• Melbourne Mortgage Advice

The Inside Story on Personal Budgeting

Updated: Jun 29, 2020

When it comes to Personal Budgeting we often wonder where did all my money go?  You might have asked this question yourself and most of us do when we complete our annual tax returns.  Seeing how much you earned for the year and how much was paid in tax can be a sobering experience.  We often create goals for ourselves such as ‘saving for a holiday’ or ‘giving more to charity’.  We work hard to earn more money hoping to achieve our goals, yet the ideal result can be elusive.

There are thousands of ways that money can leave your pocket but not that many when it comes to putting it back in.  Modern life is expensive and complex.  The range of options when it comes to choosing a mobile phone plan, an insurance policy, a car or just about anything else can be mind boggling.  Generations before us had it easy some may say.  Well in terms of financial simplicity, yes, they did.

So how do we go about managing our money?  The word ‘budget’ inspires very few of us and tends to send a shiver down the spine of most.  When we think ‘budget’ we think restraint, tightening the belt and cutting back.  But this is somewhat misguided.  The definition of budget according to www.dictionary.com is “an estimate, often itemised of expected income and expense for a given period in the future”.  Note the word ‘income’ in that definition?

This guide to Managing Money and Personal Budgeting is very detailed, and I expect only the most dedicated of budget planners will consider these principles, let alone implement them. However, information is king and keeping this guide as reference will help you if your motivation to do so kicks in.


In 20 years of mortgage broking I have helped hundreds of people obtain finance and have had the privileged opportunity to get an insight into how people manage their money.  I have helped people from all walks of life, from plumbers to physio’s, social workers to musicians, the self employed to the sometimes employed!  We all have the same challenge of making ends meet.

I have seen high-income earners with mountains of credit card debt and low-income earners with savings in the bank.  The truth is that it’s not what you earn, it’s what you do with it that matters.  Or, as the proverb goes “The art is not in making money, but in keeping it”.  I have seen evidence to suggest that sound money management skills are inherited.  Handed down through the generations like treasured recipes.  When you grow up around great money management, you tend to absorb it and sadly, the opposite is also true.

But what if you didn’t get the silver spoon?  What if Dad spent money like it grew on trees and there were never ending dramas over money?  The good news is that as adults, we have the power to make positive change in our lives and I believe it starts with a paradigm shift.  When you think of the word budget – think power!  The ability to budget provides the ability to have power and control over our finances, and in turn, our lifestyles.

Masterful budgeting is an art form.  It is a dynamic skill that evolves over time to dance with the ever-changing nature of our financial lives.  A budget is not static and by its very nature, cannot be set and forget.  It requires regular attention to get it right and maintain its usefulness.  How many times have you completed a budget only for it to end up as a dusty page under a pile of paperwork? Or perhaps more aptly, a digital service or app that you setup but lost the password!

There is a plethora of online calculators, services and budgeting tools all designed to help us manage our money.  Well intended and often very sophisticated, these tools are readily available.  The challenge is in finding the one that works for you.  The system must engage you, be accurate, motivate you, reward you and help you make important decisions.  If it can’t do these things well then it is not the right tool for you.

Honesty is challenged with sound money management.  Being honest with ourselves about how much we spend on discretionary items and being honest with our partners is a key ingredient to success when it comes to managing money.  The incentive however is clear.  If you manage your money well, you will have choices.


A budget is a dashboard for your financial life.  It should give you information that is acutely tuned to your circumstances factoring in every dollar that comes to you and every one that leaves.  It needs to give you answers so you know when money will be available.  Never-ending financial questions such as when can we go on a holiday, when can we get the car fixed and when can I buy a house can all be answered if the right financial dashboard is in place.

An ‘acutely tuned’ budget predicts the future.  It estimates financial outcomes based on known and estimated parameters.  The dynamic aspect ensures that the future views are forever adjusting as each day passes, rising and falling as the ebbs and flows of our financial lives unfold.

I encourage everyone to manage their finances as if it were a business.  Our very own personal or family business.  This business has income and it has expenses.  A very simple accounting concept states that Income minus Expenses = Profit.  The ‘profit’ in our personal financial business is quite simply, money left over.

