The Ultimate Guide To Budgeting

Budgeting money

There are a lot of things we avoid despite intuitively knowing it would be good for us. Spinach, the gym, taking advice from our parents, and budgeting, just to name a few.

What is it about the word ‘budgeting’ that conjures up images of a 1950’s suburban housewife with a ring binder folder counting her husband’s pay from an envelope? The very word seems synonymous with tedium, restriction, even drudgery. Perhaps ‘budget’ just has negative connotations - Budget Insurance, Budget Vehicles, or the worst: Budget Chuck Steak.

We would all love to be free of counting our pennies, but having a budget can be one key to financial success and freedom. Budgeting is both for the wealthy…and the rest of us. Let’s have a look at some of the benefits of budgeting.

Is It Time To Start A Budget?

We’ve all had the experience of going out with a wallet full of crisp notes and coming home with only coins, wondering where the money went the next day. Having a budget allows you to see how and where you are spending your money. You can pre-determine the amount you would like to set aside for leisure, once you’ve accounted for cost of living expenses, bills and savings, so you will never leave yourself short in any category.

This can also eliminate surprises, and more importantly, guilt! We all lament the terrible month where your car insurance and registration are due. Just when you’ve scraped enough together to pay them, you get the bill for your roadside assistance too! A budget can be designed to reflect even your annual costs on a weekly basis, so money is allotted for all of those pesky bills before they arrive. The big benefit of this? Once you have allocated funds to all of the ‘non-negotiables’ (bills, rent/mortgage, food and fuel), you can decide what to do with the surplus! Giving yourself a few dollars every week in ‘leisure money’ allows you to do with it what you will, guilt free! You already know you’ve not short-changed yourself in your major expenses. So if you decide to let this ‘leisure’ money roll over for a few weeks to get those Jimmy Choo’s- good for you!

Benefits Of Budgeting

Budgeting gives us control. You can control your money rather than the dreaded feeling that the dollar sign is in charge of you. You can set goals, like eliminating debt, a savings plan, or a new investment opportunity. These can change as you see fit, all you need is to divert a few dollars here and there to a different category. Control is one of those priceless feelings in finance, providing security and stability.

Budgeting also affords us new opportunities, that we not have thought possible before having a concise road map of your financial abilities. Directing a little money each week to areas like ‘house deposit’ or ‘Disneyland trip’ can turn a pipe dream into a reality.

For some reason we have the misconception that a budget will leave us with less ‘fun’ money. While budgeting may cramp your ‘spending style’ initially by increasing self-disciple to saving and paying off debts first, in the long run it can actually provide you with more cash! A few ways a budget can provide this: Allocating money for bills like an insurance premium weekly will yield enough cash to pay your premium annually. Companies reduce your premium if you opt to pay once a year. Budgeting can also allow you to pay your credit card off in-full each month. This will save you a stack of money in interest and fees! You can see our article about how to get rid of credit card debt to get an idea about how much you can save by paying your credit card off each month. Having a budget also allows you to forecast your bills, so you can avoid late and overdue fees! Ultimately, a budget will help you to get out of the rental market, pay off your home sooner, and leave you with the lifestyle you only dream of at the moment!

Having a budget will also enable you to be better organised. Having a budgeting system means you won’t be scrambling to compile your work related expenses at tax time, sitting with a shoe box of receipts and an old calculator! In fact, modern budgeting methods take all the hassle (and math!) out of balancing a budget. Once it is set up initially, which admittedly, can take a little time and effort, it basically runs itself!

Family Budgets

Discussing money with our partners and in our families is also facilitated by having a budget. Sitting down with your partner to map out your finances gives you the opportunity to discuss your goals and financial aspirations, it allows you to make plans to get there together. Having a budget also negates the need to inform your partner of every itty bitty purchase! Allocating money for discretionary spending means you can save all the lame justifications about your recent splurge (you know what I’m talking about- “Well, it was on sale” or “It was the last one!”)…you can now exclaim with a toothy grin: “It fit within the budget!”

This may also be a great tool to educate kids about the value of money. Teaching them about income and expenditure gives more substance to the oft repeated statement “money doesn’t grow on trees!” This can help them to understand why they cant have every treat in the check-out aisle at the supermarket, and could be the beginning of them learning proper money management skills too.

