How to make a budget you can stick to

You need much more than good intentions to make major changes in life. Picture: Shutterstock.
You need much more than good intentions to make major changes in life. Picture: Shutterstock.

Christmas is probably a dim memory now, and your focus has switched to making New Year's resolutions. One of the most common is always "getting my finances in order".

Unfortunately, human nature being what it is, you need much more than good intentions to make major changes; you also need to put systems in place that will make things happen automatically.

You made the resolution, which proves you are motivated - today I will share a foolproof system that will change your life.

The key is to accept that becoming financially secure is not a matter of earning more money, but using the money you earn in a better way - you would be amazed at the number of high-income earners who are in serious strife right now just because they spend more than they earn.

The only way to make the best use of your income is to draw up a money plan. Yes - a budget.

The irony is that you are probably already aware of the importance of having a budget to help you manage your money. But, you may not have got around to starting, or you may have made an effort, but found that the paperwork was all too difficult.

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It's too late to change what has been, but you can ease the pain in the future by putting a simple budget strategy into place. I call it the "Claytons Budget" - the budget you have when you aren't having a budget.

It's not complicated, anybody can do it, and it takes about an hour to set up.

Find a sheet of paper, or open an Excel spreadsheet, and write down your fixed outgoings such as house repayments, loan payments, school fees, rates, car registration, insurance and so on. Don't forget to put something in there for regular savings too.

We all have this unique ability to pay our commitments and spend what's left over, so make sure saving is a major commitment, just like paying the rent or loan repayments.

Add up the figures and then divide the total by the number of times you get paid. If it's fortnightly that will be 26, if it's weekly 52.

Let's suppose it comes to $52,000 a year and you are paid fortnightly. One 26th of $52,000 is $2000. That is the amount you will need to set aside from each pay to cover the items listed. So deposit that $2000 into a separate bank account and use it for the sole purpose of paying the expenses you listed when you arrived at the original total.

Provided you don't fall into the temptation of dipping into the account for other purposes you will now have all your fixed costs, as well as your regular savings, under control.

Next estimate how much you spend a year on predictable expenses such as power, phone, gifts, newsagent and hairdressing. Divide these by the number of paydays, and put the appropriate sum into a separate account as well.

Next figure out what you spend over Christmas and start making regular deposits into a Christmas account. While you're at it, start a holiday account too.

Look what you have achieved. You have now provided for all your regular expenses, as well as Christmas and holidays, and never again will you have to worry about paying those bills. In fact you will look forward to the bills coming because you will have the money in the bank to pay for them.

If you now pay cash for all other consumer spending you will be on the right track even though you may have to eat mince for a few days if you get an unexpected costly emergency. In any event you will certainly be ahead of most of the rest of the population - you will be living within your means and in control of your finances.

Noel answers your money questions


I am 73, retired and earn around $50,000 a year which comes mainly from rents from my investment property as well as the pension I draw from my super.

The property was bought in 1998 the capital gain would now be around $1 million. I understand that the gain could be discounted by 50 per cent, but I am also aware that it may be possible to use the indexation method in view of the length of time I have owned the property.

Is this correct - and how could I find out which method I should be using? Can the capital gains tax be deferred or avoided if I used the proceeds to buy another investment property?


If a CGT asset was purchased prior to September 21, 1999, the value of a gain can be indexed to take into account the passage of time and changing value of the dollar.

To calculate CGT in these circumstances, the value of indexation for the quarter ending, September 30 1999 (being 123.4) is divided by the value of indexation for the financial quarter when the expenditure was incurred. This provides the indexation factor.

I don't think indexation would be much use in this case because the ability to use the indexation method stops in September 1999, so you only have one year's indexation at the most. A 50 per cent discount would be a much better option. You cannot avoid capital gains tax proceeds to buy another investment property. Make sure you involve your accountant.


I am 60 and still working. I have received an inheritance of $200,000 and my superannuation balance is currently below $500,000. You've often recommended people contribute the maximum into superannuation but I wonder why it is better for me to do that rather than just leave the funds in my bank account?


Given your relatively young age you may well have 35 years of living ahead of you. Therefore, it makes sense to accumulate a substantial sum for your retirement, and how big this sum will be, and how long it will last, will depend mainly on the rate of return you can achieve.

Given that bank accounts are paying less than 1 per cent and good superannuation funds have averaged at least 8 per cent per annum over the last 10 years it would make sense to contribute as much as you can to superannuation at an early an age as possible. You should take advice about longer-term planning, and also the best way to make contributions to super.

You are allowed a concessional contribution (tax deductible) of $27,500 a year but this includes the employer contribution. Instead of making a one off nondeductible non-concessional contribution, it may be better to use a combination of concessional and non-contribution contributions over the next two or three years. Your adviser can help you do the sums.

  • Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. Email:
This story Setting up that financial New Year's resolution to succeed first appeared on The Canberra Times.