How to set a realistic budget
This blog article is based on Season 3 Episode 8 of our podcast.
How to Set a Realistic Budget That Actually Works
We have all created a budget with good intentions, colour-coded categories and ambitious savings goals, only to abandon it weeks later when life throws us off track. The truth is most budgets fail because they are not based on real life. A realistic budget should reflect your current financial situation, your personal values and the goals that matter to you. At The Money Collective, we believe budgeting is not about restriction but empowerment, capability and resilience.
With the cost of living rising across Australia and mortgage repayments stretching many household budgets, it has never been more important to create a budget that truly supports your lifestyle. According to the Australian Bureau of Statistics, the average Australian household spends $1,537 per week, and over 35 percent of households report financial stress. Whether you are trying to get ahead on your mortgage, save for a holiday or simply regain control of your finances, this blog will help you set a realistic budget and stick to it.
1. Start With Where You Are: Track Your Past Spending
Before you set any financial goals, you need to know your starting point. That means taking a deep dive into your past spending habits. Pull up your bank statements and look at where your money has been going over the past three to six months. Group your expenses into categories like groceries, transport, subscriptions, and dining out. This exercise can be eye-opening, and yes, a little uncomfortable, but it is a vital step and can’t be missed.
Many people skip this because it feels tedious or they are afraid of what they might see. But facing the numbers head-on is important. It gives you a clear picture of what your current lifestyle costs and shows you where there may be room to redirect spending towards your real goals. Remember, your budget should reflect how you actually live and not some ideal version of your life.
We have a handy Spending Review template spreadsheet in our website resources you could use to get started.
2. Define Your Goals and Priorities
A realistic budget is not just about cutting costs. It may not cut costs at all. It might just shuffle things around, to make sure your spending on life aligns with what matters to you. Once you understand your spending habits, take time to set meaningful financial goals. These might include paying off debt, building an emergency fund, saving for a holiday or contributing more to superannuation. Consider your short term, medium term and long term goals and be honest about what is most important right now.
For example, if you are a young couple planning to start a family, you might prioritise getting ahead on your home loan. If you are in your forties and focused on building financial resilience, boosting your emergency fund or super may be the priority. According to Canstar, 38 percent of Australians do not have an emergency fund. This is alarming, because an emergency fund is a vital tool for your financial wellbeing. Clear goals provide direction and motivation and help you make better day-to-day spending decisions.
3. Map Out a Realistic Budget Based on Your Life Stage
Now that you know where your money is going and what you want it to do, it is time to create a forward-looking budget. Use your past spending data as a baseline and adjust it to reflect your goals and any upcoming changes. Your budget should include fixed costs (home loan, bills, insurance), variable expenses (food, petrol, lifestyle spending), and savings goals.
The key word here is realistic. If you usually spend $300 a week on groceries, do not suddenly expect yourself to live off $150. A sustainable budget meets your needs while still allowing you to enjoy life. Also, revisit it regularly, and especially when life shifts. Financial resilience is about adapting. Whether you are facing a new baby, a career change or interest rate hikes, your budget should be flexible enough to evolve with you.
4. Automate Your System and Make it Easy
Once your budget is mapped out, set yourself up for success by automating as much as possible. That includes scheduled transfers to savings accounts, home loan extra repayments and bill payments. You can also use offset accounts and bank account structures to your advantage. For example, having separate accounts for bills, spending and savings gives each dollar a job and helps you stay in control.
Automation takes the decision fatigue out of managing your money. It also helps eliminate the temptation to “accidentally” overspend. The less effort it takes to follow your budget, the more likely you are to stick with it. You will build financial capability by setting systems that support your long-term goals and reduce financial stress in the process.
5. Prioritise an Emergency Fund and Build in Flexibility
If the past few years have taught us anything, it is that life is unpredictable. That is why every budget needs an emergency fund built in. Ideally, you want at least three to six months of living expenses saved for unforeseen events like job loss, health issues or car repairs. According to Finder, a third of Australians could not cover an unexpected $500 expense without borrowing.
Having this buffer is not just smart but provides peace of mind. It means your entire budget will not fall apart at the first unexpected bill. Financial resilience is about being able to weather storms and bounce back. Your budget should not be rigid. Make space for joy, rest, and a few treats too. A sustainable budget supports your whole wellbeing and not just your wallet.
6. Stay Connected to Your Budget With Regular Check-ins
Setting a budget is not a one-and-done task. It is an ongoing practice that requires check-ins, adjustments and conversations. We recommend reviewing your budget monthly, especially if you are in a period of change or trying to hit a big financial goal. Make it a habit to ask: Is this still working? What needs to shift?
Better yet, turn it into a ritual. Do it with your partner over a glass of wine. Make it a Sunday morning coffee routine. Celebrate the small wins like sticking to your grocery budget or adding a little extra to savings. When you make budgeting part of your lifestyle, it becomes less about sacrifice and more about ownership and empowerment. This is what financial wellbeing looks like.
Conclusion: Your Budget is a Tool, Not a Limitation
A budget should not make you feel deprived, but rather it should make you feel capable. When done right, it puts you in the driver’s seat of your financial life. It helps you navigate life’s ups and downs with more clarity and less panic. By aligning your spending with your goals and values, and learning about the financial structure you’re part of, you can build financial capability and resilience that lasts a lifetime.
At The Money Collective, we are here to support your journey with practical tools, coaching and a values-based approach to money. If you are ready to create a budget that works with your life check out the 12 Step Financial Wellbeing Online Course and get started today. Because the best budget is the one that helps you live the life you actually want.
Read this article next to learn more about emergency funds and building financial resilience.
Listen to the full podcast here: https://www.themoneycollective.com.au/podcast
This article provides general advice only. It does not take into account your objectives, financial situation or needs. Before acting on any information provided, you should consider the appropriateness of the information and the nature of the financial product in regards to your objectives, financial situation and needs. We recommend discussing your personal situation with a financial professional.
Blog article by:
MEL PEARCE
Financial Wellbeing Consultant and Co-Founder
The Money Collective