How to create a simple budget
Do you want to make a simple budget but don’t know where to begin? Do you struggle to work out where all of your money goes after each pay? Managing your finances can be tricky, which is why we are going to show you how to put together a simple budget, that you can then tweak to suit your spending and saving goals.
One of the biggest questions people have when they create a budget is how much money do they allocate toward each expense category? If you just pull a number out of thin air that sounds good but might not be practical in reality, you are setting yourself up to fail. For example, if you are a family of 4 and set yourself a $50 a week budget for groceries, there is a huge chance that figure won’t be realistic and you will find yourself giving up on your budget before you know it.
For that reason, it’s best to initially create a budget using your actual expenses. That way you have a good idea of what you currently spend, and if you need to increase your level of savings you can then go back to your budget and work out which expenses you will cut to free up money to save. Just because you create a budget it doesn’t mean it is permanent. It’s a good idea to revisit your budget often as things will always change. You income might increase or decrease, or you might have some new or unexpected expenses that you need to include in your budget.
Another benefit of creating your budget based on what you actually spend is that it can help you realise where money might have been leaking from your bank accounts, as it forces you to be accountable for your spending. When you go back through your lat 6-12 months worth of transactions, you might notice you have been buying drinks and snacks while out and about that only cost a few dollars each time, but that they add up to hundreds of dollars per year. For that reason you might end up creating your budget initially, then going back and reducing certain expenses that you have decided you no longer want to spend money on, or in other words you plug your spending leaks.
There are plenty of budget spreadsheets and budget apps around that can track all of your expenses, but this simple budget method is actually how I create my own budget. I prefer to see my budget on paper, and I find it much easier to work with because I can easily just cross out a figure and write a new one next to it as my expenses change. If you like to keep things simple or this is your first shot at budgeting, this simple budget method is for you.
You can grab any piece of paper you have laying around to begin creating your budget,or you can download and print our free Simple Budget Planner + Cheat Sheet. Then, just follow the 6 steps below and you will have an easy to follow budget in no time!
Create a simple budget
Step 1: Download and print ‘simple budget planner’
This free budget printable will help you put together a simple budget. It’s a very simple printable, but it’s perfect if you are putting together your first budget. Even if you have created budgets before, sometimes it’s better to keep things simple.
Step 2: Find your income and expense details
Gather up all of your bills, bank statements and credit card bills from the last 6-12 months. If your income varies pay to pay, also find details of your income amounts from the past 6-12 months. 12 months is better as it gives you a better idea of your expenses over the 4 seasons of the year, particularly when it comes to things like utility bills that can vary greatly over the year.
Step 3: Add up your category totals
Go through your bills, bank statements and credit card statements and add up the totals for each category of spending. Categories might include:
- Car servicing
- Mortgage or rent
- Water bills
- Electricity bills
- Council rates
This is not a complete list, and everyone will have different expenses, but it’s a starting point. I use a scrap piece of paper to work out my category totals, before filling in my budget planner.
Step 4: Find your average
You will now have your spending totals after completing step 3. How you find your average will depend on how many months’ worth of expenses you have added together. I work on the past year’s expenses when I create a budget, so I use this as the base when creating my budget, and I record it in the first column of the budget planner. Next, find your fortnightly average, by dividing the yearly total by 26. Finally, work out your weekly total by dividing he yearly figure by 52.
Step 5: Fill in your budget planner
Take your yearly, fortnightly and weekly category totals and record them on your budget planner. Be sure to also fill in your income details. Add all after tax income into this box, including income from your job, income from any investments and any government benefits.
Step 6: Determine what’s left
Now that your have recorded your income and expenses, it’s time to work out what’s left. This is as simple as subtracting your total expenses from your total income. The figure that’s left over will be your savings.