The process of budgeting is critical if you’re hoping to get a home loan. Lenders assess not just your income but also the way you spend your money when they look at your loan application.

A budget is simply a way to manage what money comes in, what money is going out and what you’d like to be saving or investing.

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Work Out Your Income

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Tracking your income can be very easy or complex, depending on the nature of your job. If you are self-employed or run a business, you might not have a regular weekly income that you can rely on. One way to manage this situation is to allocate yourself money each week, just like a paycheque. If you are on a set wage, this part of the process will be straightforward.

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Gather Up All Your Expenses

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Get together all the documentation to help you understand where your money is going. Get a copy of your recent bank statements and credit card statements.

Then break down all of your expenses into categories such as:

• Mortgage/Rent
• Vehicles
• Medical
• Insurance
• Utilities
• Groceries
• Entertainment
• Eating out
• Child care
• Vacations
• Clothing
• Travel
• Student loans
• Subscriptions/Memberships
• Gifts
• Giving/Charity
• Savings

Some expenses such as groceries or energy bills will change every month/period, so it might be worth averaging a three-month (or even 12 months) period to get an idea of what a typical month will look like.

It’s important to differentiate between fixed expenses, such as rent, mortgage, utilities, and loan repayments. These expenses are difficult to change. Whereas things like entertainment expenses are the first things you need to cut down on.

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Calculate the Difference

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Once you know where your money is coming from and where it’s going then you can work out your financial position.

From that point, you need to sit down and assess your financial goals.

As you are looking to save for a deposit, you want to put as much money aside as you can. Look to reduce some expenses where possible and contribute each week to your savings.

A great way to budget effectively is to set up multiple bank accounts and then use each one for different parts of your life.

You might have one account that is for savings an everyday account that you receive your income into and then one transaction account. Put all of your home deposit money into your savings account as soon as you receive your pay cheque. A good tip is to use a debit card for your weekly expenses.

For example, if you allocate $500 per week to all your living expenses such as groceries and entertainment, simply transfer $500 to that account each week. That way you can’t go over budget. All other fixed expenses can come out of our other accounts. While your savings account continues to grow, and the process is on autopilot.

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