a guide to
budgeting
What is a budget for?
​​A budget is simply a plan for our money, a tool to help us decide how to spend and save to meet our financial needs and goals.
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A budget gives our money a clear direction for the year ahead. It's a flexible plan that we can adjust as needed, so we always know where our money is going.
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Budgeting isn't about restriction; it's a tool that helps us direct our money towards the things that matter most to us.
In this guide:
6 simple steps to creating an effective budget
List income
Track spending
Record expenses
Balance budget
Goals & priorities
Review & adjust
Getting started
Budgeting starts with knowing exactly what money is coming in and where it goes. Once you've got a good idea of your regular income and spending, you can tailor a budget to suit your needs.
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Use a budget template or simple spreadsheet to record the information you gather in the steps below.
Step 1. List income
Start by listing all of your income after tax. Include support from Work and Income, IRD or any other income you regularly receive. If your income changes each pay, look back over the past six months to find your average.
Use how often you get paid as the time frame for your budget. For example, if you get paid weekly, set up a weekly budget.
​​Step 2. ​Track spending
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One of the best ways to understand your expenses is to track your spending. Review your bank transactions over the last couple of months to see where your money is going. ​​
Step 3. Record Expenses​
Using the information gathered in step 2, record all of your regular expenses as well as any additional or occasional spending. ​​​
Enter variable spending as an average amount. To work out the average, look back at what has been spent on this expense over the last few weeks/months.
Step 4. Balance your budget
Compare your income and expenses to see how they match up. There are three possible outcomes:
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Deficit: not enough money to meet all of the expenses in the budget. Consider if the are any expenses that can be reduced; and/or if there are any potential pathways for increasing income.
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Surplus: money left over after meeting all of the expenses in the budget. Consider how you would like to use the surplus (spending or saving) and add this to your budget.
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Balanced: Income and outgoings match. A balanced budget is a good outcome as it means that we are living within our means and that we have given every dollar an allocated job to do, whether that is spending or saving.
Step 5. Determine Your Priorities & Goals
This is where you align your spending with your financial needs and goals. This step is about making intentional choices about where your money goes rather than wondering where it went.
Include:​
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Needs: essential bills and expenses such as housing, food, power etc.
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Savings: goals, retirement, emergency savings
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Wants: things and experiences that are nice to have, but not essential to survival
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Debt repayment
Be realistic with your allocations; the goal is to create a sustainable plan you can stick to.
Including money for things we enjoy makes it much more likely that we will stick to our budget plan.
​Step 6. Review and Adjust Regularly
Once you have your budget set, review it regularly. Continue to track your spending and make adjustments based on your goals and any changes in your life.
Having a workable budget that is aligned with our personal goals and priorities is a big step toward developing a greater sense of financial wellbeing.