Budgeting 101: tips everyone should know

Having a good budget can make all the difference between meeting or missing your savings goals. Especially when there’s a high cost of living or recession, there’s never been a better time to learn about budgeting.  

A good budget and understanding of your own financial situation will give you the tools to help make things a little easier financially.  

Whether you’re saving for your first home or readjusting your budget to align with inflation, the first step is getting the lay of the land. This blog will take you through a step-by-step guide to budgeting. Here’s what we’ll cover:

• ​​Building your budget
• ​Define your current finances
• ​Setting up your savings goals
• ​Make sure you understand the ‘nice to haves’ and the ‘need to haves’
• ​Make a savings plan and finalise your budget

Building your budget

Before we get into budgeting tips, let’s define what it actually is. A budget is a tool that helps you plan and reach your goals. It allows you to see how much money you have coming in, how much you’re spending, and what you’re spending it on.

Once you have a good budget, you can use it to reach your financial goals and make informed decisions about your spending.  

Define your current finances

The first step in creating a budget is to define your current finances. This means taking a look at your income and expenses. You might want to start by making a list of all your weekly, monthly, and yearly financial commitments. This includes things like: 

• rent or mortgage payments 
• utilities 
• groceries 
• insurance 
• any other regular bills or payments. 

Next, it’s a good idea to calculate your total income. This includes your salary or wages, any secondary income streams, or other sources of income you may have. Once you have these numbers, you can subtract your expenses from your income to see how much money you have left over each month. 

Setting up your savings goals

Now that you have a good idea of your financial situation, it could be helpful to set out your budgeting goals. Setting goals could help you stay motivated and focus on your long-term financial plans. 

Your savings goals will depend on your financial situation and your individual circumstances. Some people might want to save for a down payment on a house, while others might be saving for a new car or trip overseas. Whatever your goals are, think about making them specific, measurable, achievable, relevant and time-bound (SMART).

For example, instead of saying you want to save for a trip, you might want to set a specific goal of how much you’re going to save and how long it will take you.  

When setting your budget goals, it can be a good idea to break them down into smaller parts. 

• Long-term money goals: 

These typically include things like paying off your mortgage, saving for retirement, and getting life insurance or income security insurance. For more information on these products, you can refer to the MAS website. 

• Short-term savings goals: 

These might include things like paying off student loans, or reducing your overdraft. 

• Emergency funds: 

These are for a rainy day – you might want to plan not to touch this unless you need to. It may be a good idea to have a few months’ worth of living expenses set aside in case of job loss or unexpected expenses.

• Holiday funds: 

These are for vacations or time off. Everyone deserves some time off, so it’s often important to think about budgeting for it. 

Make sure you understand the ‘nice to haves’ and the ‘need to haves’

When making a budget to achieve your goals, it can be helpful to differentiate between ‘nice to haves’ and ‘need to haves’. This can be a difficult task, but it’s helpful for prioritising your spending and sticking to your budget.

‘Need to haves’ are essential expenses like rent or mortgage payments, utilities and insurance. These are expenses you must pay to maintain a basic standard of living. 

‘Nice to haves’ are the expenses that are not essential, but still important to you. This might include eating out, entertainment, or buying new clothes. ‘Nice to haves’ aren’t inherently bad, but if you’re struggling to meet your savings goals, it can be helpful to cut back on these expenses. 

Things you need to budget for

Things you need to save for are 'need to have’ expenses or vital to plan for. This can help to ensure you’re not caught out in the future, should your circumstances change unexpectedly.

Your insurance is something that shouldn’t be overlooked. Life insurance, income security insurance, contents, motor vehicle – they’re all something to think about. Life insurance may help to provide financial support to your family if needed, while income security can help to provide you with regular income if you become ill or are unable to work. Contents and motor vehicle insurance can be useful to help protect your assets. 

Retirement is another area that you might want to plan for. With people living longer and longer, it can be good to start actively saving for your retirement as soon as possible. KiwiSaver contributions are a great way to start saving for your retirement. MAS offers investment options to help you achieve your retirement goals.

Your mortgage or rent is another area that you could plan for. House and contents insurance is a step in this part of planning. If your home is adequately insured, this could help to protect you in the event of unforeseen circumstances.

Things you want to save for

It’s okay to want things you don’t need, but prioritising needs over want is an important consideration for a robust budget plan.  

A new car may be something you want, but it’s helpful to also consider your other transport options. You might also want to think about a rebate for low emission vehicles.

A holiday is something we all need from time to time. However, it’s important to consider the cost of a holiday in relation to your income. You could explore affordable New Zealand holiday ideas that still give you that much-needed break, without breaking the bank.

Your current lifestyle is another area you might want to think about when budgeting. Activities like eating out at restaurants or an expensive gym membership may be areas you could reduce costs.  

Assess your current outgoings and identify areas where you can cut costs. Bringing your lunch to work, taking the bus instead of your car, and avoiding unnecessary costs might help you save money. 

Make a savings plan and finalise your budget

Now that you have a good idea of what your goals are and how they match up with your current finances, it’s time to put them into action.

Creating a budget plan can be an excellent way to get started. Consider using Excel or Google Sheets to create your budget plan. These platforms allow you to create a spreadsheet that includes all of your income and expenses. This can help you to see exactly where your money is going.

To start, you could list your income and expenses for the month. Once you have your income and expenses listed, you can subtract your expenses from your income to determine your disposable income. This is the money you could have left over after paying for the essentials. You can then decide how much of that money you want to spend or save.

If you’re not feeling confident about making a plan, you can speak with a budgeting adviser for help. Budgeting advisers are experts in managing finances and can help you create a customised budget that suits your needs.

MAS Advisers can also meet with you for free, to discuss your long-term savings goals, insurance options, and create a plan that suits your needs. We understand that everyone has different financial needs and goals. This is why we offer personalised advice and support. 

Work with your new budget

Starting to work with your new budget can be unfamiliar, but it’s important to remember that it’s never too early to start. It’s helpful to stay committed to your budget but it can be useful to still be flexible enough to adjust as necessary. 

There are several ways in which you might be able to stay on track and monitor your budget. Consider using budgeting apps, like Spendee, or keeping a journal to track your expenses. Budgeting apps allow you to connect your bank account and credit cards, track your spending, and set financial goals. Keeping a journal or logbook of your expenses can also help you identify areas where you could cut costs.

Staying committed to your budget plan can help you achieve your goals. You might want to review your budget regularly and adjust as necessary. As your financial situation changes, you might need to revise your budget plans to make sure it’s still effective.

Budgeting is essential for achieving your goals and can help to secure financial stability. At MAS, we offer a range of insurance and investment options, that may suit your needs and financial goals.

Make a start on your budget today and consider talking to one of our MAS Advisers to help you plan and achieve your goals.