Quote: “If money management isn’t something you enjoy, consider my perspective. I look at managing my money as if it were a part-time job. The time you spend monitoring your finances will pay off. You can make real money by cutting expenses and earning more interest on savings and investments. I’d challenge you to find a part-time job where you could potentially earn as much money for just an hour or two of your time.”  Laura D. Adams


Determining income for many can be the easy part.  If you earn a fixed salary, then you know exactly how much money will be coming and when.  Bonuses and overtime for example should not be factored in unless they are a more than semi-certain component of earnings.  The underlying principle of a great budget is to strive for certainty, in an un-certain world.  The ‘top line’ in your budget is your income and this must always be forecast with as much accuracy as possible.  Treat bonuses, tax refunds and overtime as the windfalls that they often are.  In other words, don’t bank on them.  Adding them in as they happen is one of the true joys of budgeting because the ‘bottom line’ will always get better when we do!

There are many ways that people earn money.  Being self-employed and/or owning a business generates an income. An investment property generates rental income.  Owning shares can generate dividend income. Centrelink can provide income for some. Selling stuff on eBay generates an income!  There are countless ways to earn money and I firmly believe that we should never close our eyes to opportunities that may present to us.  Adding more income into the ‘top line’ should be a priority when managing our personal, financial business.

Whichever way you earn your income it needs to be accurately accounted for.  Ensuring that your income expectations are realistic is a key objective and must be adhered to if a useful financial dashboard is to be created.


There seems to be an almost never-ending list of expense categories, but it really isn’t that bad.  Here is a list of the most common living expense categories I recommend that you consider:

  1. Alcohol

  2. Birthdays & Gifts

  3. Clothing

  4. Connections – Mobile Phone, Internet, Pay/Online TV etc

  5. Council Rates

  6. Food & Groceries: the hardest of them all to budget for.  I make a monthly estimate of the average figure for future end of month forecasts but enter each spend individually as it occurs, so the category grows as the month unfolds.

  7. Haircuts/Personal Grooming

  8. HELP/HECS Payments

  9. Holidays

  10. House Spending

  11. Insurances

  12. Medical/Dental/Doctor/Chemist

  13. Personal Purchases (includes splurge!)

  14. Pets

  15. Recreation/Gym Memberships etc

  16. School Fees/Childcare Costs/Kids Extra Curricular

  17. Take Away/Dining Out

  18. Transport/Cars

  19. Utilities: Water, Electricity, Gas etc.

The key to managing expenses is to start with the categories that apply to YOU.  If you have an investment property you would need to include things such as real estate agent fees for example.


This is a key issue and, in my experience, the single most common reason why money management plans and personal budgets fail.  A financial management or budget system simply must be able to tell you how much will be in the bank and when.  It is the money left over number that is the key to our financial control and power.  If we know how much we have and when we will have it, we can make educated decisions about what we will do and when we will do it!

This is where the dynamic component of a sound financial management system comes into play.  The system needs to calculate the bottom line into the future having taken into consideration the historic and forecasted information that has been entered.

So, what timeframe should I budget to?  I have worked with many systems over the years and the most successful ones always work on a MONTHLY schedule.  This system has many advantages:

  1. It provides an ‘end of month’ estimate for the money left over.

  2. It allows us to accurately record income and expenses with a simple rule. If the income or expense hit the bank statement on the 30th June it is a June entry.  If it occurred on the 1st of June it is a June entry and if it occurred on the first of July it is a July entry!

  3. It allows us to correlate end of month cash at bank/in hand balances with our expected budget/dashboard end of month balance.

The end of month balance is a relatively simple calculation:  Start of Month Bank Balance plus Income for the Month less Expenses for the Month equals End of Month Balance.  An example of this would be:

$5,000 Start of Month Bank Balance plus

$6,000 Income for the Month equals

$11,000 less

$4,000 Expenses for the Month equals

$7,000 End of Month Balance

There is no point in averaging out the annual car registration fee and plugging it into the budget each month when the reality is it is paid once a year.  The same goes for holidays, council rates, insurance premiums and any other large expenses that do not occur monthly.  If an expense is incurred quarterly, it should be budgeted for quarterly.  If it is monthly, then budget for it monthly.  Averages don’t work.  Insist on accuracy of the amount and the regularity or occurrence.

