how to make a budget in 10 steps

How do you actually make a budget? Here's how.

Knowing how to make a budget can feel overwhelming but we’re going to break it down so it’s simple, straightforward and honestly, life-changing. Knowing where your money is at is crucial to getting it sorted and having a framework to move forward is the most freeing thing ever! If you need a framework to run your money through, then check out the Glen James Spending Plan to see if it’s an option that will suit your needs. Otherwise, let’s dive into how to make a budget.

step 1: tally up your income and expenses

First up we need to get a clear picture of your income and expenses. Grab a pen and paper and on the left hand side write your weekly/fortnightly/monthly income (whichever suits your situation). On the right hand side write the word ‘Expenses’, and underneath that braindump every expense you can think of and the associated cost. Run through your bank statements if you need to, to ensure you don’t miss anything. Tally it up to gain a total expense amount.

Ask yourself these questions about what’s in front of you:

Am I spending less than I earn?
Where am I overspending?

step 2: cover your essentials first

Now that we’ve got all income and expenses on the table, highlight or underline your core expenses - namely your housing, transportation, basic bills and groceries. These 4 line items are the main focus first. If you aren’t covering these comfortably then we need to address it - can you increase your income, or find a cheaper alternative of that line item? Now’s a great time to ensure you’re getting the best deal on these core expenses:

Can you reduce the cost of housing? The general guideline Glen James suggests is spending no more than 30% of your net take home pay. See how much of your pay your housing expenses are chewing up and see what can be done to adjust it.
Consider all transport options! Public transport, biking, walking, sharing - do whatever you can to cut back on travel costs.
Basic bills - call every provider possible and see whether there’s any chance of a better deal. If they can’t offer you anything, find a new provider.
Groceries - trial using Click & Collect to prevent from having to go in store, this cuts back on unnecessary spends. Buy items that are in season so they’re cheaper. Try to buy in bulk so you can get better value per kg and split those bigger packs across your meals for each week. Check out our meal prepping blog to get inspired!

step 3: trim the fat in your expenses (aside from your core expenses)

Now take a look at the expenses outside of your core expenses - which ones can you cut completely, and where can you simplify the luxuries? Things like online shopping, streaming services, gym memberships - these items creep into our spending one by one, and ultimately can be eating a bunch of our cash flow without realising it! Let’s get lean and stick to essentials for a little while. Especially if you have consumer debt!

step 4: check in on your consumer debt

In your expenses list were there any consumer debt items? We’re talking about car loan repayments, credit card repayments, personal loan repayments or buy-now-pay-later repayments? Ideally we want these paid off and get them out of your budget. Set repayments to a minimum for now and we’ll swing back around to kick them to the curb.

Consumer debt has a nasty way of lingering around. So many members of the my millennial money community have taken much longer than planned to pay off even the smallest personal loan, because a) there’s interest lumped on top of the amount you borrow and b) the issue is actually the spending behaviour. Without changing this, these debts won’t go away. We want to get to the core of your spending habit so you don’t need to use consumer debt. In an ideal world we pay for everything with money we actually have. Annoyingly these repayments also choke up your cash flow each week so let’s free up some cash. Make an agreement to never use consumer debt again - it’s all about saving up cash now.

step 5: build an emergency fund

Before we get heavily into structuring your budget we need to protect your money system (yet to be built). Time to build an emergency fund so things don’t come toppling down the minute your car breaks down and you have to fork out $5k from your everyday money! We want to build a simple $1k-$2k emergency fund as a starting point. We’ll fatten this up shortly but start here to get a little bit of protection in place so you’re always prepared. Emergency funds are great when they’re away from your everyday spending so maybe open an account elsewhere so you aren’t tempted to spend it.

step 6: initiate the debt snowball if you have lingering consumer debt

Now we kick your consumer debt to the curb for good using the debt snowball. List your debts from biggest to smallest. Keep the minimum payments going. We’re then going to add a little extra repayment onto the smallest debt until that is paid off. Once that’s done, direct all the money you were directing at your smallest debt, to the next smallest debt on your list until that is paid off. Continue this trend until all debts are gone. Until these are paid off this is your sole reason for living! Once these are done cancel the accounts and cut up the cards - you’re never going back again!

If you need help with this process check out Glen James’s ‘get out of debt’ module in the Glen James Spending Plan!

step 7: thicken up your emergency fund

Debt is gone - beautiful. Let’s build more into your emergency fund so there’s nothing to stress about when a tree falls on your roof or Fluffy breaks their leg (poor Fluffy). Aim to build up 3-6 months worth of expenses in your emergency fund, but like always the more you have saved in your emergency fund, the better.

step 8: assess Glen James’s sound financial house

As a former financial adviser Glen James worked with clients hoping to build up wealth for their future, and he often used the picture of a house to explain how they could set things up. This has become his sound financial house. It shows you the general order of things you want to set up financially in your life. Don’t stress if you haven’t done it completely in order - there’s time to tweak and line things up as necessary. Take a look at it to gain an understanding of what items come first, and how we build up from there.

step 9: write down your goals - short and long term

It’s time to think about what you want in life! What are your short and long term goals? Write down your goals on a piece of paper (as statistically you are more likely to achieve them when you do this - it’s been studied!). Throw down all ideas that sound appealing to you, and mark whether they’re short or long term. Think through what steps are needed to achieve them, and what habits you can establish to eventually reach those goals.

If you need something to help you get these goals in focus, check out the my money journal. It’s available physically and digitally, and is a great way to get goals and thoughts out of your head onto paper to open up any and all possibilities for your life!

step 10: consider investing in your future

We want to flip your headspace from simply just trying to make it through the week, to preparing financially for your future - investing in your future. This isn’t just investing in things like shares or property (although, yay!), it’s investing in your career, your health, your relationships. Money is impacted by all of these areas. Get your health, in particular, to the top of your priorities list! It doesn’t have to cost heaps - in fact many healthy habits are free - but your health determines how you perform in every area of your life so make it #1!

Likewise your career is one of the biggest drivers of wealth creation in your life, so invest in it! Check out Shelley Johnson and Glen James’s career book, Sort Your Career Out & Make More Money to get inspired! We want you to have an investing mindset - investing in your life, and the lives of others.

Our parting tip: make generosity a part of your budget

We believe that the wealth we build doesn’t just help us, it can be directed toward the movements, people, organisations and projects that we love to see supported. What organisations or things do you want to see improving or growing out in the world? It could be anything from alleviating poverty to renewable energy! Whatever is in your heart to support, plan for it in your budget.

To sort your money out, check out Glen James’s book, Sort Your Money Out & Get Invested! It’s an easy to understand guidebook on how to get your money under control and working hard for your future.