How to create a budget and stick to it

how to make a budget and stick to itIn an age of credit cards, ATMs and redraw mortgages, the idea of creating a simple household budget has gone the way of the dinosaur – it seems as antiquated as an apron-wearing housewife stashing housekeeping money in the teapot for a rainy day.

“A lot of people are scared of budgets,” says Cath Armstrong, founder and author of Debt Free, Cashed Up and Laughing. “It’s just a piece of paper with some numbers written down. It can’t bite you, even if it does terrify you.”

Taking charge of the dollars and cents of everyday living expenses is the simplest path to financial security. One thing that will make you wealthy is spending LESS than you earn and the simplest way to do that is to budget.

Budgets are nothing more than a plan or guide to household spending. They are not a tool for punishment, deprivation or misery. “Budgets are about making sure what comes in is more than what goes out – once you’ve done that, it’s easy, people will wonder why they didn’t do it sooner,” Armstrong says.

The benefits of creating a household budget include:

  • Knowing exactly where your money is going.
  • Eliminating silly spending so there is more money for shopping, treats or even investments.
  • Less stress when the bills and credit card statements come in.
  • Creating a tool to help focus on long term financial goals.


Before getting into the nitty gritty of budgetting, Armstong suggests people start by tracking spending habits. “Too many people do a budget on paper that doesn’t work in reality because they don’t account for what they really spend their money on.”

Armstrong suggests tracking spending for a month, but even a week of tracking is better than not doing it at all. “Take a little notebook or use the back of an old envelope stashed in your bag and write down every single cent you spend – if there’s $2 for a kids mufti day, write it down, if there’s 70 cents for chewing gum, write it down,” she says.

“How many of us have had a $50 note that just seems to disappear? Tracking your spending is the best way to find out where it went.”

At the end of your tracking period, work out what you spend in a week and times that by 52 and divide by 12 to get an accurate monthly average of your day-to-day cash spending. If the figure seems outrageously large, check the tracking notebook to work out which purchases are sending you over the edge.


Tallying up the monthly, quarterly and annual bills that come into a household can be overwhelming, especially if you’re the type of person that simply throws bills away once they’ve been paid.

There’s no easy way to start, but Armstrong suggests buying an exercise book, which can be kept in a three-ring binder with plastic pockets to file bills. Then:

  • Write a list of all billers or expenses. Work out the average monthly amount to pay. “Ideally, you’ll have 12 months of old bills to look at so you can see exactly how much you have paid,” Armstrong says. If you don’t have the last 12 months of bills, you can simply estimate the expenses – but real data is better.
  • Draw up 14 columns in the exercise book. In the first column, list all billers or expense categories down the page. Label the next 12 columns across the page with the months of the year. Keep the final column free to calculate the “average monthly amount”.
  • If you have the last 12 months of household bills, write in the amounts you paid in which month. Once you have filled in the entire grid, calculate the monthly averages in the 14th This grid forms the backbone of your budget, showing you which months have the heaviest expenses and which months are light-on.
  • As household bills come into the house, file them near this exercise book and check that the amounts tally up with your estimates or last year’s figures.
  • Tallying up the amounts entered in the 14th column will tell you the averag monthly expenses. Hopefully, they match your income.


It can be a good idea to get the whole family involved in a budget, and make sure all expenses – restaurants, medical bills, sports, gifts for friends and family – are accounted for. Remember, the more accurate the expense figures are, the better the budget will work as a planning tool.

Once you have a list of monthly expenses, tally that up against your monthly income. “Hopefully you’ll have more coming in than going out,” Armstrong says. “Sadly, that’s not always the case. Some people need to play around with the figures to make them work.”

Armstrong says it’s important for budgeters to cut back in areas that won’t impact on their lifestyle. “For me, I could never buy generic coffee because I love my coffee. For others, cutting out buying a coffee each day is the perfect way to save $3 a day.

“Budgetting isn’t about depriving yourself, it’s about planning how to meet your spending needs. It’s completely up to you to decide what those needs are. For some people, it’s paying off the mortgage in five years, for others it’s going on an overseas trip every year.”


Managing the day-to-day spending in line with a budget outline isn’t always so easy, especially if you haven’t been honest – or accurate – in the 14-column budget planning grid.

Most households need a certain amount of cash to spend each week, while the rest of their money stays safe in a bank account waiting to pay the bills as they come in.

“The internet is a Godsend for budgeting. I get online once a week for 10-minutes and do all my bills at once. Having to line up to pay a bill is a nightmare – how many times have you walked out of the post office when the queue’s too long and then gone and spent the cash you were supposed to use to pay the bill?” Armstrong says.

Another stumbling block is accessing cash each week. “Too many people are tempted to take out cash from the ATM as they need it, blowing their budget,” Armstrong says. She suggests the old-fashioned envelope or plastic bag cash management system, which involves:

  • Accessing cash from your account only once a week or once a month.
  • Allocating budgeted cash into separate bags or envelopes – the petrol money will stay separate from the grocery money and spending money.
  • Leaving all credit cards and ATM cards at home, rather than in a wallet or purse “otherwise it’s too tempting to get them out”.
  • Carrying only the cash you need – preferably in its original bag or envelope – at all times.


Armstrong has plenty of tips to save money on her website, but says stretching the household budget is not difficult once people become disciplined in the art of using the budget.

“If you know where your money is going, you know where it’s being wasted, too,” she says. Other hints for using a household budget to your advantage include:

  • Paying your bills at a set time every week or month so it becomes part of your routine. Kind of like cleaning your teeth.
  • Cut back spending that won’t impact on your lifestyle. For some, it’s as easy as planning two or three meals each week rather than throwing out food. For others it could mean buying generic products at the supermarket. Don’t scrimp on things that are important to you, though, or you’ll be attempted to abandon the budget altogether.
  • Factor in your spending weaknesses – whether it’s a splurge on the credit cards or relying on takeaway when you’re too tired to cook – and plan how you will overcome it.
  • Take little steps to improve your budget rather than great big hairy steps – if saving $200 a week seems too scary, start by trying to save $10 a week. The budget is the tool that allows you to tailor financial decisions to your own life and goals.