How to Create a Super Simple Budget That Works

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Looking for a way to create a simple budget that works? In this article I’m sharing the one that works for us.

You may have heard of the budgeting system called a zero-based budget (if you haven’t, I’ll describe it below.)

It was popularised by the American personal finance guru Dave Ramsey.

In this article, I’m going to share a VARIATION TO THE ZERO-BASED BUDGET – one I find more effective.

It’s similar to the standard zero-based budget, but there are a few key differences that make it easier to manage.

Disclaimer: This is general information only. You should always consult a qualified financial expert when making money decisions.

But before I get into my system, let me briefly explain how the standard zero-based budget works.

You create a budget every month by adding up all of your income and then all of your expenses, savings and debt repayments, and then you deduct your expenses from your income. It’s zero-based because when you take your expenses/savings/repayments away from your income, your budget should equal zero.

Income – Savings – Debt Repayments – Expenses = 0

In other words, every cent of your income is allocated in your budget to either savings, living expenses or debt repayments.

This is good in that you’re being proactive with your money and making every dollar count.

But it can be hard to stick to and also a lot of work because…

The next step is to track your expenses during the month to make sure you stick to your plan.

And then next month…?

You create another budget (again!?), and you do it all over.

I used to prepare an elaborate budget and then track my expenses to see if I stuck to my budget or not.

And I had a 100% FAIL rate.

That’s right! I failed to stick to my budget 100% of the time.

[It’s at this point the song “Oops, I did it again…” starts playing my head.]

It took me a long time to realise the problem wasn’t me, the problem was the system itself.

There’s a better way to budget that can turn failure into saving success.

While the budget I use is similar to a zero-based budget, it varies in some critical ways. Here’s how the budgeting system I use is different:

  • My budget is based on a pay cycle rather than a month.
  • I have a “Yes!” buffer in my budget, which I’ll explain below.
  • I couple my budget with a modern envelope system so I don’t have to worry about big bills throwing the budget. This is a budgeting game changer.
  • I use automation, so I don’t have to track every cent we spend.

How to Make a Simple Budget That Works

Your budget is a plan for your pay. That means you decide how you’re going to spend your pay before you get it.

You can do this monthly (and if you get paid monthly, a monthly budget makes sense) but if you get paid weekly or fortnightly, I find it’s easier to budget for a pay cycle.

Below I take you through the steps I use to create a budget. But there are a few things to consider before we begin…

Things You Need Before You Create A Budget

For a budget to be successful, it needs to be based on actual spending patterns. So, if you’re not sure how much you spend, it’s easier to do an expense tracking exercise for a few weeks (you don’t have to do it forever) to get a handle on your REAL spending.

It’s important to base your first budget on your actual spending patterns, even if your aim is to reduce your spending.

Budgets don’t save money, habits do. So here’s what I’ve found to be the foundation for our budgeting success: before creating a budget, we focus on adjusting habits, and when we see results from creating saving habits, we adjust our budget and come out a winner.

Here’s what to do before creating a budget:

  1. Track your expenses for a month and categorise your expenses as explained in this article.
  2. Log into your bank and download a year’s worth of statements for your transaction accounts and credit cards. This will help you work out your income and budget for the bills etc.
  3. Grab a piece of paper, a pen and a calculator. You can get fancy with spreadsheets later but a pen paper and calculator is easy and writing out your budget helps you get a handle on the numbers better.

1. Write Down How Much You Get Paid Per Pay Period

The first step in creating a budget is to work out how much income “comes in” during a pay period. You would include your pay, your partner’s pay, any Centrelink payments you receive and any other income you receive during a normal pay cycle.

If you get paid fortnightly, it’s easier to create a fortnightly budget so write down all the income you receive in a fortnight and add up the total.

The next step is to calculate your “outgoing” money (expenses, savings and debt payments).

2. Start With Your Savings

The first rule of effective budgeting is to pay yourself first, so the next step is to allocate some of your income to go to savings.

If you don’t have a regular saving habit, just allocate a small amount of savings – even if it’s only $1 that you can afford. Establishing and maintaining the habit of saving is more important than the amount when you’re just getting started.

Once you start reducing expenses, come back and adjust this amount later.

Creating a regular savings habit allows you to establish and build an emergency fund, which makes life so much easier when unexpected expenses pop up.

3. Calculate Your Expenses

The next step is to write down how much you are going to spend on expenses for that pay period.

Fixed Expenses

Some expenses will be easy, like rent or mortgage, so start with these expenses first. Subscriptions and regular direct deposits are all fixed expenses. Check the transaction statements you downloaded to make sure you’ve covered all the expenses you would normally have in a pay period.

