Podcast: How to make a good budget

A helpful guide to creating a budget, no matter where you are with your money.

Budgeting isn't sexy, but no matter where you are on the financial spectrum, it's essential.

This episode of Pocket Money is all about getting your money sorted. We break down everything that you need to know about creating a budget and slapping away some of the most common excuses we've heard from people who aren't taking their money seriously enough.

Kate is joined for this conversation by consumer finance expert Lisa Montgomery. Lisa came to the studio armed with some killer insights about managing your money, and some great ideas for those of us who sometimes get bogged down in the details. So if you're looking for a new angle on personal finance, tips on getting started or guidance for being mindful in this age of distraction, give this episode a go.

This episode of Finder's Pocket Money podcast is presented by bundll - the buy now pay later app that works for everything, anywhere Mastercard is accepted. Two weeks to pay, interest free. Shop online or in-store securely using bundll through Apple Pay and Google Pay.

This episode of Finder's Pocket Money podcast is presented by bundll - the buy now pay later app that works for everything, anywhere Mastercard is accepted. Two weeks to pay, interest free. Shop online or in-store securely using bundll through Apple Pay and Google Pay.

Mentioned in this episode

• Our comprehensive guide to budgeting

Read the transcript of this episode

• Episode 205 transcript

  Note: This is based on a machine-generated transcript. We've tidied it up, but we're sorry if any glitches have slipped through.

  Lisa Montgomery:
  Each stage of our life, our goals will change, our needs will change, our income hopefully will change. Things are always going to change, and so, you know, our need, our desire, how we actually treat our money will change also.

  Kate Browne:
  Hi mates! Welcome back to Pocket Money. I'm Kate and this is the show for financial ostriches that dream of being eagles. Today we're talking about budgeting. I don't know about you, but sometimes budgeting makes me think about deprivation, sitting at home, not drinking coffee, not having a lot of fun. Turns out that that's not all that. Budgeting is about keeping an eye on your money, having goals, working out where your money goes and basically taking control of all that good stuff and being the master of your own domain. Also, no matter where you are with your money, it's still really good to talk about, you know, if you are doing a budget, what else can you do to optimise it? Whether you're a beginner or you're a long way down the track, we've got plenty of tips and tricks today. We do have one of our favourite money experts in the studio, Lisa Montgomery. Lisa is one of Australia's most respected consumer finance experts and commentators. She's also the former CEO of Rezi Home Loans and the head of consumer advocacy at Wizard Home Loans. I love Lisa because she's straight-talking, she's funny and she's practical. She's going to talk about everything to do with budgets, as well as knocking back some of those common excuses all of us use sometimes about not wanting to deal with this stuff. So let's get to it!

  Kate Browne:
  This episode of Pocket Money is presented by bundll, the buy now pay later app that works for everything, everywhere Mastercard is accepted. bundll gives you two weeks to pay interest-free and has built-in budgeting tools to track your spending. Learn more at bundll.com.au.

  Kate Browne:
  Welcome to the show, Lisa.

  Lisa Montgomery:
  Thank you, Kate. Great to be here.

  Kate Browne:
  I'm a little bit excited to talk to you. Lisa, we're talking about budgeting. And when I think about budgeting, I think oh, god, is that like living on two-minute noodles and warm tap water and, I don't know, not drinking coffee and...

  Lisa Montgomery:
  Gee, Kate. That's extreme.

  Kate Browne:
  Says a bit about my past. And speaking of the past, we're not really taught budgeting in school here in Australia, are we?

  Lisa Montgomery:
  Look I think, more and more we're seeing creep in on some curriculums, but ostensibly, no. And I think that's a real shame. Because we have to budget from the moment we want something, to have that something that we want, and then as life goes on, to sustain ourselves. So budgeting sometimes means different things to different people, I think. So it might be just meeting the bills and getting to the next week. And that means that you've got to budget for each one of those, each of those weeks.

  Kate Browne:
  Can it also just mean knowing where your money's going? Because I'd warrant there's plenty of people that probably couldn't tell you where their money's going.

