Step by step: How to make a budget and stick to it

You can put together a solid budget in four simple steps.

You can put together a solid budget in four simple steps. Photo: Getty

The cost-of-living crisis is bringing the need to budget into sharper focus for millions of families this year after years of soaring prices and lacklustre household income growth.

But when it comes to actually making a budget, working out what to include and how to stick to a financial plan, it can be a struggle to stay on top of bill payments and grocery costs.

So what does a good budget look like, how can you make one, and what’s the key for sticking to it?

Let’s run through the process step by step.

Starting the budget

First things first, you’re going to need a structure for your budget and a place to put it.

There are numerous budgeting apps available with fancy features designed to help you budget, but sometimes the no-frills option can be best – all you actually need is a spreadsheet.

A solid basic template for a household budget made by the government is available online.

This can be copied into your own Excel spreadsheet, Google Sheets, or Apple’s Numbers program.

Use it as a basic guide, adding and subtracting things to suit your personal finance needs.

The story of your financial life

It’s now time to populate the budget with the story of your financial life.

Pull together a list of your income and the recurring expenses you have in a given week, month or quarter and plug them into your budget spreadsheet.

Going through your bank financial statements or card history can be a good way to work out all your expenses.

But be careful because you also want to estimate how expenses might change; for example, you might expect your rent payments to increase this year, or if you have young children it could be useful to forecast future school fees and costs of child care into your budget.

Splitting expenses into essentials (bills) and recreational (online subscriptions) can be a useful way to structure your budget because it could help you identify savings later on.

Organise each bucket of income or expenses so that the spreadsheet calculates totals over a set period of time – that way you can easily see the effects of changes you make.

What are your goals?

Ladies Finance Club founder Molly Benjamin said a good budget has goals, pointing out that it can keep you motivated to save more.

“Why are you budgeting? What do you hope to achieve with your money? Is it to fund a holiday, buy a property, leave your job, buy a puppy, etc.?” Benjamin asked.

“Identifying your motivation is crucial. It will keep you focused and help you stick to your budget because it’s easier to say no to certain things now (weekends away, fancy dinners), allowing you to say yes to what you truly want later without getting caught up in the hustle of life.”

List goals in your budget and try to estimate how much each will cost, because then you’ll be able to calculate how long it will take based on the income and expenses you have.

Chop and change

Now it’s time to run through your budget and see how changing various expenses or income channels will affect your financial goals.

For example, how would cutting some recreational spending reduce the amount of time it would take to save for your most important goal?

Budget mantras like 50/30/20 (50 per cent on needs, 30 per cent on wants, 20 per cent on savings) can be useful ways to think about how much of your income to spend where.

But Benjamin explains that it really comes down to your financial goals and level of income.

“Beware of invisible spending, such as when you pop into Aldi for some milk and apples but leave with a trumpet and a ski suit,” Benjamin said.

“If you’re a sucker for this, pop it in the budget. That’s the beauty of a budget – it’s yours, so you can change it to match your lifestyle.”

Lastly, keep in mind that your budget is likely to need fine tuning over time, with Benjamin saying it can take up to three months of adding and subtracting things before a budget is fully functioning.

“Don’t be too hard on yourself if you don’t get it right the first time,” Benjamin said.

“I recommend checking in at the end of each week and continuously monitoring your budget while starting out.”

Stay informed, daily
A FREE subscription to The New Daily arrives every morning and evening.
The New Daily is a trusted source of national news and information and is provided free for all Australians. Read our editorial charter
Copyright © 2024 The New Daily.
All rights reserved.