Think of a budget as marshalling together all of the financial information you can, with both income and expenses, to get a true picture of your financial situation, over whatever time frame you choose. This includes bank and credit card statements, recent utility bills and any information regarding money that goes out of your house or comes in. You're trying to create a monthly average, so the more information you can dig up the better. If the money coming in is less than what is going out, then you’re going backwards, and heading into debt. That’s what a budget will tell you. It will also assist in setting up a plan so you can pay off debt or save.

The first thing to do is look at your income. Use your net pay, after superannuation contributions and tax. If you are self-employed or have any outside sources of income, such as rent or share dividends be sure to record these as well. Record this total income as a monthly amount.

Next, create a list of monthly expenses. Write down all the expenses you expect to incur over the course of a month. The obvious items might be a mortgage payment, car payments, auto insurance, groceries, utility bills, entertainment, gym memberships, school fees, dry cleaning: essentially, everything you spend.  

But also don’t forget the items you pay for in cash.  That means that your budget can’t be confined to just the obvious items. Think about those two cups of coffee a day: or you lunch you buy daily; think about the children’s basketball games and the traditional visit to the ice-cream shop after every game. It all adds up.

Sort your expenses into two categories: fixed and variable. Fixed expenses are those that stay relatively the same each month and are required parts of your way of living. They included expenses such as your mortgage or rent, car payments, internet service, mobile phone plans, electricity and water bills and so on. These expenses for the most part are essential yet not likely to change in the budget.

The variable expenses are the type that will change from month to month and include items such as groceries, petrol, entertainment, eating out and gifts, to name a few. This category is where you're most likely to be able to make adjustments.

But even the seemingly fixed costs such as utility bills can often be reduced. The point is that when you have a better grasp on exactly what you’re spending, you can start to look for ways to reduce many of these expenses so that the income coming in is greater than your expenses.  You can also have a plan that you can stick too to achieve your saving or debt repayment goals