A budget lets you know if you're living within your means. It keeps track of:  

  • your income - the money you regularly earn
  • your expenses - the money you regularly spend. This includes rent, bills, phone plan, groceries etc.

What you're left with once you subtract your expenses from your income is your ‘disposable income’.

You can either spend this money on things you like or choose to put into savings.

Creating a budget and sticking to it will help you feel in control of your money. Budgeting helps make sure you can pay your living expenses and save for something special.

Create a budget

Creating a budget might seem like something you need to do once you’ve left school and are in the workforce but it’s never too early to learn money skills.
 
Having financial skills can help you plan for financial independence.
 
The first thing to do is to get clear on how much money you’re earning and how much money you’re spending.

A great place to start is to write down:

  • every expense you have (rent, bills, phone plan)
  • every expense you have over a period of time (for example each week, fortnight or month)
  • how much you earn over the same period (week, fortnight or month).

If you discover your expenses are more than your income, you need to either increase your income or reduce your spending to avoid debt.
 
MoneySmart’s Budget Planner is a great online tool to get you started.
 

Set realistic budgeting goals

Setting yourself realistic budgeting goals is important. One goal (intention) you might have is to spend less money on food each week. But if you’re not buying enough food and feeling hungry often you will need to increase the money you spend or budget for on food.

Working out the right budget for you takes time. Sometimes you'll underestimate what things cost or have to allow for an emergency. It's all about finding the right balance.

Once you've worked out your budget, review it for a few months to see if you're on track. If you need to change it, make the adjustments and see how well your revised budget goes. For example, you might need to allow more money for your phone expenses.

Tips to set a realistic budget

Here are some tips to help you set a realistic budget and stick to it:

  • start with small, achievable goals that keep you motivated
  • pay your rent and utilities before spending money on other things
  • make a list of things that need to be paid for or bought on payday and stick to it
  • before you buy stuff, shop around and compare prices
  • allow for unexpected or emergency expenses
  • ask someone to help you create and stick to your budget 
  • learn to say no. If you can't afford it, don't buy it 
  • give your budget some flexibility 
  • include some rewards to keep you motivated.

If you have debt you’re regularly paying off, remember it doesn't have to be paid back all at once. You can usually make plans with whomever you owe money to so that you can pay it off at a reasonable rate regularly.

Understand your mobile phone contract

In today’s world, it’s hard to get by without a mobile phone. So, when it comes to budgeting, opt for an affordable plan and make sure you can afford it before signing the contract. If you don’t pay close attention to the contract you’re signing you may end up paying more than you expected.

Types of mobile phone contracts

There are heaps of phone providers and different kinds of phone contracts. 
 
So how do you know which one’s good, and which one's going to cost you heaps?
 
Here are a few things to think about before signing up for a phone contract: 

Pre-paid vs data plans

Data plans are plans where you pay a fixed amount of money for a set amount of data to be used on calls, texts and online.

If you use more than your set amount, for example you download too much or use up all your data on social media, you will be charged for the extra usage.

A pre-paid plan is one that gives you a set amount of calls, texts and data. When you've used up the set amount, you can't use the phone until you pay another set amount.
 
A pre-paid plan is a better way for some people to stick to their budget.

Call and data rates

Not every mobile provider charges the same amount for the same services, and not every contract offered by a single provider charges the same amount for the same services.
 
Before you commit to a contract have a look at all the charges associated with that plan.
 
Remember, when you sign a contract, you are legally responsible for paying the bills. Make sure you know exactly what you are signing up for and never sign a contract you don't understand or don't agree with.

How do I save money?

A simple way to budget and save is to follow the 50/30/20 rule.

50 percent of your pay should go on your needs: the bills you must pay and are necessary for survival (like rent, groceries, heating, cooling, water, etc).

30 percent of your pay should go on your wants: the things you spend money on that are not essential for your survival (like going out, games, movies, streaming services, takeaway, etc).

20 percent of your pay should go on financial goals: your goal should aim to pay down any high interest debts, or to save up enough for something special or at least three months of emergency savings. This is in case you lose your job or something unexpected happens.

You may even want to set up separate accounts for your needs, wants, and financial goals in your internet banking. This will make it easy to save money for anything in any category and budget as you go.

Always prioritise your living expenses

This means paying rent and bills first before spending money elsewhere.

Think about setting up direct debits for all your bills and see what you have left over. (If you do set up direct debits, make sure enough money is in the account on the day the money comes out. If the money is not there, your bank may charge you a fee).

Once you’ve dealt with your needs (rent and bills), you can decide how much you direct to your savings, and how much you direct to your wants. 

If you are earning more money than you are spending, then you are in a position to start saving money.

MoneySmart's Simple Ways to Save Money page has some good advice on saving money and cutting costs.

Increase your income

If you want to save more, you can also earn more or be smarter with the money you have. 

If you’re working, can you ask for more shifts, or maybe you can sell some clothes you no longer wear? 

If you love fashion, for example, consider thrifting second-hand clothes, or looking on your local online marketplace where you can buy and sell items. 

Remember a lot of businesses also offer student discounts. If you’re not sure, just ask. The worst they can say is no.

You could also take on extra part-time work or think about developing your own business idea.

I can’t stop buying stuff – what do I do?

The first thing to do is to only spend what you have. This is easier said than done, especially when ‘buy now pay later’ and credit card products are so easy to get. 

Shopping can be fun but spending money on things we want rather than things we need can be a waste of money.

Before you buy something new, ask yourself why you want it. Is it because everybody else has one? If so, you might end up regretting your purchase later on.

Research before you buy

Before visiting the shops, think about what it is you’re going to buy and why you want it.
 
If you’ve looked at your budget and know you can afford it then take some time to research your purchase.

Here's a few things to think about:

  • Shop around — visit more than one store either online or in person to compare brands, features and prices.
  • Talk to people who already have the thing you're planning on buying. Ask them if they’re happy with it? Would they recommend it?
  • Ask staff at the store about other makes and models of the same product.
  • Read or watch product reviews online.
  • Consider alternative, cheaper versions if they’re available.

Be wary of buy now, pay later products

Buy now pay later services let you buy things and pay for them by instalments instead of paying upfront.

You don’t pay interest on the purchase but you are charged fees.
 
While buy now pay later services may seem convenient before you sign up, keep in mind:

  • It’s easy to overspend — remember that you have to pay it all back. There’s no interest but you are charged fees to use the service and the fees can add up.
  • It can be hard to keep track of payments if you sign up for more than one service.
  • It might affect a future loan application. Lenders consider buy now pay later spending when you apply for a car loan or mortgage.
  • Late repayments can appear on your credit report. This affects your ability to borrow money in the future.

MoneySmart's Buy Now Pay Later page has great advice on understanding what you’re getting into before you sign up.

Getting financial help

There are services to help you with food, housing, bills and emotional support if you are in financial trouble.
 
They include: 

The most important thing is that you talk to someone. There is plenty of help available and nothing to be ashamed of.

Paid for my basic needs like rent, bills and food for myself, written on a quiz card with a shopping trolley on it

How ready are you to navigate managing money?