How to build a (better) budget in 9 easy steps [Plus! *FREE* Downloadable Budget Template]

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Posted February 2019 by NZCU Baywide

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Fast track your journey to a stress-free financial future with our guide…

Where does it all go?!

We’re sure this is one of the most common phrases heard in Kiwi households across the country.

Whether it’s a higher than expected electricity bill, books, binders, and bits and pieces for heading back to school, or the usual suspects like rent or mortgage payments, your list of monthly expenses can feel almost endless.

Your income, however, is not.

If it feels like you’re struggling to make ends meet at the end of every month, let alone get on top of your debts or start saving, it could pay - literally! - to make a budget. It’s one of the simplest, easiest ways to plot your path to financial freedom.

That’s why today we’re sharing a super simple method for creating a practical budget that minimises your spending, maximises your savings, and finally answers the question every Kiwi is asking…”Where does it all go?”.

This includes:

  • Calculating your income
  • Tracking your monthly expenses
  • Sorting expenses into categories
  • Sorting the ‘Must Haves’ from the ‘Nice To Haves’
  • Setting yourself a goal
  • Why it’s important to keep it in sight
  • Take it for a test run
  • Adjust and repeat

Before you begin...

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1. Calculate your income

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Before you get down to budget business, you need to know what you’re working with.

So grab the nearest calculator, and work out exactly how much you earn in a year. That’s after tax! If you’re a multi-income household, combine both figures for your total and jot this down.

Simply divide this number by 12, and you’ll have your maximum monthly allowance.

2. Add up your monthly expenses

You know how much you earn, but what about your spending habits?

If you’re not sure, then you’re in good company. Few Kiwis could tell you off the top of their head exactly how much they spend each month, let alone where or on what that money is spent.

Here’s a few easy ways to get informed:

  • Track your expenses throughout the month
    At the start of the month, commit to tracking all of your expenses over the next 30 days. Hold on to your receipts, monitor your bank balance, and keep an eye on spare change so by the end of the month you know how much you’ve spent, and where!
  • Check your bank statements
    If you can’t wait to get started, dig out your bank statements and add up how much you’ve spent over the last month. This won’t be as accurate, but it means you can start...right now!

3. Sort these expenses into categories

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Individually tracking every cup of coffee, late night Mighty Ape purchase, or early morning McDonalds run can get messy, and fast! To make things easier, sort your expenses into categories such as Food, Utilities, and Entertainment.

At a glance you’ll be able to see how much you’re spending - or overspending - in a given area, and from here identify where you can make cuts to ensure you’re coming in under budget.

Not sure what belongs where? Here’s a few suggestions:

  • Housing
    • Mortgage
    • Rent
  • Utilities
    • Electricity
    • Gas
    • Water
    • Trash & Recycling
    • Mobile Phone
    • Internet
  • Food
    • Groceries
    • Restaurants
    • Pet Food
  • Entertainment
  • Loans & Debts

4. Separate the ‘Must Haves’ from the ‘Nice To Haves’

Expenses tallied and sorted, it’s time to highlight those that are ‘Must Haves’, such as recurring bills, debt repayments, or loans, and which are ‘Nice To Haves’ such as fast food, subscriptions, or donations.

You can mark these in a different colour, or simply add an asterisk. Either way, you’ll now have a starting point for where cuts and savings can be made if needed. Start with the ‘Nice To Haves’, and work backwards.

It’s that simple.

5. Run the numbers

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With the bulk of the busy work behind you, run the numbers and see how you fared. Did you come in under budget? Or, like most Kiwis, are you spending more than you bring in? Whether you’re way over or skimming just under, it’s time to...

6. Set yourself a goal

Good or bad, it’s time to set some goals

If your expenses outweigh your income, you’ll want to look at cutting spending on some of the ‘Nice To Haves’ you identified earlier.

If you’re just breaking even or coming in under, there are always savings to be made which could be better spent elsewhere such as saving for a new car, a holiday, or working towards living your life free of debt.

Whatever your goal, jot down how much you’d like to spend in each category compared to your previous month. Perhaps you’ll aim to halve your spending on fast food, or slash a subscription service or two that you’re no longer using?

Set realistic goals, and you’re more likely to achieve them.

7. Keep it somewhere that’ll keep you accountable

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It may be tempting to stuff your budget into a drawer, on a high shelf, or in a box. Instead, pin it to the fridge, write it up on a whiteboard, or set it as your phone’s wallpaper - whatever you need to do to make sure you see it regularly.

8. Take it for a test run

It’s time to put your budget through its paces, and see how it works in the real world.

Don’t be too hard on yourself if you don’t meet your goals in the first month. Learning new spending habits can take time, and it’s all part of the process when creating a budget that’s both realistic and motivates you to save.

9. Adjust and repeat

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How close did you come? Did your estimates match up, or were they way off? Having tested your budget out in the real world, you can revisit what worked, what didn’t, as well as work out where you can make further cuts or savings before giving it another spin.

A budget is your blueprint for building a better (financial) you

Power over your finances is something you deserve.

In fact, so does every Kiwi!

With a budget, you’ll be able to monitor your spending, cut corners where you can, and then turn those short-term savings into long-term financial freedom with a high-interest savings account or term deposit investment.

Before you go...

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