How to create a budget

Learn how to manage your money and understand where it goes.

For many of us, making a budget seems like a daunting and fairly stressful task. However, a budget is an essential component of money management and can help you get a handle on your finances and plan for your future. Instead of picturing your personal budget as a scary list of restrictions, imagine it as the path to a happy and well-organised life.

What is a budget?

A budget records the money you have coming in to your pocket (income) and the money you plan to spend (expenses). Think of it as a map of your personal financial situation. There is no one-size-fits-all approach to making a budget, but there are some simple steps to take to build your own personal budget planner.

Remember that a budget isn’t just a way to keep track of your own spending habits. A good budget will also outline your personal financial goals and what steps you need to take to achieve them.

Why do you need a budget?

A budget can be helpful if you want to take control of your finances - it’s a great first step to helping you manage your money better, by clearly showing how much you’re earning, how much you should be spending and what you’re spending your money on.

Your budget can help give you insights into how you’re spending your money and identify areas where you may be overspending or could stand to spend a bit more.  This could help you to prioritise between essential (non-discretionary) and lifestyle (discretionary) expenses. In short, a budget can serve as a reminder of what’s a necessity and what’s simply an indulgence that could lead to overspending and financial stress.

Your personal budget will calculate either a surplus (meaning you have the right amount of income to cover projected expenses) or deficit (meaning your expenses are greater than your income). If you have a surplus, then your budget can help you identify the right amount of money to set aside each month to reach your savings goals. If you have a deficit, then you can look at each of your spending categories and determine where you might tighten your belt to help reach those goals.

Managing your budget and aiming for a healthy surplus (saving more than you spend) can help you achieve goals big and small—whether you’re saving up for a long-weekend getaway or a down payment on a home.

How to create a budget in 3 easy steps

Calculate your income

Income can come from many sources, such as your regular pay, any side income you have or government assistance you might receive. Don’t forget to include savings and earnings from any investments, such as rent from an investment property or dividends from shares. To get an accurate financial picture, make sure you account for every source of income you have—even if it’s only temporary income or a small sum.

Work out your expenses

Figuring out where your money actually goes can be eye-opening, though it’s not always easy to get a grip on all of your spending. Start by reviewing your bank and credit card statements, bills and receipts to work out what you’re spending money on and how much you’re spending.

Your expenses will include things such as:

• paying off a home loan or rent
• groceries and dining out
• utilities such as gas, electricity, internet, phone bills and water
• transport costs like public transport, petrol and tolls
• medical expenses, such as health insurance or regular medications
• school fees and costs
• pay TV and music subscriptions
• gym memberships
• entertainment

Don’t forget to include expenses you may pay for on a quarterly or annual basis, such as home or car insurance, car registration and servicing, and property rates.

Set up your budget

An online budgeting tool, such as AMP’s budget planner calculator, can help you easily build a budget and get a better understanding of your finances. By simply adding your income and expenses, and how frequently you earn or incur them, you can create a view of your total weekly, fortnightly, monthly and annual income and expenses.

If you’re an AMP customer, you can also use the AMP Money Manager tool (found by logging into My AMP) to automatically create a personalised budget based on your transaction history. If you’re not an AMP customer, you can see can still access AMP’s Money Manager via AMP’s Goals Explorer tool.

Online budgeting tools to make life easier

Once your budget is set up, it’s important to monitor your spending to ensure you’re staying on track. However, keeping on top of what’s going in and out of your accounts can be time consuming, especially if you have multiple accounts across multiple financial institutions.

AMP’s Money Manager tool enables you to add data from multiple sources from over 200 different financial institutions via our secure and encrypted online site. What’s more, it automatically categorises your transactions, making the process of tracking your income and expenses effortless. AMP’s Money Manager can even generate graphs of your income, expenses and cash flow.

If you’re using AMP’s Money Manager you can add other accounts by logging into My AMP, selecting the 'Manage non-AMP accounts' tab and then adding your account login details from other financial institutions.

Making digital payments and automating many of your regular payments via direct debit can be helpful when budgeting, because you’ll create electronic records of your spending that are easy to track.

Reviewing your budget

Life is certainly not set in stone, so your budget doesn’t have to be either. It’s a good idea to review your budget regularly, to make sure it’s still accurate and up-to-date. Any change in circumstances, which leads to a change in your income, expenses, debts or financial goals, might signal a need to update your budget, such as if:

• you get a new job or promotion
• you’re made redundant
• you get married or divorced
• you buy a house
• you have a baby