  Lisa Montgomery:
  Well, I think that's even more true today because we have so many opportunities to be able to spend it: online, on food options, you know, just on entertaining ourselves. There's so many opportunities to do it and to do it swiftly and quickly, by either tapping or just pushing a button and the money's left us. Because everything now is, as we know, digital. Our money comes in via the, you know, the ethos, it goes out via the ethos.

  Kate Browne:
  Very intangible isn't it?

  Lisa Montgomery:
  And we don't touch it anymore. So sometimes that value piece is kind of lost. And if you haven't sort of thought about whether you've got the money to spend on that item or whether you haven't, then that could be the beginning of something that's not healthy. And so there's a term I use Kate, and that is, pause before purchase.

  Kate Browne:
  Oh, I love that! I love a slogan and that is a great one.

  Lisa Montgomery:
  It's a really important thing. You know, it's a bit like if you're addicted to cream cakes or something like that, you know, pause before you make that decision about that thing you're going to eat, it's the same thing around purchasing. Because we tend not to pause, it's quite a, I guess it's a fulfilling kind of experience, where there's instant gratitude when we're making our purchases and that can be outside of the scope of our ability to repay.

  Kate Browne:
  I was thinking about rethinking the word "budgeting" in my head, and it's like Marie Kondo-ing your finances. Would you agree?

  Lisa Montgomery:
  I think so. I think so. And I think, you know, the first step if you're going to do that is to be really honest with yourself, because I think sometimes it's easy for us to lie to self about whether we've got an issue or a problem. So I think that it's important to start with honesty. And one of the things that I like to do, as part of that whole honesty exercise, is a little bit old school, but I like to get three months of my statements on my transaction account and a highlight pen and have a good look, sit down and have a very good look, at what I've just spent my money on. And the word "revelation" is usually something that comes to mind after that exercise.

  Kate Browne:
  You've just kicked off a great thought. So where do you start if you want to unravel possibly your train wreck of finances or even just – I always say, like, ostriches and eagles. Some people are like eagles financially, they're always flying around, getting the big picture, the helicopter view, checking on everything. Then there's ostriches. I think I'm a bit of an ostrich. So where do you get started?

  Lisa Montgomery:
  I think you've got to really want to get started. I think that's really important. And unless you actually spend some time and immerse yourself in understanding where your money's going – income, expenditure – then, you know, it's kind of like an exercise that you'll do, and then you'll put it sort of on the edge of the desk and you won't think about it after that. So you've really got to make a commitment to it. So for me, there's some old school ways and there's some new school ways and I think that the old school is to maybe have a bit of a spreadsheet so you can have a look and see where your income and expenditure is and you can itemise those on an Excel spreadsheet if you're Excel-inclined. Or you can just get pen and paper out with the highlight pens. If I do that, I do three different colours: the mandatories, the things that I have to, you know, the essentials, the things I have to spend money on. Then I'll be highlighting with a different colour for the things that I didn't need, but I wanted. And also there's sort of some things that are sitting on the periphery there too, which isn't a bad idea to look at some things that maybe you might want to question. You know, do I need that? Is that a gym membership? Is it something that, a subscription to something that I'm not using anymore? You know, it just gives me a good picture of where I need to start. So that's a bit of the old school stuff, but you can also get, look, there's a number of apps these days, some you pay for, some you don't, but they all have great functionality. One of the things, too, with the apps is that sometimes they have access to your bank accounts and stuff like that, so you've got to be really comfortable with that security, which is normally covered off.

  Kate Browne:
  Yeah. Can we talk about some budgeting strategies? So we've figured out we're either gonna, you know, do it on our post it notes or app. I know there's a few sort of classics, ones like proportional budgeting, the 50/30/20 rule. How does that work? What is that breakdown?

