4A. Budgeting

A budget comprises three main items:

• income – how much money you earn
• expenses – how much money you spend
• Savings/Investments – how much money you put aside

Income is the money you regularly earn, such as a salary, Centrelink or other government subsidies, or interest from your savings.

Income can also be one-off or less regular ways of making money, such as selling unwanted items on Gumtree.

Think of income as all the cash that comes into your bank account.

Expenses are all the costs you incur to live – or all the money that leaves your bank account, including:

• regular expenses like rent, phone, credit card payments, groceries, petrol, insurance, utility bills, car service charges and registration costs, replacing essential clothing for you and your children, school costs
• once-off and less regular expenses like going to the movies, buying clothes and getting your hair cut
• paying your bills regularly in smaller amounts makes it easier to budget for expenses. If you call your utilities companies and Centrepay they will assist you to set up fortnightly payments.

Use these helpful services to find cheaper deals on expenses, be aware that you may have to provide an email and phone number to get full access to the services – these companies may call you unexpectedly.

• Whistleout.com.au (cheaper mobile phone and internet plans) 
• Comparethemarket.com.au (insurances, home, health and car) 
• https://moneysmart.gov.au/find-unclaimed-money

It can be helpful to open a separate account to put money aside for less regular expenses and divide up your money in a way that works for you. There are plenty of banks that offer “no fee” transaction accounts. It’s important to look for one of these as monthly fees add up quickly.

Saving for a goal should be treated like an expense as if you must set aside the money. Savings and investments are where you can start to put any leftover money once you have paid all your expenses.

Some large purchases, such as a deposit on a house or car, requires actual money to be paid as a deposit; credit card or loans cannot be used. A house usually requires at least a 10% deposit, so having a savings plan will give you an idea of how long and how much you need to save.

Making regular payments to your savings can also be helpful when applying for loans. Banks often look for evidence that you can make regular savings during loan assessment.

Savings are also important in case of emergencies. For example, if your car is damaged or you’re unable to work due to an accident, having an emergency or rainy day fund can be the difference between paying your mortgage or not.

TIP: Save at least three months of expenses as a ‘rainy day’ fund. If this is challenging, start by saving $5 notes or $2 coins – even small amounts add up quickly.

You may wish to create a budget with pen and paper or on a computer with programs like Excel. There are also free online programs or software such as Google Sheets that provide templates with pre-calculated formulas to simplify the process.

Key steps to creating a budget:

1. Record your recent income and expenses. Bank and credit card statements are a good reminder of your transactions.
2. Decide what time frame your budget will cover, weekly, fortnightly, or monthly. Remember to calculate income and expenses to the timeframe you choose, for example, in a monthly budget:
   1. You may pay your rent fortnightly. In that case, you would multiply your fortnightly rent by two to get the total monthly deductible expense
   2. You’ll need to know how much money should be allocated for annual expenses such as insurance. Use this formula: total expense divided by the time equals the actual repayment amount. For example, $350 annual health insurance divided by 12 months = $29.16 monthly
3. Combine your total income for your chosen time frame.
4. Subtract essential expenses.
5. Subtract the amount you wish to add to your savings.
   1. If you have a specific goal in mind, use this formula to work out what
      your budget allocation would be. Savings goal divided by the time frame you need to save it within. For example, saving $5 000 for a car deposit within the next two years, $5000 ÷ 24 months = $208.33 monthly savings
6. List all your non-essential expenses and subtract them from the balance.
   1. Don’t be scared to include these. We all need to have fun, buy new clothes, and spend money on ourselves
7. Analyse what your balance is after all your expenses.
   1. If you are spending more than you earn you’ll need to either reduce your expenses or find another income stream

If you’re spending more than you’re earning, you need to either make more or spend less.

You may sell clothing and items on community buying and selling pages such as Facebook Marketplace or Gumtree. These pages are susceptible to scammers, for more information visit scamwatch.gov.au

Review your expenses. Which expenses are essential, and which can you live without? Consider reducing or eliminating non-essential spending if it helps to balance your budget.

Try to reduce the costs of essential items. Could you get a cheaper phone plan or make your morning coffee at home to avoid the shop? You may be able to negotiate cheaper utilities by shopping around between service providers.

Synergy and the Water Corporation both provided useful tips on reducing your bill. You can also register for Synergy’s My Account feature to manage your power usage.

A free and independent financial counsellor can help guide and support you with budgeting, find out more about Financial Counselling below.

Now that you have a budget, you need to do three things:

1. Assess your budget – is there anything there that might increase? Are there things you can remove? Is it realistic? If you haven’t included the coffee you buy every morning, your estimated expenses could be too low by as much as $100 a month.
2. Follow your budget – if you said you would reduce spending on something, now is the time to act. Try different things and see what works for you.
   • some people take cash out of the bank and put it into envelopes for each category. Once the envelope is empty, they’ve spent their budget and can’t spend any more until the next period
   • others keep a printed copy of their budget in their wallet to check it before spending money
3. Compare your actual expenses – at the end of each period, go back to your budget and look at how much you received and spent. Check your income and expense estimations and keep them as true as possible.

There are many budgeting apps and websites. Some examples are:

• MoneySmart budget planner helps you create a budget, determine where your money is going and whether your income covers your expenses – it also provides advice to help you Track Your Spending and a Savings Goals Calculator

No two people budget the same way, so try all the options available and see what works. When you meet your goals, celebrate! Budgeting well can become addictive.

Financial counsellors are a valuable resource to assist you in managing difficult times. They provide a free service that will help you ensure all benefits and entitlements are covered. They also provide independent advice and guidance on strategies to reduce financial pressure. They will act as an advocate to help reduce financial pressure in the short term and give you strategies to improve your future financial outlook.