How to build a budget step by step

What is a budget, though?

A budget is really just a simple plan for your spending and saving. Basically, it makes a difference by: 

• Showing you what income you expect to receive and how you reckon you’ll spend it 
• Letting you see what your money’s actually going each week or month 
• Identifying where you could spend less or how to bring in more 
• Allowing you to flow your money towards the things you want, before it bails on you. 

It’s one of the best tools for getting the most out of your money and helping you get ahead. Have a tutu around with our free budget planner to see how it could work for you. 

“I had no idea what I was doing before... no clue even where to start! It’s given me the confidence to know that I can budget properly.”

– shared with Sorted 

What to gather before you start 

You don’t need to know everything about your finances to get started, or to create a perfect budget. Even tracking just one spending category can put you in a better position. Here’s what’s helpful to have on hand: 

• A record of your day-to-day spending. Your online banking or bank statements will show most of that, but receipts from the past three months might also come in handy, if you have them for payments made with cash. Together they’ll show your regular expenses like groceries, rent or mortgage, debt repayments, phone, power, rīanga and subscriptions like Netflix, plus other things that are easy to forget about, like Uber Eats. 
• A list of your annual costs. This is the stuff you pay for less regularly, like your car registration and warrant of fitness, medical and vet bills, school costs, koha and holidays. 
• Your income after tax. This is any money you have coming in, such as your pay, income from a side hustle, benefits, interest and dividends. You can use fortnightly, monthly or annual figures, depending on how you’re paid or what’s easiest for you. 
• Your savings and investments. It will help to include details of any money you’re regularly saving and investing. The idea with a budget is to increase this to grow your money that much faster. 

Step by step budgets

Creating a money plan is much easier with our free budget planner – give it a go! You might be surprised to find you’re wasting money on something like unused subscriptions that you could funnel into an emergency fund or towards a fun goal instead. 

Using the tool to guide you through it, for a given time period you essentially: 

1. Write a list of all your sources of income and the amounts after tax, then add them up. 
2. Write a list of everything you spend on and save for and add that up. 
3. Work out the difference by subtracting your expenses from your income.  

Now you know where you stand. You’ll either have money left over (a surplus) or not enough money to cover your spending (a deficit). Your aim is to have as much of a surplus as possible, so you have money left in your pocket to use how you choose. 

Which budgeting method or strategy is best? 

There are many rules-of-thumb budgets out there, like the ‘50-30-20’ rule for needs, wants and savings. But people’s situations are far more varied, so this one doesn’t necessarily work for everyone. Your needs might not be covered by 50% of your income, or 20% on savings may not be enough, depending on what you’re aiming to achieve. What’s most important is that you make your plan to suit you.  

Sorted’s budget planner is a digital version of the classic ‘envelope’ or ‘jar’ technique. With this way of budgeting, you add up your incoming money, then divide it into the different categories you need to spend on, like your regular expenses (rent, mortgage, phone, power, insurance) and your irregular ones (like food or petrol, which can go up and down). Once the money in each ‘envelope’ (aka bank accounts you’ve allocated to each purpose) runs out, you hold off on spending more until your next payday. 

Having separate accounts for expenses to come out of and to funnel your savings into means your savings don’t get mixed up with everything else. Setting up separate accounts for each of your goals is also useful, not only because you can more easily track your progress, but also in case you need to look at some other investment options for a specific goal, like term deposits for the short term or an investment fund for the medium term.  

Paying yourself first is another proven strategy to help you achieve your goals. Check your budget to see how much you can save each payday, then give each surplus dollar a job by setting aside savings and goal money as soon as you’re paid – before you spend anything else. Take a money tip from actor Acushla-Tara Kupe and make transferring the money a no-brainer by automating the payments to go out on payday. 

For unexpected expenses – like koha, sudden dental bills or when an essential appliance breaks down at the worst possible time – you need an emergency fund. This is a great goal to set your sights on if you don’t have one yet, and our free Buffer builder app can help you have one even faster. Here are some real-life tips from our Sorted community on why they wouldn’t be without theirs.

The best budgets keep getting better

Once you’ve created your budget, made any changes you need to and put your money to work, it’s helpful to track your spending so you can see how its working in practice and refine it over time. Our guide How to track your money to create a budget and stick to it has the ins and outs. 

You could try a spending diary or use an online tool or smartphone app. Setting up different bank accounts to manage your budget can work really well too. Here’s a real-life story of someone who does just that and says budgeting has changed their life.  

A budget isn’t a one-off. Check it monthly, or whenever your income, expenses or circumstances (new job, new baby, new pet, new gym membership...) change. 

“It allowed us as a whānau to come together and create a budget that works with our finances, allowing us more freedom to live happily and healthier.”

– shared with Sorted 

Making the most of your income 

But wait! Budgeting isn’t just about watching our spending. How much we earn also affects whether we have money left over for saving towards our goals or paying off debt, so part of our plan needs to include goals for growing our income as well. 