So now that you’re convinced you need a budget, what method of budgeting will you choose? Let’s discuss some of the popular ones.

Pencil and Paper Budgeting

Pencil and paper methods are still widely used (believe it or not?) These are either done free hand (a ledger for income and one for expenses) and updated manually after spending. There are also many pre-formatted household budgeting or book-keeping forms you can purchase from the newsagency or other stationary store with field prompts for you to complete. Pros: If you are not good with technology - this is a good option! Cons: Did someone say tedious? This requires you to keep your receipts, write down all your outgoings, and add/subtract as you go. Pencil and paper methods may well be the reason budgeting has a bad name!

The Envelope System

The envelope system works on the principle that you can apportion your money into separate categories (an envelope for fuel, an envelope for savings, an envelope for rent), and pay out of the envelope when you have an expense from that category. For people who need to see money to realise it is tangible and finite, this can work well. However if you live in a dangerous neighbourhood it certainly isn’t advisable to carry around wads of cash! Some critics argue the envelope system doesn’t work if you adhere to it strictly, for example waiting to the next pay cheque to replenish your ‘grocery’ envelope may mean you miss the huge savings on non-consumables you saw at Costco.

It makes more sense to borrow from another envelope so you can save money in the long run, not just balance your envelopes. The reason people get tripped up here is in borrowing from their ‘essential’ categories to fund their ‘fun’ categories. Some of your envelopes will be fixed and non-negotiable, such as bills and rent. Additional or unplanned expenses should logically be deducted from your leisure envelope. The key to using this system is doing so with flexibility to ensure sound decisions take precedence over rigid rules.

Budgeting Spreadsheet Software

A number of computer programs provide software that lend themselves to budgeting. Microsoft Excel or iWork Numbers are already loaded on to most computers so offer a no-cost solution to preparing your budget. These programs allow you to create your own fields and perform calculations with rudimentary formulas. Using a spreadsheet is great because it’s free and widely available. You can make it as simple or complex as you like. The down side is you may need to regenerate your fields each month using cut and paste. Using a spreadsheet can be a little overwhelming if you are unfamiliar with cells and functions and formulas. YouTube is an excellent resource for tutorials on budgeting with Excel.

Budget Calculator

If you want to see a quick snapshot of where your finances are at and which areas to focus on, then using a budget calculator will be helpful. It can help you think about a range of expenses (and income) that you might not have otherwise considered when setting up a budget. Whilst a budget calculator is useful it won't give you any ongoing guidance or support in managing or improving the effectiveness of your finances. But this type of calculator is great for a "moment in time" look at what you're spending your money on and also to consider various scenarios of varying income or expenditure.

Budgeting Apps

Most of us these days have an ‘i-Something-or-other’ or smartphone which allows you to access many purpose designed budgeting applications. These are typically referred to as spending-management software as they allow you to input your income and forecast your expenditure. They have categories you can allocate funds to (a more contemporary version of the envelope system), and tools to deduct your purchases from the category total available. A quick search reveals around 50 of these, ranging in price from free to upwards of $40. They will differ greatly in features, however for around $10 you can get an app that syncs with other members of your family (so you can share the same budget and purchases automatically deduct from the other members’ totals i.e. when someone has done the grocery shopping and enters this in, the total available in the grocery category will be depleted). You can set up recurring bills, attach photos of receipts, get bill reminders, categorize your budget, and set up multiple accounts such as cash, credit, savings, and checking.

There are some excellent reasons to use an app to generate and track your budget. Most of us keep our phones with us at all times, so purchases can be added on the go. Some apps can be linked to your bank account so you can quickly interface between programs to see what totals you are working with. They can generate reports about your annual spending, or forecast your expenses over the year. They can be linked to your calendar app to remind you when to pay bills. You can still use ‘zero-based budgeting principles’ here, as you just determine where to distribute your surplus. The downside is that a good app will cost you money. However using it will make your small investment back (and then some!)


At the end of the day, the budgeting method you choose must suit you and your lifestyle. It should be a method which encourages solid financial decision making and which doesn’t conjure up synonyms like ‘drudgery’ or ‘I’d-rather-be-having-a-root-canal’. A working budget may even get a little exciting when you are finally free to do what you like with your money!

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