Working out where your money goes

Budgeting for a better financial future.

Keeping track of how much money you receive and how much you spend is the key to keeping your financial life in good shape. If you’re used to working with a computer, there are free online tools that will help you do this. For example, check out the budgeting tool at sorted.org.nz. If you’d rather work with pencil and paper, buy yourself a school exercise book and follow the steps below.

Step 1: Record income

If your income is in the form of wages or salary, record the income you receive after taxes are taken out, this is known as your ‘net income’ or ‘take home pay’.

  • Record your income as a monthly amount, even if you are paid weekly or fortnightly - multiply weekly amounts by 52, then divide by 12; multiply fortnightly amounts by 26, then divide by 12
  • If you’re self-employed, record your annual gross (tax not taken out) income, excluding GST, but remember to include provisional tax as an expense
  • Record any income you get from other sources, such as rent, extra jobs or investments

Step 2: Record expenses

  • Gather up all your credit card statements, bank account statements and cash purchase receipts
  • Work through every amount you are paying out over a month
  • Put these into categories
  • For some types of spending – such as food, entertainment and clothing you could look at two or three months of spending and work out an average monthly amount
  • Don’t forget about annual expenses such as car registration, school fees, holidays and some insurances - add them all up and divide by 12, so that you can include them in your monthly budget

Step 3: Balance income with expenditure

Add up your income and then add up all your expenses. If your income is more than your expenses, you’re off to a good start. If it’s the other way around, and you’re spending more than you earn, some adjustments will be necessary.

  • Make adjustments based on your own judgments, for example, if you are surprised by how much you’re spending on entertainment, food and clothes, you can probably reduce this spending
  • Sometimes you can make savings by changing your behaviour, such as shopping at a cheaper supermarket, catching public transport to work, or eating fewer takeaway or restaurant meals
  • If you’re not spending more than you earn, think about investing the excess to save for things like holidays, a house deposit or your retirement.

Step 4: Stick to your budget

A budget is only helpful if you stick to it. Until you get used to a more controlled way of spending you’ll need to record your expenses every month to see if you’re on target. This is called ‘reconciliation’. To make reconciliation easy, save receipts for all your cash purchases. Other expenses will show up on your bank account and credit card statements.