Tips for creating a budget that works for you

So you’re going to give budgeting a crack? Awesome! Prepare for something life changing (and try not to fall asleep in the corner).

Here are a few tips to get you started.

Keep a money diary

I know, we said it already, but step 1 in creating a budget that will actually work for you, is knowing what you do with your money now. You can track your spending on an app like Money Smart’s Track My Spend.

Use a budget calculator

Unless you are a spreadsheet ninja, using an online budget calculator, generally makes the whole process much easier. Gather up info from your money diary, or get your transaction history from online banking, and put this info into the budget calculator. It will magically* calculate your total income and expenses for each week, month or year and tell you what’s left over.

What is left over?

If you do have something left over, you’re already winning. Your leftovers are called a budget surplus - meaning you spend, or plan to spend, less money than you earn. This means you have some money you can use to help you reach your savings goals. No leftovers? When you spend, or plan to spend, more money than you have coming in, you get a budget deficit. Time to revisit the budget calculator.

Making changes

One of the great things about an online budget calculator is that you can play with the numbers and instantly see what the effect is on your budget. You might find some of your costs are fixed (like a mobile plan or car rego) and can’t be changed. Instead, look at the things you can change, such as spending a little less on take-away or the movies, or opting for a cheaper version of something. Another option is to increase your income if possible. The important thing here is to make realistic changes. Don’t take movie tickets out of the budget if that’s something you enjoy – you may only end up feeling cross that you can’t go to the movies or guilty for spending the money when you do. Budget for it (even if it’s less money than you used to spend) and love it when you do go

TIP: It’s a great idea to think of your savings as a fixed expense. This way they are less likely to be mistaken for money you can spend elsewhere.

How did you go?

A final, but important, step is to review your budget regularly. Reviewing gives you an opportunity to change things (ok – I can’t live without skittles, let’s budget in $75 for those). The aim is to get your budget to a point where it’s a pretty accurate reflection of a spending pattern that works for you. Of course things will change, your income might go up (or down), or you might decide you want to save up for something, so you should factor those changes in.

*No actual magic used. Proper mathematical calculations at work here.