Discretionary and Variable Expenses

Then, if you did the tracking exercise for a month or so, you’ll have a good idea of how much you spend each pay period on groceries, petrol, entertainment and other variable expenses. So write down a ballpark figure for these expenses. Overestimate a little bit to give yourself some wiggle room.

Irregular Expenses

Finally, we come to the irregular bills. Irregular bills like the electricity bill, where you only pay them once every few months.

A big bill like this can really blow the budget, right?

How do you come up with the cash and pay for everything else?

This is where the modern envelope system comes in.

Instead of trying to find the money to pay for these bills when they arrive, it’s easier to plan for them in advance and stash away regular small amounts to cover them.

That means you use your (weekly/fortnightly/monthly) budget to allocate a regular portion of your pay to go towards your bills every payday.

When the bills come in, you pay them using the money you’ve already saved, not that fortnight’s pay. That fortnight’s pay gets allocated the same as every other fortnight (or week or month, depending on your pay cycle budget).

It’s called BILL SMOOTHING, and it means that big bills don’t affect your budget.

It’s important to note that it can take a few months to transition from the old way of paying bills to the new way while you build your savings.

4. Don’t Forget Debt Repayments

The last outgoing to budget for is debt repayments.

As with irregular bills, you can “smooth” these out by putting aside regular amounts each payday (in the case of direct deposit repayments) or just pay a regular amount each payday in the case of credit card repayments.

Again, this takes the highs and lows out of budgeting – your budget is pretty much the same each week.

For more information on regular debt, repayments check out the article on snowballing your debts.

5. Balance and Adjust Your Budget and Add a “YES! Buffer”

The final step is to add up all your “outgoings” (expenses, savings and debt repayments) and write down the total.

Then take away this total amount from your income.

Income – Outgoings

If you have money left over, you’re spending less than you earn. If your expenses total is more than your income, you might have to adjust your budget a little bit.

As noted, in a traditional zero-based budget the aim is to get this income minus expenses amount to equal zero. It means you’ve allocated every cent you earn.

But I like to leave a little left over as a “YES!” buffer.

By that I mean we have money left over to say:

“Yes! I can go out for a coffee today.” or

“Yes kids, let’s have fish and chips on the beach this week!” or

“Yes Amazon, I would like to read that book.” (A girl’s got to have one weakness!) or

“Yes! I will stock up on that staple while it’s half price at the supermarket.”

Sure, I could allocate this money, but the main benefit of the buffer is psychological, not financial.

If you feel that budgeting is boring, constricting and takes away your freedom, a YES! Buffer gives some of that spontaneity back, while still allowing you to save money and stay on top of the bills.

How much you allocate as a buffer is up to you and your circumstances, but even a couple of dollars a week can give you a little psychological wiggle room that gives life a little extra joy.

6. Automate Your Budget For Success

As I mentioned above, I don’t track expenses anymore – instead, I automate my budget.

I schedule payments each payday to go towards:

  • Savings / Emergency Fund
  • My “envelope” for bills and other irregular expenses like Christmas and the dentist
  • Groceries and petrol

My husband and I also take a small “allowance” each for personal spending that we don’t have to account for and what’s left over is for our YES! Buffer.

If you have debts to pay off, you can also schedule your debt repayments.

While it’s not practical to pay cash for everything, especially these days, it can certainly help keep you on budget without having to track every cent because an empty wallet = no more spending.

And if you’ve done the tracking exercise before you created a budget, your budget will be in the ballpark of how much you need for each expense.

So, that’s how we’ve been budgeting for the last few years. Of all the budgeting techniques I’ve tried (I studied and worked in accounting, so I learned and applied a lot of budgeting techniques), this has been the most successful for us. What I like about it most is that it’s automated so I can focus on what’s really important – good habits – and I don’t have to worry about the bills when they come in.

how to create a simple budget that works


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    1. Hi. This is my first read and I love it. I’m on a disability pension and I get that fortnightly. The way iv been doing things is a little different . But I will be trying with what you suggest as I can. Before I get my pension, Centrelink takes out my rent as I’m in a government house. I also arranged for them to take out some for each of electricity ,gas , and my phone. I always have a surplus with gas and electricity. Occasionally I get them to put anything up to $100.00 back into my account .this only takes 2-3 days. But I always make sure that money is left in there and that it won’t make me short when the next bill is due. My phone, because my needs have changed over time ,I havnt kept up with. It. So iv been working on that and will be in front again by the end of next month. I’ll stay that way. Now the first 5 months of the year my medication bill gets pretty high. Though I pay money off that each pay. Then when iv paid for as many scripts as the government requires, I catch up up again and then owe nothing to my pharmacy. I’m on my own and with my health the way it is I ever go out. So I have groceries, a monthly bill and birthdays and petrol money to the person that does all the things I need That is it. I’d like to know what you think. I never get to save anything. I knit for a charity so I asked on Facebook for wool and got a few people who gave me a lot of wool so oi don’t need to buy that. The one thing I need and so badly is steel interchangeable needles .now I only need about five but the cost is about $150.00 for a good set. Or small set as they say. That’s my goal. Sorry for all this info I’m giving you but I really would like your input Thankyou so much ?

