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Money matters to secure your financial future.

4a. Budgeting

Est. read time: 6 min

Some people find the word “budget” very stressful.  We’ve used it here but you might like to call it a “money plan” or “money strategy” instead.

A budget is basically a plan for your money: How much do you have? How much could you have? How much do you earn? How much do you spend? How much do you save? How much do you need? A budget can help you answer all these questions.

Budgets are very useful to make sure you don’t spend more than you earn and to help you save money for the important things like a car, a house or a holiday.

Where to start


A budget comprises three main items:

  • Income – how much money you earn;
  • Expenses – how much money you spend;
  • Savings/Investments – how much money you put aside.


Your income (or earnings) is basically the money you earn on a regular basis such as a salary, Centrelink and other government subsidies, or interest from your savings.

You can also earn income in one-off or less regular ways, such as selling unwanted items on Gumtree.

Think of income as all the cash that comes into your bank account.


Your expenses are ALL the costs you incur to live – or all the amounts that go out of your bank account. This isn’t just your regular expenses like rent, phone, credit card payments, weekly groceries and petrol. Make sure you also include any less regular expenses such as insurance premiums, utility bills, car service charges and registration costs, replacing essential clothing for you and your children, school costs, etc.  There are also one-off and less regular expenses like going to the movies, buying clothes and getting your hair cut.

When you do a budget you need to include all your expenses and it can often be helpful to open a separate account to put money aside for the less regular expenses.  Think about how many accounts you will need for you to divide up your money in a way that works for you. There are plenty of banks that offer “no fee” transaction accounts. This is important as monthly fees add up quickly.


When you’re saving for a goal like a house or a car you should treat the money you put aside just like an expense, as if you MUST spend the money. Savings and investments are where you can start to put your excess money after you have paid all your expenses.

Savings are very important for several reasons. Firstly, they’re the only way to make large purchases. While credit can be used to partially pay for a house or a holiday or a car, you still need to put down a deposit. A house usually requires at least a 10% deposit so work out how long it will take you to save this using your current savings strategy. Can you find any ways of increasing the amount you save? Banks often look for evidence you are able to make regular savings when they do their home loan assessment. 

Secondly, savings are important in case of emergencies. What if your car is damaged in an accident and needs to be fixed? What if the accident means you can’t work for a while and you lose your wages, but you still need to pay your rent? A good tip is to save at least 3 months of expenses as a ‘rainy day’ fund. This can be very challenging, especially if Centrelink income is your main money source.  You may have to start this fund by saving every $5 note or $2 coin you receive – even small amounts start to add up quickly. 

Creating a budget


How do you create a budget?

Start by writing down your income and expenses for at least the past few months. Your bank and credit card statements and any receipts you’ve kept from purchases will remind you what you have spent and received.

Decide what period your budget will cover and remember that some income and expenses occur monthly and others weekly.  Some expenses like insurances may only happen annually.

  • First – take all your income items, list them and add them up. This is your income for the period;
  • Second – take all your essential expenses, list them and subtract them from your income;
  • Third – now subtract the amount you’ve allocated to save each period. It doesn’t have to be a lot, saving just $20 a week adds up to over $1,000 in a year ;
  • Finally – list all your non-essential expenses and subtract them from the balance. Don’t be scared to include these, we all need to have fun, buy new clothes, spend some money on ourselves. The trick here is not to go crazy.

If your income is smaller than your expenses and savings, you will need to look for ways to reduce your costs to match your income.

Reducing your expenses


If you’re spending more money than you’re earning, then you need to do one (or both) of two things: Make more money or spend less money!

You may consider getting a second job – but don’t forget to budget the extra expenses like bus fares or petrol. You can also make some extra money doing odd jobs like dog walking, or selling items and clothes you don’t use anymore.

Just remember that except for wages, most money isn’t certain and regular and may stop at any time, so you can’t rely on it. Spending less money is certainly the easier option.

Have a look at all the expenses you’ve listed in your budget, all the expenses you identified when you started planning. What expenses are essential? Rent, phone, groceries are all essential, but not all expenses are. How often do you need to go out to eat or see a movie? How often do you buy clothes, or “spoil yourself”? These expenses aren’t essential, and you should consider reducing or eliminating them if it helps to balance your budget.

For the expenses you can’t eliminate, make sure you aren’t spending too much. Could you get a different phone plan that costs less or maybe walk to the next bus stop to get a cheaper fare? Can you replace bought lunches at work with lunches you make at home and take with you? Do you need to stop every day at the coffee shop? You may be able to negotiate to get cheaper utilities by shopping around between service providers.

The Synergy website has useful tips on reducing your electricity bill, and the Water Corporation has tips on their website about reducing your water bills.  You can also register for Synergy’s My Account feature to manage your power usage.

Following your budget


Now that you have a budget you need to do three things:

  • Assess your budget – is there anything there that might increase? Are there things you can remove? Is it realistic? If you haven’t included the coffee you buy every morning, your estimated expenses could be too low by as much as $100 a month;
  • Follow your budget – your budget is your money plan, so now you need to follow it. If you said you were going to stop or reduce spending on something, now is the time to act. People have different ways of doing this. Some take cash out of the bank and put it into envelopes for each category. Once the envelope is empty, they’ve spent their budget and can’t spend anymore until the next period. Some people keep their budget printed out in their wallet, so they can check it before they spend money. Try different things and see what works for you.
    • Compare your actual expenses – at the end of each period, go back to your budget and look at how much you actually received and spent. Did you have the right amount? If not – why? Make changes to your budget as you need to. If you forgot to include something, then add it in, or if you thought something would be more expensive than it was you may consider reducing the amount.

Budgeting Apps and Spending Trackers


There are many ways you can create and keep your budget – starting with the basic pen and paper, the slightly more advanced Excel spreadsheet or even an app.

Budgeting apps and websites come in all shapes and sizes and a few good examples are listed below:

MoneySmart has a budget planner that helps you create a budget, work out where your money is going and whether your income covers your expenses.  It also provides advice to help you Track Your Spending and a Savings Goals Calculator.

PocketBook and MoneyBrilliant are apps that sync with your bank accounts – all you have to do is put each expense into a category and the apps will show you where it’s all going. They also have tools to help you create your budget and track your savings.

No two people budget the same way, so try all the options available to you and see what works. When you meet your goals, celebrate, budgeting can become addictive!

Further information


The MoneySmart website has more information on how to manage on a low income and tips for saving money. 

If you are not sure where to start, or get stuck with your budget, you can get some help.  Financial Counsellors are free, confidential and independent.  You can get help from a Financial Counsellor by calling the National Debt Helpline on 1800 007 007, or by contacting the Financial Counsellor’s Association.

[Article last updated: 5/12/21]


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