How to budget so you can save more and live better

Why you need a budget

A budget can help you to see where your money is going, where it should go, and how much you’re actually saving. With a solid budget, you’ll feel more confident about your financial future and better equipped to handle unexpected expenses or indulge in well-earned luxuries.

Ready to get started? Let’s break it down.

Step 1: Work out where your money goes

The very first step is understanding your spending habits. Gather your bank statements, receipts, pay slips, loan statements and write down all that you’re spending, as you spend it, over a period.

Here are some common expenditures to consider:

• Rent or mortgage payments
• Utilities (electricity, internet, water)
• Memberships (sporting clubs, gym, Pilates)
• Morning coffee runs
• Food (groceries, restaurants, take-aways)
• Transport (fuel, public and private transport fares)
• Subscriptions (streaming services and apps)
• Medical (Doctors’ fees and medications)
• Insurance (health, home, car, death, income protection)
• Loan repayments
• Occasional (gifts, holidays, massage treatments)
• Personal grooming (clothing, haircuts, beauty treatments)

Be as thorough as possible. Track both regular and one-off spends over at least a few months to spot patterns. It may feel tedious but take your time and do it right.

Step 2: Calculate your income

Now that you’ve worked out your spending, turn to your income.

This includes your salary (after taxes), plus any other forms of income you may have. They may include any government payments, dividends from shares or rent from investment properties.

If your income fluctuates, calculate a monthly average over a longer period to avoid overestimating your income.

Step 3: Compare your earnings to expenses

Now comes the truth test: Are you earning more than you’re spending?

If the answer is yes, you’re in a good position! Extra cash on hand means you can funnel it towards paying off debt, building an emergency fund, saving for a house deposit or even contributing to your super to boost your retirement savings. 

If you’re spending more than you earn, don’t panic. This is your wake-up call to make adjustments and regain control. Every small tweak you make could make a big difference over time.

Step 4: Cut back on your spending

Budgeting is about prioritising, so it helps to look at your expenses and separate the must-haves (needs) from the nice-to-haves (wants). For example:

• Is your barista-made coffee a must-have or could you brew at home?
• Do you need all your streaming services or could you keep just one or two?
• Could you swap restaurant meals for home-cooked dinners?
• Could you find a cheaper alternative to your gym membership or switch to exercising in nature?

One widely recommended approach is applying the 50-30-20 budget rule to guide your spending. Here’s a guide to how it works:

• 50% of your after-tax income is spent on your must-haves (loan repayments, necessities and bills)

• 30% is spent on nice-to-haves (subscriptions, dining out, entertainment, fashion)
• 20% is saved or invested.

You can adjust the percentages to fit your goals, but the aim is to turn saving into a consistent habit.

Step 5: Plan for the future

Once you’ve trimmed unnecessary expenses and built some savings momentum, think long-term.

You could start a salary sacrifice agreement with your employer. This is where super contributions are made on your behalf from your before-tax salary, which could boost your super balance and reduce your income tax.

The extra super contributions may help you be in a better position to enjoy your post-work life in retirement.

Need help budgeting and setting financial goals?

Budgeting can feel overwhelming – especially at the start. If you need some help figuring it all out, there are plenty of options. The government’s Moneysmart website offers free tools, calculators and information on accessing free financial counselling.