  Lisa Montgomery:
  Yeah, you know, that's sort of been bandied about a bit over time. It's fairly rigid and I'm not exactly sure that it works for everybody but, you know, 50% will go on mandatories, on those essential things of your – we're talking about income here – so 50% will go on those essentials, maybe 30% on that discretionary spending piece, and then 20% will sort of sit in savings, or into your emergency fund, or a fund that's sort of going to accumulate at some stage.

  Kate Browne:
  Right, that's your kind of long-term thing.

  Lisa Montgomery:
  You might have to dip into it if the car breaks down, or you might, you know, have a goal for a holiday or a home or some asset class you're going to be investing in, whatever that might be. So that's kind of like a stock-standard kind of percentage breakup that people talk about. I tend to think that that's going to change for most people, though. Because some people have, you know, it depends on how their income is actually apportioned in relation to their expenditure as to whether that kind of works for some people, to say that 20% is going to go into a pot, they might go "What 20%?" So it's kind of like, it's not like a standard thing for everyone.

  Kate Browne:
  I guess too, life happens, doesn't it? So with all the best intentions, you know, something might land on you that you're not expecting.

  Lisa Montgomery:
  Well another way to do it, though, is to have different accounts. So with most financial institutions, you can actually start up, you know, different funds, I guess, if you like online, and you can pop money regularly into those buckets, or into those accounts, and then that way it's accumulating, and then when you need it, if it's for a particular thing that you have to pay or if it's just accumulating as a goal, then you've got those sitting there.

  Kate Browne:
  I've heard a tip is "creative naming" as well. So it's either to inspire you or – someone, I think, I was laughing, someone suggested if you have kids, name those funds after your children, so then if you're tempted to take the money out, it feels like you're stealing from your children. I guess whatever works. I wouldn't feel bad about that personally, so maybe not for me.

  Lisa Montgomery:
  It's interesting, you know, I come from old school banking and nicknames for accounts wasn't even a thing back then.

  Kate Browne:
  Another one I've heard of, Lisa, is zero-based budgeting. Thinking about Marie Kondo, it's a bit like that, where her theories are that everything has to have a place. So this is where as soon as your paycheck goes in, you've got to just deal with the money. It doesn't sit there. It goes to pay something down. It goes, you know, it goes somewhere to be saved or invested. Again, it sounds a little bit rigid for me.

  Lisa Montgomery:
  Yeah, you know, it's a bit rigid for me as well because I think that for some of us, we need to have a sense of achievement when our wage goes in that we've gotten something for all that effort and energy that we've put into our job. And you kind of want to see that it's there for a bit. Look, I think that a nice mix of that, like a nice balance of paying stuff off, having some money going into savings but having some there that you can still see, that you can kind of go, "You know what, that's mine. I kind of feel like I've earned this. I'm connected with it. And I feel the degree of satisfaction."

  Kate Browne:
  And safety too. Sometimes I just look at mine and I'm like, "I'm okay, for now."

  Lisa Montgomery:
  And I think that if you're just achieving one thing, even if you're saving one amount of money into one account, and just so you can say it's 10% of your wage, and it's just, if that's all you can do, it's something. And you're doing something and I think that that, for some people, will be all that they can do. But I think also to that, budgeting and goal setting and saving and apportioning our money changes as we get older as well, you know, so each stage of our life, our goals will change, our needs will change, our income hopefully will change. Things are always going to change and so, you know, our need, our desire, how we actually treat our money will change also. So it's important to know that what might work for us today, might change in the next few years as well.

  Kate Browne:
  So stay in touch with it, don't ignore it. What happens when your budget breaks, like you've overspent, you've got an emergency. I know we do a lot of research here at Finder: we're pretty credit crazy in Australia too. What would be your advice around people that have let things get a little bit out of control in that department?

