How to create a budget in five easy steps

With the rising costs of utilities and general living expenses, it's important to be on top of your money and make sure you're prepared for upcoming bills – as well as unexpected expenses too. And as the use of physical cash declines and we all turn to digital ways of paying for purchases and automating bills, it can be difficult to keep track of spending and money often seems to just ‘disappear’.

This is where a budget can help. It sounds sensible and like hard work, but budgeting allows you to make the most of your money – and we have some simple steps to follow that will help you create your own budget, easily.

Step 1

Firstly, decide whether a weekly, fortnightly or a monthly budget is more appropriate for your personal circumstances. If you get paid each week, a weekly budget may be your best option – whereas a monthly budget will suit other situations better.

Step 2

Collect your bank account statements and your regular bills from the last 6-12 months so you can see exactly what money you have coming in and going out. Then you’ll need to calculate your total weekly or monthly income.

This step doesn't have to be as difficult as it sounds - you just need the help of mymo by P&N Bank. Our budgeting app allows you to link all your bank accounts from different financial institutions in the one place, and categorise all your spending. That makes it easy to see exactly where your money comes from and goes to. Easy peasy!

Step 3

Next, you need to work out your expenses for a typical week or month (whichever you’ve decided works best for you). Be sure to include your rent or mortgage, petrol or transport costs, groceries and, of course, your savings. It’s also important to ensure you take into account any annual expenses such as council rates or school fees as these can often be overlooked. If you’re creating a monthly budget, simply divide the annual expense by 12 and then add it to your other monthly outgoings – if it’s a weekly budget, then divide by 52 instead.

Step 4

Separate your expenses into those that are fixed and those that are variable. Fixed expenses usually stay the same, like loan repayments, whereas variable expenses most likely fluctuate from month to month, like your grocery bill or your entertainment spend.

Step 5

For the last step, you’ll need to add up all your expenses and compare the amount to your income. Ideally, your income amount will be higher - or at least the same - as your outgoings.

If this isn’t the case and your spending is more than your income, don’t panic. Instead, go over your expenses again and make some adjustments. Start by reviewing your variable expenses and make some adjustments where you can. For example, can you reduce the amount you spend on eating out each month?

Now you're budgeting

Once you're aware of where your money is being spent and you have a budget in place, you’ll have more control over your finances. You should find that your hard-earned cash doesn’t just ‘disappear’ anymore! The goal now is to put more of your money aside for emergencies and even increase your regular savings – that big purchase is hopefully closer than you thought.

Following and sticking to a budget can be made even easier with one or two separate accounts for savings, bills and expenses. This is often referred to as using financial ‘buckets’ and can be useful for avoiding any temptation to spend money that you’ve already put aside. If this method of money management sounds like it could work for you, then our budgeting in buckets tips may help you get started.