Whichever your preferred method to keep track of the ins and outs of your money, we’re going to show you how to budget better in 6 easy steps!

When it comes to budgeting, Aussie’s are divided on how it’s meant to be done. While some still prefer the old pen and paper method, others have moved on to a more modern budgeting app on their mobiles. While some prefer to focus on long-term goals, others are short-term goal orientated.

#1) Sorting out debt & expenses

If you want to budget better you’ve got to be able to review and sort out your debt and expenses in a way that ensures everything has been taken into careful consideration. Even if you already have a budget and know where your money is going, do not skip this step as it will allow you to improve your budget.

Making a list of all of your debts and expenses is your first step. You should ideally include the loan term or time period that you expect to continue to incur the expense as well as details like monthly service fees and interest as well as how much must be paid and how often.

If you’re not sure about your spending or regularly use cash, you may want to note down all your spending for a month. You need to include large expenses like mortgage payments or rent as well as the small expenses like snacks and coffee.

Bank statements from your transactional, credit and savings accounts should be downloaded and used to accurately determine where your money is going and why. If you tend to draw and use cash, it’s time to dig up those receipts!

This information can later be used to help you find areas to reduce spending, increase saving and create a debt repayment plan and a budget. At this stage it would be unwise to try and adjust or reduce any of these expenses, we first need to define our financial vision and set some goals!

#2) Set goals & define your financial vision

When it comes to financial success, a powerful vision coupled with realistic medium and short-term financial goals is crucial. This is because if we don’t know what we’re trying to achieve, we will be very unlikely to be interested in a budgeting and saving, which are the pillars of financial success and long term, sustainable wealth.

Your vision will be unique to you but may include financial independence, being completely debt free, owning your own home or even hitting a net worth or financial target. Your financial vision can include multiple targets which may or may not be related.

Once you’re clear on your high level goals or vision you can then move on to setting medium and short-term goals which will act as your roadmap. These goals can include saving a certain percentage of your income on a weekly basis.

#3) Reduce spending & expenses

Once you’ve set out all of your income and expenses and defined a vision that you want to work towards you can then begin to cut down and spending and expenses. You can start by reducing any unnecessary expenses and defining clear limits on how much can be spent on luxuries and wants.

Examples of ways to reduce expenses:

  • Downgrade accounts and reduce bank fees by opting for cheaper options
  • Cancel memberships and accounts you don’t use
  • Save on gas and electric bills
  • Cook and eat at home and stop buying take away coffee
  • Save by shopping for deal and buying groceries and consumables in bulk

#4) Create a debt repayment plan

Carrying debt throughout your life will work against you and reduce any chances you may have of generating wealth. If you want to pay off your debts the best way to do this is to create a debt repayment plan that works hand in hand with your budget.

This plan, at the very least, must include all minimum repayments on debt but should ideally contain a strategy that allows you to make extra payments on your debts to ensure early repayment. From your mortgage to your credit cards, early repayment on loans can save your thousands in the long run.

Early debt repayment strategies

Snowball debt repayment strategy

The snowball debt repayment strategy revolves around repayment of the smallest debts to clear them completely before focusing on the larger debts. You must maintain all minimum required debt repayments and use any extra money to pay off the smallest debts.

The theory behind this method suggests that by completely paying off debts and essentially closing some accounts you keep yourself motivated to keep on clearing up debt and simplify your finances in the process. Another benefit could be that once you’ve paid off loans and accounts, you may close them and benefit from more savings in the form of service and admin fees.

Avalanche debt repayment method

The avalanche debt repayment method requires that you repay your most expensive debts first, rather than clear up those debts with the smallest balances like you would do when following the snowball debt repayment method.

Your most expensive debts are those that carry high interest and are generally most short-term loans and credit cards. You also need to consider annual and service fees when working out which debts are your most expensive and using a loan calculator may help you with this.

#5) Create a budget

There is no shortage of budget advice and tools for Aussies. Whether you’re a pen and paper type of person or a tech savvy fan of the latest budgeting apps that connect to your accounts and automatically categorise spending, a budget is the best way to make the most of your money.

Ways to create & keep a budget

  • Save receipts and manually keep track of income and expenses on paper
  • Use the envelope method and withdraw income and assign to various envelopes as required
  • Use an Excel spreadsheet or Excel template and keep track of income and expenses
  • Use a budgeting app and automatically connect to your bank accounts for automatic spending categorisation

MoneySmart has a fantastic online budget tool that quickly and easily allows you to input income and expenses and create a budget. You can choose a weekly, fortnightly, monthly, quarterly or annual budget option and save or print thereafter.

Australia’s best budgeting apps

  • Pocketbook
  • Money brilliant
  • Spendee

#6) Reviewing spending & making saving a priority

In addition to keeping track of income and expenditure and making an effort to repay your debts you should also place a great deal of focus on saving. Saving is crucial to helping you reach financial goals and make investments but on a more basic level can save you from getting into debt.

This is why it’s important to not only have an emergency fund with at least 6 months worth of expenses but to have as many savings accounts as you need to fulfil all your medium and short-term financial goals.

Keeping track of your spending will be pointless if you use up all of your income and never make any adjustments to optimise your finance. The same applies if you do not periodically review your spending and add and remove expenses and items that no longer apply or serve you.

You should briefly review your budget at least monthly to ensure everything is as it should be and then more carefully once every 3 or 6 months. At least once a year you should complete the entire budgeting process from step one of this guide. If you stick to your budget and remain consistent reviewing will be a simple process that will require very little effort on your part.