Budgeting 101: How To Budget Money

First, figure out your after-tax income. This is the amount you earn after all necessary taxes are taken out. If you get a regular pay slip, the amount you receive is probably your after-tax income. But, if you have automatic deductions for a superannuation fund, savings account or insurance, add those back in to give yourself a true picture of what’s coming in each month. 

If you have other types of income — perhaps you make money from a side gig — subtract anything that reduces it, such as taxes and business expenses, and then add the remainder to your after-tax income total.

In addition, familiarise yourself with your cash flow so you know how much you need coming in each month to cover your outgoings. Here’s how to get started.

• Check your account statements. This will give you an idea of how much money you have coming in and out of various accounts.
• Categorise your expenses. Categories could include rent, utilities and food, or discretionary spending on entertainment, beauty and so on. Knowing where your money goes will help you choose the best budgeting plan for your needs.

A budget must cover all of your needs, some of your wants and — this is key — savings for emergencies and the future. 

Budgeting plan examples include: 

• The 50/30/20 budget, which divides your income into needs (50%), wants (30%) and savings or debt repayment (20%).
• The zero-based budget, where you allocate all of your money to expenses, savings and debt payments, so there is nothing left over at the end of the month — all of the incoming money is allocated for specific expenditures.
• The ‘pay yourself first’ method, or reverse budgeting, where some of your income immediately goes towards savings, retirement and other financial goals. Then,  you use whatever funds remain for living expenses. 
• The envelope system, where you use cash and envelopes to plan your spending each month — each envelope is marked with a spending category, and then filled with the cash budgeted for that expense. The goal is to stick to the amount in each envelope. 

Record your spending and keep your tracking consistent. Monthly is a good start. 

Use online budgeting and savings tools — such as apps like PocketSmith or Frollo — to help keep up with your tracking. 

An easy way to automate your savings is to set up direct debits from your everyday account to your savings account in regular intervals, like every payday. You might consider opening multiple savings accounts for specific purposes — like saving up for a holiday or big expense — and allocate money accordingly. 

An accountability partner or online support group can help, too, like r/AusFinance on Reddit, so you can stay on track.

Your income, expenses and priorities will change over time, so actively manage your money by revisiting your budget regularly, perhaps once a quarter.

As you manage your budget, try to identify room for change by asking yourself:

• Where are you spending too much money? Can you explore cheaper alternatives for the things you pay for now? 
• Which expenses can you cut back on? For example, reduce the amount you spend on takeaway and food delivery, or rideshare services.