6 Step Guide to Creating a Budget

By budgeting and being smart with your finances, you will be able to control your financial situation with relative ease and enjoy the peace of mind that comes with having a stable monetary foundation.

Here are six steps that will help you create your budget and empower yourself to enjoy a brighter financial future.

1.      Start with a Template

Personal financial management and budgeting often doesn’t work if you’re not writing everything down or saving it somewhere, so the first step is to find a template you can work with. There are some excellent finance and budgeting apps available for smartphones, while you can also download Excel templates already complete with formulas, tables, charts, and graphs to help you visualise where you want to be with your money once you’ve entered the relevant figures.
Choose the template that looks bright and engaging for you, the one with the best reviews, or whichever one you think will work best to help you budget, save, and be smarter with your finances.

2.      Setting Financial Goals

Add purpose to your budget creation process by considering your financial goals. If you don’t currently have financial goals, you may want to think about and set these before you start to come up with a budget plan. Having a working budget template might be a financial goal in itself, so looking at these alongside each other might dovetail nicely for you.

“If you don’t currently have financial goals, you may want to think about and set these before you start to come up with a budget plan.”

3.      Calculating Your Income

You can only budget effectively if you know exactly how much you have to budget with. Work out all of your income – include benefits payments you receive in addition to employment income – and include that of your partner if calculating a joint budget. Usually you will find you can work out income easily enough and it will be the same over a full year, though if you receive any money from work or in benefits on a weekly basis you may need to account for subtle differences as you build up a longer-term picture of your budget.
Don’t fall into the trap of dividing your basic salary by 12 to get your monthly income – remember you have taxes to pay! The last thing you want to do is set a budget and then realise you have a sizeable shortfall as you used an incorrect figure. Don’t assume any budget or employer benefits, either.

4.      Planning the Budget and Calculating Expenses

When budgeting, it is worth breaking down expenses into categories to get a better idea of where you can make changes. For the purposes of this guide, we’re going to separate expenses into two categories, fixed and variable.

Fixed Expenses

Fixed expenses will generally be those that you won’t be able to change and that always stay the same, such as your mortgage, utility bills, and monthly or annual travel tickets. Put anything that you could consider a bill and that stays the same, or only changes periodically, into this category.
If you’re looking to save money then treat this as a fixed expense, too, so it’s a non-negotiable, something you will do every month regardless.

Variable Expenses

Record any other expenditure in this category, such as entertainment, clothing, vehicle fuel, grocery shopping and anything else that may bring a variable cost each month.

Budgeting

With some variable expenses, including vehicle fuel and grocery shopping, you might want to dedicate a certain portion of your income to these each month as a budget within a budget, so to speak. In these cases, you might want to set the budget expenditure for these and include them within your fixed expenses, but ultimately this is down to how you decide managing your finances will work best for you.
You shouldn’t include ‘disposable income’ as any type of expense, as the idea of the budget is to understand what you have left over after all your essential expenses, and hopefully to make you mindful of what you do spend and therefore where you might be able to make savings.
An alternative way to organise your finances is to consider:

• Money you need to spend (Both fixed and variable expenses that are essential)
• Money you want to spend (Variable expenses that come from disposable income)
• Money you want to save

Neither way is necessarily better than the other, just choose the one that will inspire you to stick to your budget and help you appreciate your finances in the best way possible.

5.      Tracking and Tweaking Your Budget

Once you have completed the previous four steps you will be in a position to start tracking your spending and tweaking your budget. If after three months you realise you’re spending what you deem to be too much on clothing or socialising, for example, you can then create a goal or tweak your budget to save more money, or re-allocate this spending elsewhere.
You might also be able to tweak some of your variable costs and reduce them depending on your personal circumstances, again either making a saving or releasing money to enjoy a hobby or spending time with your partner.

“Writing down everything you spend, and what you spend it on, is not just a necessary part of budgeting and tracking your finances effectively, it is hugely powerful in terms of making you think about your spending and how you can save money.”

6.      Conscious Spending & Creating a Budget

Writing down everything you spend, and what you spend it on, is not just a necessary part of budgeting and tracking your finances effectively, it is hugely powerful in terms of making you think about your spending and how you can save money.
Follow these points to practice conscious spending and stay on top of your budget:

• Write down everything you spend, and on what. At the end of the month, go back and assess your spending, and evaluate what you spent that wasn’t an essential expense. Don’t beat yourself up about it, but keep in mind whether you really need to spend that money next time you may want to do so.
• Plan your expenses at least one month in advance, but the further you can plan the better. If your finances are stable then it is easy to duplicate a column on a spreadsheet as far ahead as you wish.
• Look at the ways you can spend less. In our financial goals blog from earlier we give examples of how small savings can quickly add up. Spending a little less on grocery shopping or not buying a coffee on the way into work can make a major difference over time.
• Consider the options for boosting your income, even by a small amount, whether using a hobby to make some additional money or spending time completing surveys in the evening.

Effective Budgeting

By committing to creating and sticking to a budget, you are putting yourself in a position to strengthen your financial circumstances and enjoy a brighter financial future. Use these tips and ideas to create and continually manage your budget and be conscious of your spending, all while working towards achieving your personal financial goals.


What you need to know

Constancy Wealth Management is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited ABN 89 051 208 327 AFSL 232706 and Australian Credit Licence 232706. This information does not take your circumstances into account, so read the relevant disclosure documents and consider what’s right for you. If you acquire an AMP product or service, AMP companies and/or their representatives will receive fees and other benefits, which will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Ask us for more details.

This post contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information