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Creating a budget

It's a good idea to establish where you're starting from in order to meet your savings goals. Creating a budget will help you do this.

A budget can also help you:

  • record your income and expenses, so you have a clear picture of your current financial situation
  • control your spending, so you can identify areas to cut back on and opportunities to save
  • establish new habits, so you can avoid unnecessary spending and stay motivated to save
  • feel in control, so you can have the peace of mind that comes with staying on top of your finances

How to create a simple budget

  1. Take note of your daily expenses over the course of a month. If that sounds like too much work, you can try reviewing transactions in your bank and card statements. Make sure you include regular payments such as rent, mortgage and utility bills; and irregular payments like holiday expenses or bills you only pay quarterly or annually.
  2. Record all your sources of income, after tax. If your income varies from month to month, take the average from over a 3-month period.
  3. Subtract the sum of your monthly expenses from your monthly income.

If your total expenses are less than your total income, you can use the surplus to prioritise paying off debts or put it towards your savings or investments.

But if your total expenses are more than your total income, you'll have less money at the end of the month than at the start. If that's the case, you should focus on ways to reduce your spending before you save on a regular basis.

How to reduce your spending

If total expenses are higher than your total income, you might want to look at ways to reduce your spending and set yourself a budget. Perhaps you could:

  • switch to a cheaper insurance or utilities provider?
  • choose activities that don't cost money instead, such as a day out in nature?
  • challenge yourself to go a whole day without spending any money, or even one day each week?

How much you should save

Since circumstances may differ for everyone, there's no specific amount you should save each month. Your assessment of your expenses and income will help you determine how much you can afford to put aside.

Some people find it helpful to follow the 50-30-20 model. That means you aim to spend no more than 50% of your total income on the things you need, 30% on the things you want, and set aside 20% to build up your savings or repay debts.


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