Budgeting for beginners

What’s the point of a budget? How do you make one, and how do you stay on track? We’ve got the answers.

A budget is a spending plan that tracks your income and outgoings. It’s useful for helping you save and plan for the future. But why else is a budget beneficial?

It helps you get on top of your finances

A good budget gives structure to your spending and will help you gain more control. It will also help lower your bottom line costs, prepare for emergencies and highlight any unwanted financial habits you’d like to curb.

It gives you motivation to reach your goals

No matter what your financial goal, budgeting is a great first step. Cutting back where you need and freeing up more of your money means that you can reach your goals faster and give your financial confidence a boost. 

It creates breathing space each month

A budget will help get you out of the stressful cycle of living pay cheque to pay cheque. If you follow a basic plan, you’ll be better at paying your bills and essential expenses on time, and have money leftover to spend and save. 

Once you’ve given yourself a buffer, and removed yourself from the payday cycle, it makes it all the easier to keep up the habit. 

Make a budget in three easy steps

Step one

Split your monthly income into three areas - needs, wants and savings - and decide how much goes into each category. If you’re not sure where to start, try the 50/30/20 method. 

Allocate 50% of your income towards your needs, including rent or mortgage, bills and food, 30% towards your wants, such as restaurants or theatre tickets, and 20% to savings.

Step two

Compare your spending from the month before and see how you match up. Go through your bank statements and categorise every transaction into one of the three areas to see how much you’ve spent in total. 

This will give you a benchmark of how you’re doing and where you can make improvements. You can use a spreadsheet, pen and paper or digital budget planner you can find online.

Step three

Look at which category you might be overspending and try to reduce your outgoings. For example, in the ‘needs’ category, could you cut down anywhere on your basic household outgoings, like bills? 

For ‘wants’, consider introducing some friction by making it a bit harder to overspend. Try deleting your online billing information from your favourite retailers’ websites.

If you’re trying to save more, allocate money to savings on payday and then spend what’s left over.

How do I overcome budgeting challenges?

Whenever we try something new, it can sometimes be tricky to get used to. Let’s take a look at three common budgeting challenges and explore solutions.

Feeling restricted

When you’re saving or trying to spend less, you might have to make temporary cutbacks. But a tight budget might be worth the short-term pinch if it’ll help you reach your long-term goals. 

Remember, it’s not forever. Be sure to keep a small amount of money aside for fun things, too.

Varying income

If your income is different month-to-month, it’s a good idea to budget for a realistic worst-case scenario. If you can make your budget work in the tightest months, it’ll make life easier when you earn a bit more.

Constantly overspending

A common mistake is forgetting to include debt repayments in your planning - make sure you build these into your budget. 

Overspending tendencies can be the result of unconscious habits that you’ve gained over the years. Try to get to know what yours are so that you can begin addressing them. To help take back control, wait 72 hours before you make any big purchases, giving yourself time to think.

Despite the negative reputation it often gets - a budget is a good thing. It makes you think about the future by making some small adjustments now. Get your budget right and you’ll soon be in control of your finances and feel great about it.

The information provided is financial guidance and should not be considered financial advice.