  Lisa Montgomery:
  Well first of all, if things are getting out of control, don't think you're alone because so many people in Australia are suffering the same thing from the use of credit to supplement their income. It's so easy to do because credit's so easily available, and so it's easier to supplement. And it's also, too, part of that peer pressure, in some ways, it's a peer pressure thing too, you know, people are going out and having fun, they're enjoying themselves, you know, there might be a round of drinks bought, and I remember, when I first came to Sydney in 2000, it cost me $50 for a round of drinks, where at the RSL back in Newcastle, it would have been a lot cheaper than that, let me tell you. But, you know, there's not a lot of change, you know, you hand money over – if you do hand cash over – there's not a lot of change you're getting for your entertainment. And so it's really easy to get yourself into a fix there. But if you know that you are supplementing your income with a credit facility, once you've acknowledged it, which is a really important thing to do, then you have to take steps to wind that back. Now, it's not necessarily the fact that you have overspent and you've used credit, it's the habit that you've formed that is the issue. So you have to change the habit before you can really do anything, because if you fix the credit problem by moving it somewhere else or paying it out, that's all fine, but if you haven't changed the habit and you're continuing to do it, you're only going to find yourself back in the same place in six months' time. So it's about healthy habits when it comes to your money, not necessarily the outcome of that, although that is what we have to deal with.

  Kate Browne:
  I heard a great phrase the other day, which was "comfort creep", which is where you might start earning a little bit more money, you might move to a different city, and you just, without even realising, you just kind of turn the volume up on a few things you're bending and it can get away from you very quickly. And I think what you said about, you know, your environment, your peer pressure, keeping up with the Joneses, whatever you want to call it, is a really hard trend to buck. You know, do you have any advice on just little things you need to watch that often can just start creeping up?

  Lisa Montgomery:
  Yeah, and I've spoken about this before, the pause before you purchase. You know, you've really got to pause before you spend that money and understand, is that within your spending limit? But first, you've got to create one, you know. And that whole comfort piece, it's really interesting because you know for some of us – and, you know, this might sound slightly on the edge – but for some of us, you know, particularly if we're working really hard, and we're not necessarily in relationships, our relationship with our money, and with the things we buy with it, becomes really important to us, and a sense of comfort, and a sense of connection. And so we do spend that money. So it's, again, it's acknowledging that piece about, when I'm buying or when I'm spending, what mindset am I in? What is actually spurring that on for me to spend? You know, what is the catalyst for that? So I think it's acknowledging that situation, and taking that pause before you purchase and go, "Do I really need to be doing that?"

  Kate Browne:
  I guess, paying for the convenience too, that's another one I think has really bitten me in the last few years, you know. Working full time, living in a big city, suddenly, ordering food in instead of cooking, you know, there's definitely a creep. And then what was a treat just becomes part of your weekly spend.

  Lisa Montgomery:
  Exactly. That's really interesting that you mentioned that, Kate, because, you know, I was just talking to somebody the other day and they said that in the last month, they've probably had UberEATS, three times a week. And that's not necessarily a bad thing for them. If they can afford it and it's within their spending profile. But if it's not, you've got an issue. So if you add on to the top of that even just Uber itself, getting to and from places, if you then add on top of that your online spending, if you add on top of that, you know, going actually out to eat and drink, then what we have is a whole bunch of discretionary spending that's making things easier for us, but not financially easier.

  Kate Browne:
  Once the genie's out of the bottle, it's hard to put it back in.

  Kate Browne:
  This episode of Pocket Money is presented by bundll. bundll lets you buy now, pay later, everywhere Mastercard is accepted. From clothes to groceries, fuel to coffee, two weeks to pay interest-free. And in keeping with this episode, which is all about budgeting, with bundll, you can track your weekly spend by creating category spending limits and notifications to help you stick to your budget. Be the master of your money with bundll at bundll.com.au. Now, back to the show.

  Kate Browne:
  We play a game on Pocket Money called "Overrated, Underrated", where we throw just a concept or a thing at you, you can tell us whether you think it's overrated or underrated, if you want to have a bit of a spiel on why, we'd love that. The first one, I did mention it before, Marie Kondo. Are you into chucking out the things that do not spark joy?