      1. Hi Wendy, thank you for sharing how you manage you finances. It sounds like your system is working well for you, I’m a big believer of don’t fix what isn’t broken.

        I’m not sure what interchangeable steel needles are. I’m intrigued. Are they for knitting? You mentioned birthdays as part of your regular expenses, do you have a lot of birthdays you buy for? If so, maybe your friends and family who could get together to buy you those needles for your birthday??? What do you think?

  1. using the budget to zero amount feels restricting and not enjoyable. I soo love the idea of a YES Buffer and having an envelope for all bills instead of seperate ones. Thankyou so much sharing, I will look forward to being able to buy that book I wanted with the YES Buffer this week :)

  2. I love this!! I follow Dave Ramsey, but his method of budgeting is hard to implement and stick too. I am going to try this out and see how it goes. :-)

  3. I have taken the envelope system one step further and actually, by using my banking system ,send the money to my regular bills each fortnight. Yes I know I am not getting any interest ,but I am not tempted to break into this money! I am actually now so far in credit with some bills I can actually reroute the payments to other things as needed or withhold the cash if necessary. It feels so good to get no RED Bills because I am always in the BLACK.The only annual bills I have to pay are the pink slip for the car and the green slip for rego, and the rego for the trailer.Everything else rates,electricity,insurance,telephone are already paid and I know any money in the bank is regular spendings or savings.

    1. Hi Eileen,

      Thanks, great tip. A lot of people have great success with prepaying bills like you do. It’s a great way to manage your money and interest rates are so low at the moment, it wouldn’t make much difference.
      For people on Centrelink, they can choose Centerpay if they like to put money towards bills in the same way on their behalf.

  4. Great ideas here, especially the ‘yes’ buffer. I hear you on the book purchases! Transitioning to the new system has an adjustment period as you said. If anyone is lucky enough to receive a tax return, back pay on family tax benefit or other unexpected cash this can be a great way to get up and running. Instead of spending the extra money put it straight to savings for upcoming bills.

    I read somewhere that most people view unexpected money as a windfall to be spent, whereas others view it as an opportunity to improve their financial lives eg by investing it or implementing a better budgeting system like the one you’ve outlined.


    1. Hi Madeleine,

      Thanks for leaving a comment. Great idea about using a windfall to boost your savings during the adjustment period. It’s good to use a windfall to further your financial goals and it’s ok to treat yourself too :).

  5. Hi Melissa,
    Our income has always been low so budgeting and being frugal have been essential to my mental well being. I have been doing it for a few decades now and when I started out about 40 years ago I too used an envelope system but after all this time I am much better disciplined and don’t bother about envelopes anymore.

    Now days I prepare a BUDGET spreadsheet every year with approx. 40 categories of spending with fortnightly and annual amounts. Then I prepared a second spreadsheet called ACTUALS with the same categories across the top and 52 lines for recording actual expenditure, one line for every week. Each row totals and each column totals with a row at the top of the column that shows remaining balances in each category and for the annual amount. I withdraw enough cash each fortnight for groceries, petrol and personal spending and leave the rest in the bank until it is needed. I pay most bills via BPay and have a credit card to pay bills such as mobile phone, internet, GoVia that have to be paid by direct debit. Under no circumstances will I ever enter into a direct debit arrangement with my debit card or savings account. When things go wrong (and they have) it is very hard to get a refund and it is also very hard to cancel direct debits. If things go wrong and the biller has my credit card account I can go to the bank and seek restitution for fraudulent transactions.

    Sometimes stuff happens, the car breakes down, the dog gets sick etc and you have to pay bills that weren’t budgeted for. I therefore build in a contingency amount of around $1,500 p.a. and if we exceed that then I need to make adjustments elsewhere, for example no eating out for a couple of weeks or I delay going to the hairdresser for a couple of weeks.

    When setting up the annual budget I also prepare a second “Dole Budget” which is a much reduced budget that allocates funds to the most essential of expenses as a worst case scenario should we both lose our jobs and have to go onto the dole. And it has happened. We did live for about a year on the dole before we retired and it was tough but we survived.

    Our annual budget (expenses and contingency) is $34,000. We have no debt and because we are retired and living on our savings, I don’t factor in a specific amount for savings anymore.

    1. Hi Colleen,

      Thanks for sharing your budget! It’s very informative and I’m sure a lot of people will relate to your experience and find it helpful! Sounds like a great system that’s working well for you.

      Thanks again. It’s lovely to hear from you.