How do I make a budget?

How do I make a budget?

Before you create a budget you need to know all your income streams and expenses.

Before you create a budget you need to know all your
income streams and expenses.

For budgeting purposes, it is useful to categorise your income every month into two types - guaranteed or fixed and variable - this allows you to see what proportion of your income can be relied on every month, and how much you may have to save or invest.

Guaranteed or fixed income refers to money you earn or receive at regular intervals on a predictable basis, such as your monthly salary, rent from investment properties, monthly returns from bonds, fixed-income investments or monthly pension funds.

Variable income refers to income that may vary in amount from month to month. Variable income can include dividend payments from stock investments, interest on deposits, and overtime pay.

It may be difficult to anticipate how much variable income you should include in your budget since you may not know what the actual amounts will be. One way of overcoming this is to track your variable income over a number of months and then calculate the average monthly sum. This may vary from the actual figure, but it should provide a realistic figure that you can use in your budget.

To collate your expenses you can use your:

Bank statements

Bank statements

They are an excellent record of your monthly spending, especially if your fixed service bills are debited from your Citibank Lending account or transaction account

Bill statements

Bill statements

For quarterly bills, add up the last four to get an annual figure, then divide by 12 to get a monthly figure. Similarly with annual bills - divide by 12 to arrive at a monthly figure

Cash and expenses

Cash and expenses

It can be more difficult to track. At the end of each day, it is useful to jot down what you have spent, and keep receipts from your purchases where possible. You will build up an overall picture of your spending

Once you have your expenses you can categorize them just like your income,
they generally fall into three broad categories:

Fixed expenses, like your mortgage, life insurance and car loans, these do not vary from month to month. These are the bills that you should pay off first every month to avoid falling into a debt trap. The money left over from paying your fixed bills usually goes towards flexible and discretionary expenses.

Variable or flexible expenses are for necessities such as utilities, groceries, clothing and transportation, and can vary from month to month.

Discretionary expenses include paying for vacations, entertainment and club memberships.

When you start to record your expenses, you will see how much you spend on extras such as eating out and shopping. Discovering how such spending hurts your wallet may motivate you to cut back on things you don't really need, and to start saving more every month.

A budget is an "early warning system" for any overspending and assists you to identify where you can start making changes to manage your finances and savings to support your desired lifestyle.


Important information:

Any advice is general advice only and was prepared without taking into account your objectives, financial situation, or needs. Before acting on this advice you should consider if it's appropriate for your circumstances. Further information and our dispute resolution process is available at or by phone on 1300 137 931.