How to Calculate a Budget – A Basic Guide to Working Out Your Ideal Budget (2022)

Budgeting is one of the most essential stepping stones on the path to financial independence and yet it’s something a lot of people tend to neglect. Today I’m going to teach you how to calculate a budget to give you the ability to track your expenses and subsequently, begin to start saving money.

How to Calculate a Budget Step 1 – Work Out Your Needs

The first step is to work out your needs (anything that NEEDS to be paid). This typically includes rent, electricity, food, internet, phone bills, insurances, car registration, debt etc. Once you write down a complete list of all your needs, break them into the same timeframe. I like to make everything a yearly sum because from there it’s easy to make weekly, fortnightly and monthly budget plans to stay on track of your expenses.

Now that you have a list of everything that needs to be paid, work out the yearly costs of all of these. For things that you purchase frequently like petrol and food, work out how much you pay on average every week. Once you have the weekly cost, times it by 52 and you now have a yearly cost.


Example: You spend on average $100 on groceries each week. $100 x 52 = $5200. You spend approximately $5200 a year on groceries.

A similar thing occurs for fortnightly payments like your rent or perhaps insurances. If you pay $500 a fortnight on rent, times it by 26 (the number of fortnights in a year) and you will have your yearly total.

Example: You pay $500 a fortnight on rent. $500 x 26 = $13,000 per year

Lastly, are the things that you pay less frequently like phone bills which are often once per month payments or utilities which can be quarterly. For any payment that occurs monthly or every x amount of months, times the cost until you reach 12.

You pay $100 a month on a phone bill. $100 x 12 = $1200 per year
You pay $250 every three months on electricity. $250 x 4 = $1000 per year
You pay $450 for car registration every 6 months. $450 x 2 = $900 per year

Once you have a list of the yearly cost of all of your needs, subtract that from your annual salary. Whatever you are left with is your excess. So if you pay $50,000 a year after tax and you spend $35,000 on needs, you effectively have $15,000 to cover other things in your life.

How to Calculate a Budget
What you have left is your potential savings pool

How to Calculate a Budget Step 2 – Calculate your Wants

Once again, figure out all the luxuries (also known as wants) in your life and determine their cost. Similar to the needs section, break them down into a yearly amount. To do this, follow the same algorithm. Break common want expenses into weekly, less common ones into monthly and very infrequent ones like holidays for example, into half-yearly or annually.


If you like to eat out every weekend, workout the weekly amount you spend on take out.

Example: You spend roughly $50 on take out each week. $50 x 52 = $2600 per year.

If you have a monthly subscription to things like Spotify or Netflix, times the total by twelve.

Example: You spend $12 on Netflix each month. $12 x 12 = $144 per year.

Once every six months, you like to go on a two-week camping trip with the family. This costs roughly $2000 for each trip. Times the amount by two to work out the yearly total.

Example: You spend $2000 on holidays twice a year. $2000 x 2 = $4000 per year

How to Calculate a Budget Step 3 – Pay Yourself First

A common mistake made by people is waiting until the end of a pay cycle and then allocating whatever is left into their savings account. You have worked hard for your money and you owe it to yourself to invest in your future. So once you know exactly how much money you are spending on wants and needs, start distributing a fixed rate or percentage to your savings.

This amount is entirely up to you so if you want to save 5% of your annual income, you would be putting in 5% of $50,000 which is $2500 into your savings account each year. If you want to use a fixed sum like say $50 each fortnight, then you’d be putting in $2600 each year (26 x $50).

Simply subtract the savings from your excess fund. If you decide to save $2500 a year, your excess would go down from $15,000 in the above example to $12,500. This new excess total is what you have each year to spend on. Alternatively, you can work out how much you want to spend on luxuries or wants and you can pay yourself the difference automatically each fortnight.

How to Calculate a Budget Step 4 – Create Your Sub-Budgets

Now that you have successfully worked out what you spend on needs, wants and savings, you officially have a yearly budget that covers all your expenses. You can now work out your monthly, fortnightly and weekly spending and savings rate through these conversions:

To work out the monthly budget, divide the yearly budget figures by 12.
To work out the fortnightly budget, divide the yearly budget figures by 26.
To work out the weekly budget, divide the yearly budget figures by 52.

Once you have these figures, I recommend using the budget that aligns with your pay timings. So if you get paid every week, use the weekly budget. If you get paid fortnightly, go off of that one. This way you know exactly what needs to be put where each paycheck. If you know you have $400 in car registration coming up in 6 months, rather than waiting to get pumped by that lump sum, put aside an amount each paycheck that will cover the expense.

If you have to pay $500 in rent each fortnight and you get paid weekly, put aside $250 a week. If you go on holiday once a year and it costs you $5000, put aside $97 each week to cover it. Through smartly utilising your budgets, you can work out exactly how much you need to set aside to cover your foreseeable expenses. If you follow your budget and stay on track, you won’t be blindsided by your phone bill or that pesky electricity bill that comes every three months.

Sub Note – Paying Yourself First

Another important thing to note is that paying yourself before you indulge in your wants is paramount to gaining financial stability and eventually independence. If you aren’t in a position where you can save money based on your budget, take a hard look at your wants and analyse whether you ‘need’ to spend x amount on going out, drinking, getting take out, subscriptions to magazines etc.

How to Calculate a Budget Summary

As soon as you begin to implement and follow a budget, you’ll pave the way to financial independence. Monitor your budget closely, constantly reassess how much you spend on certain things and if it’s possible to lower those expenses through finding cheaper alternatives or by avoiding them altogether, implement them and reap the rewards.

Useful Resources

Budget Calculator

How to Start Saving Money

Budget Planner

Additional Reading

The following are guides that I have written which cover some of the key concepts outlined in this article. They can be a great starting point for anyone looking to get started on their FIRE journey.

How to Budget

How to Build an Emergency Fund

How to Eliminate Debt

How to Build Passive Income Streams

10 of the Best Personal Finance Books

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