People’s needs typically increase over the years, and if our income doesn’t grow, we effectively earn less each year just because of tāmi ahumoni (when prices go up and our dollars buy less). 

Careers New Zealand has salary information for different types of jobs. Online job sites and salary survey reports show what someone in your position with the same experience and skills should be earning. You can also contact recruitment agencies to find out what similar roles are currently paying. 

Budgeting FAQs

What should I budget for?

Your goals, definitely. A budget is simply a plan to flow your money towards what you want, to live your best life. Budgeting helps for many reasons: to make sure we don't spend more than we earn, that we have enough for bills, to make ends meet. But the key thing with budgeting is to make a surplus – to have extra money left over and not a deficit. Once you do, you've got money to aim at whatever goals you'd like to set. Here's where to start your budget.

Why should I plan my spending?

Using a budget to plan your spending and sticking to it not only helps make ends meet, it enables you to reach goals for the short, medium and long term. Most things we'd like to achieve in life take money, and that money needs saving if we want to avoid too much debt. Once you've got a surplus in your budget, you can make sure it gets saved automatically into separate accounts, where it can build towards what you want. To get you started on thinking about some goals today, here's our goal planner.

How can I stick to my budget?

It helps to have a plan! To build a great budget that you can stick to, it helps to first know your numbers. By tracking your spending, you’ll start to see where your money is going, and you’ll be better placed to make decisions about where you really want your money to go. The key is to capture everything you spend for a month or two to get your full spending picture. There are several apps designed to track spending on the go. You can also download your past three months of transactions from your bank, which really helps to see the patterns. Here’s more on money tracking.

Who can I talk to about money?

So you don’t just follow random money tips, and because it’s so nice to feel supported, it helps to get professional, independent, personalised financial advice. As our guide to getting financial advice says, it doesn't have to cost an arm and a leg. Whichever kind you need, shop around to find a good fit for you. For advice about debt and budgeting, you can discuss what’s going on for you – even anonymously – with the team at MoneyTalks, which runs a free, non-judgmental helpline.  

How do I budget without a steady income? 

It’s critically important to budget if you’re a freelancer or business owner with a varied income. To start, it helps to figure out the minimum amount of money you’ll need to meet your expenses. When you've worked out what you need to get by, what you earn above that each month needs a plan to put it to work – to build a buffer you can draw from in leaner months, for example, or to set aside a percentage that will allow you to make sure you’re working towards your financial goals. This blog goes into more detail. 

How can I supplement lost income while managing the same level of ongoing expenses? 

Beyond looking for a side hustle to earn more, it may be time to make some cuts. Trying to sustain the same lifestyle after taking a hit to your income can be really tough, and it’s good to be realistic about whether it’s even doable. Unless you have an accurate picture of your incomings and outgoings, you could end up in a horrible debt spiral. Use our free budget planner to see your current situation clearly and make a new plan. 

How do I budget for a baby? 

Congratulations! Making a spending plan for when baby arrives is about budgeting for reduced income, and for the additional expenses that come along, like baby gear. Many couples find it helpful to do a test run on a single income before baby arrives. This gives you an early perspective on your expenses and any adjustments you need to make. Here’s more for when you’re planning for your new arrival. 

How do I plan a wedding on a budget? 

Again, congratulations! There are so many beautiful and memorable ways to celebrate your wedding in your style on your budget. With Sorted’s free budget planner, you can easily create a separate wedding plan (or even more than one, to work out different options for your special day). Start by listing every item, from invitations to flowers to the dress.  

Joint or separate bank accounts? What’s better for saving and budgeting? 

More couples these days seem to be managing their money separately, which is good for each person’s autonomy and independence, but not necessarily for communicating. It’s so important to communicate well about money in a relationship, and although it’s only natural to have differences of opinion, getting on the same page brings many opportunities to get ahead financially that we wouldn’t have on our own. Here’s where to learn more about relationships and money. 

What percentage of my income should go on rent? 

Rent and mortgage payments are often people’s biggest ongoing cost. You can look online to get an idea of typical rents in your desired location. Then, using our budget planner, you can work out how rent will fit into your overall spending plan. You’ll also typically need to plan to pay a bond of up to four weeks’ rent, plus two weeks’ rent in advance, so you’ll need to budget to save up. Ideally it would be good to keep your rent to 30% or less of your entire budget, and all your living expenses to 50% or less, but that’s not always possible, especially in more expensive regions. 

Should I review my service providers more often? 

It's pretty competitive in the world of companies who provide us things like power and internet, but that doesn’t mean you’ll hear about it if one of them lowers their prices. Because new players and deals come along regularly in these industries, you could save hundreds by reviewing at least once a year, and switching if necessary to a better offer. How much difference would it make in your budget? 

What about short-term budgeting vs long-term budgeting? 

Planning your spending in the near term is one thing, but making long-term plans for goals that are decades away, like retirement, is quite another. Even if it feels so far away, it’s never too early to put some plans in place. Here’s where to start when you’re looking ahead and thinking about your future lifestyle – by working out your retirement number.