  Lisa Montgomery:
  I am absolutely into that. I don't think that's overrated. In fact, we moved three years ago and three-quarters of things are still in boxes, so we never got that stuff out. So it's really interesting just to see that we didn't need it. I like minimalist environments, so for me, I think that's something that I'm embracing.

  Kate Browne:
  Yeah, I'm trying, I'm trying very hard. Alright. Overrated or underrated: mindfulness?

  Lisa Montgomery:
  Oh, did you pick this one especially for me maybe? I don't know.

  Kate Browne:
  It's very popular at the moment. We hear a lot about it. What do you think?

  Lisa Montgomery:
  I think it's underrated. You know, mindfulness for a lot of people has a different connotation, depends on how people perceive that term. And, you know, we don't have long enough to sort of explore that here, but for me, I think that being mindful during the course of the day, but also being mindful to give the brain a break, I think it's really important during the course of any day, that as human beings, given that we fill our brains with so much noise, and it's coming at us, particularly from our phones and from our computers and public transport and everything, just to give your brain a break for 10 minutes at a minimum, means that you're giving yourself a lovely gift of peace for that day, before the noise starts. I'm a big fan. And mindful eating as well. Because, you know, we get a plate of food on the table, we'll shovel it down while we're looking at our phones or we're looking at something on the computer, you know, we're snacking on information and we've just inhaled this meal, and we haven't even tasted it. I think that mindfulness, as I said, I could talk about a lot, but I think mindfulness is one of those things that definitely as human beings we can embrace more.

  Kate Browne:
  Even when it comes to our finances.

  Lisa Montgomery:
  Absolutely.

  Kate Browne:
  My last overrated or underrated – it's got nothing to do with the other two, that's why we like this game. Kombucha? Is it just fizzy vinegar water? Is it life-giving? Gut-saving? Or is it just delicious? Or not?

  Lisa Montgomery:
  Well, you know, I'm a big fan of kombucha. In fact, I'm looking at some right now, lemon, lime and mint.

  Kate Browne:
  What a coincidence!

  Lisa Montgomery:
  I know. But having said that, I'm dubious about the old kombucha, particularly the mass-made stuff because I'm really not sure what's in it, but I know that it gives me great pleasure to drink it, because sometimes over time, during the course of a day, you'd have enough tea and enough coffee and enough water, but you just want something that's got a little bit of additional flavour that perhaps is good for you.

  Kate Browne:
  It's gotta be better than a can of Coke with 12 teaspoons of sugar in it?

  Lisa Montgomery:
  I'm hoping that it is because that's my second for today.

  Kate Browne:
  All right, so back on budgeting, we had a look online and we saw heaps of excuses that people give for not wanting to budget. I'm gonna throw a couple of them at you and I want you to, rapid-fir, just give me back a reason why that's just BS. Number one: "I hate maths and it's really complicated."

  Lisa Montgomery:
  Budgeting is not about maths. It's not complex. It's how you make it. It's about life.

  Kate Browne:
  Number two: "I've got a good job. Why should I budget? Isn't it just for people who are in debt or trying to save up something?"

  Lisa Montgomery:
  You owe it to yourself, if you got a good job and you're earning money to budget that money. So that's a whole lot of baloney.

  Kate Browne:
  "Oh, budgeting is too strict. It's a fun killer."

  Lisa Montgomery:
  Oh, it'll be a fun killer when you're 60 and you don't have any money. That'll be when it'll be killing you.

  Kate Browne:
  And you're living in your car with no kombucha.

  Lisa Montgomery:
  You know what, budgeting isn't strict. You're gonna set the rules for your budget and you can make them as strict or as relaxed as you want to, but it's not about killing the fun.

  Kate Browne:
  "I've done one, but then I didn't stick to it. It's like a diet."

  Lisa Montgomery:
  Well, that's what we talked about before. And it is like a diet if you don't stick to it, it's like anything. If you set a goal for anything and you don't stick to it, then it's your own fault. So really, you've got to make that commitment to your money. You spend somewhere in the vicinity of, you know, maybe 10 hours at work, maybe getting there every day. Every single day, don't you owe it to yourself to look at that income and really honour it?