One off expenses such as buying a car, splurging on that new dress or new bike should also be allowed for and entered with accuracy.  It was either spent today or will be spent in the future.  Irregular expenses (and income) mean each month is different.  Some months are more expensive than others hence the importance of the End of Month Balance.  Having this information at hand allows you to make informed decisions about the timing of flexible payments.

I run forecasts at around 5 years into the future.  For me, this timeframe is motivating as you can see the long-term benefits of great money management, but it is also not looking so far ahead that the results are unrealistic.  It’s amazing to see what can be achieved in 1 year let alone 5.


The following list of resources has been compiled to provide you with a starting point for researching what might work for you.  None of these resources are either recommended or endorsed but will hopefully open your mind to the sort of solutions that are available.





So, what do I use?  A Microsoft Excel spreadsheet!!  In my experience, many of the available ‘automated’ tools promise a lot but can be difficult to manage and the usefulness of the information questionable.  I like to know where every dollar comes from and where it goes.  Over a 12-month period, useful averages can be obtained which allows fine tuning of the expected figures for the future.

It can be worth giving these automated systems a try.  The goal is to use a system that provides accurate, useful and timely information that allows you to make informed financial decisions.  The system must work for you and encourage you to use it.  Automated systems may work for you, the more tech minded may use an Excel spreadsheet and to go really ‘old school’, get some paper, a pencil and an eraser!!!


Over time you will get an accurate picture as to where your money really goes.  You will be quite surprised to see just how much gets spent on discretionary items such as take-away coffees and dining out.  Having an accurate estimate of how much money you will have, and when, provides enormous power when it comes to personal money management and striving for financial goals.

When you have entered all your data you may find that the projections are not that exciting, and this can be a great motivator.  It allows you to truly understand the difference between the money you need to spend and the money you want to spend.  Knowing the positive short and long term impact that spending restraint can achieve may be all that you need to feel great about reducing a discretionary expense.

One of the great misconceptions about budgeting is that it is all about cutting back and going without.  Nothing can be further from the truth!  Accurate budgeting is all about achieving financial goals and making sure that the money you spend is spent well.  There is no longer a need to feel guilty over an indulgent splurge.

Having insightful and accurate information to hand allows us to steer our ship as we want to.  Whether today is more important than tomorrow is up to you, there is no right or wrong but making informed decisions can take away many of the surprises that the future may bring.  I believe that having a healthy reserve of cash is an important and some may say, mandatory goal.

Despite our best attempts at forecasting the future, there will always be expenses that come out of left field.  Managing your money well, on a consistent basis will give you the best chance of being able to pay for those surprises with your growing end of month balance.  Going into debt for surprise expenses and unplanned purchases is not the answer.  Credit Cards, Personal Loans and Payday Loans are simply a quick fix that creates a long-term problem.  Using these facilities will simply add another expense category – interest!

When it comes to borrowing money for a property, having a good grip on your personal budget is extremely important.  As a prudent mortgage broker, I simply will not facilitate a mortgage that creates a reasonable risk of damage to a borrower’s lifestyle.  So, the question remains, what is your lifestyle and how much does it cost?  How much do you spend on discretionary items?

There is a widely respected belief that borrowing money to buy something that has a chance of increasing in value is wise.  While borrowing money to buy something that decreases in value will lead to unsavoury financial outcomes.  Adopting sound money management and personal budgeting habits gives you the best chance of taking control of your financial future.


If you have read this far, congratulations!  Hopefully you will have gained at least some ideas that can help you in your financial life.  I’m passionate about money management and encourage all my clients to take a serious look at how their finances are managed.  Having access to your own personal finance dashboard will add to your quality of life and provide you with the best chance of avoiding financial stress.

May your next take-away coffee be a planned and enjoyable experience.

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