • How often you get paid. If you receive your paycheck weekly then you may want to set up a weekly plan.
  • 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.
  • Whether you’re saving for something big. If you’re saving for a larger goal, it might be better to draw up a yearly budget, which you can then break down into monthly spending limits.

How to adjust your pay to a different budgeting schedule

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

Weekly budgeting: 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 3 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:

  • Fixed expenses such as rent, mortgage and car payments are "set in stone", so to speakThese 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.

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 and save

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. 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 – 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 you get paid.
  • 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 to stick with your budgeting app. Budgeting is also about forming good money habits.

Ready to better track 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.

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Cameron Thomson
Cameron Thomson
RG146
Money writer

Cameron, with a background in radio and degrees in creative writing and history, is RG146 certified in Generic Knowledge. He tracks savings rates and trading platforms, aiding Aussie consumers in smart investments.

JP Pelosi
JP Pelosi
RG146
Managing editor

JP Pelosi, Mozo's Managing Editor, has 20 years in journalism, featuring in The Guardian and News.com.au. With a background in firms like CommBank and Amex, he advises on and crafts engaging financial content.

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