  Kate Browne:
  I love that. That one's really got me fired up. Last one: "My partner and I don't agree on our spending. So what's the point of trying to develop a budget?"

  Lisa Montgomery:
  Oh, that's a tricky one. Let's go down the rabbit hole. That is tricky, particularly if you've got combined finances, but that's where, you know, if you're earning money, you really need to be controlling that portion of money that you're earning, and maybe you can just slowly take that person on a journey of better financial habits, and maybe just start with one thing if you don't agree. That's kind of a blanket statement. I think that generally partners will agree with something that you're doing.

  Kate Browne:
  Yeah. And again, like, doing something is better than nothing.

  Lisa Montgomery:
  Doing something is better than nothing. Absolutely.

  Kate Browne:
  Alright, Lisa, I've finished listening to your advice. I am a little bit of a financial ostrich sometimes. What should I and all our fabulous listeners do when we've finished listening to this podcast? What could we do right now that's gonna put us on a track to getting our finances under control?

  Lisa Montgomery:
  Well, you know, I think it's gonna be different for everybody. But let me say that the first thing that you can do is to understand your income, understanding how much you're earning, when it's coming in. And months will be different for your bills as well. So, you know, it might be that next month, you might have a greater expenditure than the month after. Understanding how that all phases, setting a spending limit for yourself, understanding what you've got to spend and don't go over that. Make a plan, set a goal and alter it if you need to. That's something else that you should be doing, knowing that your goals will change. And have some fun with this. Make it a bit of a project, make it something that you can enjoy doing, because if you don't enjoy doing it, you won't do it. And then once you start to see the benefits, once you start to see your money grow, or you see something change, then build on that and be proud of yourself that you made that change happen, then make something else happen. If you're doing this and if you're making some change, it's going to give you opportunity, and opportunity to do other things. And that's really what we all want.

  Kate Browne:
  Thanks so much for joining us today, Lisa, you are a fount of wisdom.

  Lisa Montgomery
  So much fun. Thanks, Kate.

  Kate Browne:
  Everything we mentioned in the show today is in the show notes at finder.com.au/podcast. Please leave us a review on Apple podcasts, tell a friend about the show. We love feedback, be brutal, we don't mind. We want to hear what you want from the show so we can make it better and better and answer those burning questions you have. We have a Facebook group and the link to it is in the show notes too. Come on down and join us. I'll be hanging around in there, I don't want to be there on my own. Have a chat, I want to talk about some of the things I've tried to do with my budget, I would love to see what you guys are doing too. If you're more Instagram than Facebook, or a bit of both, you can join us @PocketMoneyPodcast. Feel free to slide into our DMs at any time. Pocket Money is hosted by Sally who's not here today, and Kate, that's me. It's produced by Franko Ali and the editing is from Brianna Ansaldo of Bamby Media. Thanks again to our guest today, which was the fabulous Lisa. We'll catch you next time.

  Kate Browne:
  Thanks again to bundll for their support of this episode. Head to bundll.com.au, that's b-u-n-d-l-l, and start keeping a closer eye on your spending.

  Sally McMullen:
  Thanks for listening to Pocket Money from Finder. Head over to finder.com.au/podcast for the show notes for this episode. The Finder Podcast is intended to provide you with tips, tools and strategies that will help you make better decisions. Although we're licenced and authorised, we don't provide financial advice. So please consider your own situation or get advice before making any decisions based on anything in our show. Thanks for listening!

The Finder Pocket Money podcast is intended to provide you with tips, tools and strategies that will help you make better decisions. Although we're licensed and authorised, we (and our guests) aren't providing any form of financial or legal advice. So please consider your own situation and get proper advice about your individual circumstances before making any decisions based on anything on our show. Thanks for listening.

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Pocket Money is hosted by Sally McMullen and Kate Browne, produced and directed by Franko Ali, with editing and theme music from Brianna Ansaldo of Bamby Media.

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