How to work out your daily budget: a worked example

This is a worked example that goes from take-home pay to a number you can check each morning. You'll need two or three recent bank statements and a calculator. The figures are an example; swap in your own as you go.

Step 1: Start with what actually arrives

Use your take-home pay, the amount that lands in your account after tax and deductions. In this example it's $2,800 a month.

If you're paid weekly or every two weeks, convert it to a monthly figure first:

• Weekly: pay × 52 ÷ 12. $650 a week is $650 × 52 ÷ 12 = $2,816.67 a month.
• Every two weeks: pay × 26 ÷ 12.

Avoid multiplying weekly pay by four. A month is a little over four weeks, so × 4 leaves out four weeks of pay over a year, and your budget ends up tighter than it needs to be.

If your income changes from month to month, use the lowest of your last few months rather than the average. Being pleasantly surprised is better than coming up short. How to budget on an irregular or freelance income covers this in more depth, with a buffer for the lean months.

Step 2: List the bills that come round on a schedule

Go through your statements and pick out everything that leaves on a schedule. For bills that vary, like electricity, use an average of the last few months.

Subscriptions are the easiest to miss. A statement search for small, identical amounts on the same day each month usually turns up one or two you'd forgotten about.

Step 3: Turn yearly and weekly costs into monthly ones

Some costs don't come monthly, but they still need to be counted:

• Car insurance, paid once a year: $438 ÷ 12 = $36.50 a month.
• A weekly exercise class: $15 × 52 ÷ 12 = $65.00 a month.

Yearly bills are the ones that cause trouble. If you don't spread them out, they land in a single month and wipe out several weeks of spending money at once.

Step 4: Decide what to save first

If you want to save, take it off now, before you work out the allowance. Otherwise saving becomes whatever happens to be left on the last day of the month, which is often nothing. In the example, $200 a month goes to savings.

Step 5: Divide what's left by the days

$38.72a day, or about $271 a week

Why 30.4375? A year has 365.25 days on average, counting leap years, and 365.25 ÷ 12 = 30.4375. Using the average keeps your daily number the same all year. Short months and long months even out.

Dividing by 30 is fine for a quick estimate, but it gives $39.28 a day. Spend that every day for a year and you'd go through about $206 more than you have, roughly five days' worth.

Step 6: Check it against real life

A number on paper is only useful if you can live on it. Two quick checks:

• Groceries. In this plan, food comes out of the daily allowance. If your shop runs to about $90 a week, that's $12.86 a day, which leaves about $25.86 a day for everything else.
• Last month. Add up what you actually spent last month outside your bills. If it was $1,500 and the plan gives you $1,178.50, expect the first few weeks to feel tight. Either find a bill to cut, lower the savings figure, or accept the tighter month knowing why it feels that way.

Also think about the costs that are neither bills nor everyday spending: birthdays, the dentist, car servicing, a trip home. Either add a yearly estimate for them in step 3 or accept that they'll come out of your daily money when they happen. Both work. What causes problems is forgetting them entirely.

None of this is financial advice. It's arithmetic, and the right numbers depend on your situation.

Doing it in Daily Allowance

Daily Allowance does steps 3 and 5 for you. Quick Setup, offered when you first open the app, asks for your monthly income and monthly expenses and shows the result with the note "Based on 30.4 days/month average", the same division as above.

To be more precise, add each bill as its own entry: tap +, enter the amount, open More options, switch on Recurring entry and pick how often it repeats: daily, weekly, monthly or yearly. Your recurring entries are listed together under Settings > Daily Allowance. The app converts each one to a daily amount, so you don't have to turn the insurance or the weekly class into monthly figures yourself. Entered that way, the example comes to about $38.71 a day; the app converts weekly and yearly items straight to days, so its figure can differ from a hand calculation by a cent or so. To save first, add your savings as a monthly recurring expense, the same way as a bill.

The free plan includes 5 recurring entries, and Premium removes the limit. If you're on the free plan, group small bills together, for example one "Utilities and phone" entry instead of three.

Once it's set up, log what you spend during the day. Your Daily Balance goes up by each day's share and down with each expense, and whatever is left carries into tomorrow. If you go over one day, the next post covers what to do on a day you overspend.