If you're worried about the rising cost of living in 2025, learning to budget can help — and the new year is the perfect time to start.
Research by the Australian Security and Investment Commision's (ASIC) MoneySmart and YouGov found that more than 77 per cent of Gen Z men and 87 per cent of Gen Z women were severely stressed about the cost of living.
Meanwhile, when asked about their financial knowledge, 47 per cent of Gen Z women and 38 per cent of Gen Z men said they didn't know where to start.
Gemma Mitchell, a wealth coach and former financial adviser, says budgeting is about making sure the basics are covered.
"People get very caught up with the term budget. It usually brings up feelings of restriction and limitation … but it's not about that," she says.
"You want to have the fun stuff in there — it's not about cutting everything out. It's about making sure you can fit it all in."
How to start budgeting if you've never done it before
Personal finance is personal, and what works for someone else won't necessarily work for you.
Ms Mitchell says if you've never done a budget or tracked your spending, it can help to start with something basic.
The simplest way to get started is to simply jot down expenses on a piece of paper or a notes app on your phone, Ms Mitchell says.
For example, after a trip to the supermarket, you could take a note of how much you spent.
"Just start writing it down as you see things come up, or when you pay them. After a month, you're going to have all those expenses written down," Ms Mitchell says.
"Of course, some new ones will come up throughout the year. But you'll have a really good understanding of the regular [expenses], and you can build on it."
It's also important to plan for irregular expenses, like car registration and insurances.
One solution is to use sinking funds for these costs — simply divide the annual total by 12 and set aside that amount each month.
For example, if you spend $2,400 each year on registration and insurance, aim to save $200 monthly.
Once you have a better handle on how you're spending your money, you can compare it to your income. Over time, you can check in to make sure your money is going where you want it.
"The end goal should be to not have to track your spending … [because you are always] spending in line with your values and your lifestyle," Ms Mitchell says.
Percentage-based budgets are popular, but they're not for everyone
Many Australians will be familiar with the idea of separating income into various bank accounts (or "buckets") for different expenses.
Scott Pape, the author of the Barefoot Investor, suggests allocating 60 per cent of your income to daily expenses, 10 per cent to a "splurge" account, 10 per cent to a "smile" account for long-term savings goals, and 20 per cent for a "fire extinguisher" account for paying off debt or unexpected bills.
A similar approach is the 50/30/20 system — sometimes called the "balanced money formula" — which calls for spending 50 per cent of your income on "needs", 30 per cent on "wants" and saving the remaining 20 per cent.
These percentages reflect typical household incomes and spending patterns, with a larger portion being set aside for bills and expense and smaller amounts for discretionary spending and savings.
Financial educator and money coach Natasha Janssens says these systems should be treated as guidelines rather than rules and adjusted depending on your circumstances.
For example, if you aren't earning a high income, you might find you are spending 50 or 60 per cent of your income just on your rent or mortgage, let alone your other bills.
"Whereas if you are a high-income earner, that [percentage-based budget] may be guiding you to overspend in certain areas," Ms Janssens says.
Instead, Ms Janssens says it's helpful to have a budget that considers your own financial goals and circumstances.
The automated budgeting system that takes 15 minutes a month
Ms Janssens has a simple system for her household finances, which is built around automation. She and her husband have three bank accounts.
- Bills account — This is the account where your income goes into, and bills are taken out. Ideally, you want your bills set up to direct debit, so they're paid automatically. That includes your rent or mortgage, utilities, and other regular bills.
- Savings account — Each time you are paid, you automatically transfer some money to an account towards a savings goal or towards paying off debt.
- Spending account — You also transfer some money to a separate account for everything else, like groceries and other day-to-day expenses like petrol, parking and eating out.
"This actually does away with your need to budget, because what happens is everything you need to cover your living expenses has gone out — your bills are paid," Ms Janssens says.
Treating savings just like a bill that's automatically deducted is helpful for accountability, she adds.
Because you only have a fixed amount to spend on discretionary items, the system forces you to be mindful of your spending, too.
"[The spending account] is the equivalent of cash stuffing. That's going into a debit card … and that's for food, takeaway and whatever else.
"If we've gone a bit nuts with going out to dinners and movies this week, then we're having tuna and toast on Sunday. It's teaching you that compromise."
Another advantage of the system is that it doesn't take much time to track. Ms Janssens says she now only spends about 15 minutes a month checking that everything is working as it should.
Again, the key is finding a budget system that's right for you.
"You don't need to overhaul your whole finances overnight," says Ms Mitchell.
"Just start making small adjustments until you've found what works for you."
