Manage finances

Income: Income is the money you regularly receive. This could be from your job, government benefits, interest on savings, or other earnings. It’s your total money before any bills or expenses are taken out.

Expenses: Expenses are the things you spend money on, like bills, groceries, rent, or transport. Knowing your expenses helps you see where your money is going, which is important for budgeting.

• Fixed expenses: Fixed expenses are costs that stay the same, like rent or mortgage payments. These amounts don’t usually change and are easier to predict.
• Variable expenses: Variable expenses change each month, like groceries or electricity bills. These costs depend on how much you use or spend.
• Other expenses: These are extra costs that are important to your lifestyle, like getting haircuts, buying clothes, or going out with friends.

Savings: Savings are the part of your income you put aside for the future. This could be for emergencies, big goals like buying a house, or retirement. Saving regularly is important for a healthy budget.

Debt: Debt is money you owe, like loans or credit card balances. Managing debt carefully is important so you don’t pay too much interest or feel stressed about money.

Taxation (tax): Tax is money you pay to the government. It’s based on your income and goes towards funding public services. When budgeting, it’s important to think about how much money you have left after tax is taken out.

Superannuation (super): Super is the forced savings Australians use to fund their retirement. Your employer must put a part of your earnings into a superannuation fund. Knowing about your super helps you plan for the long term.

Creating a budget is key to managing your money, especially if you want to take control of your finances. Whether you prefer using pen and paper or digital tools like Excel, Google Sheets, or budgeting apps, having a clear plan can make a big difference.

Key steps to creating a budget:

1. Review your bank statements
   • Look at your bank and credit card statements to understand your spending habits. This will help you see where your money is going and how much you earn.
   • You can download your bank statement from your online banking portal or visit a branch for a printed copy. Some banks may send you a monthly statement on paper for a fee.
2. List your income and expenses
   • Make a list of your income and expenses. 
   • Group your expenses into categories like housing, groceries, utilities, transport, and entertainment.
3. Decide on a time frame
   • Choose whether your budget will cover a week, fortnight, or month.
   • Make sure to convert all income and expenses to match the time frame.
   • For example, if your rent is paid fortnightly but you’re using a monthly budget, multiply your rent by two to find the monthly cost.
4. Total your income
   • Add up all your income for the chosen time frame, including wages, benefits, and other regular payments. This total is your available income for that period.
5. Subtract essential expenses
   • Subtract your essential expenses from your total income. These are the costs you need to cover your basic needs.
   • Don’t forget to consider the tax and superannuation deducted from your income.
6. Consider annual expenses
   • Some expenses, like insurance, car registration, or council rates, are paid once a year. To include these in your budget, divide the total yearly cost by 12 (for a monthly budget) or by your chosen time frame.
   • Subtract these monthly amounts from your income as essential expenses.
   • For example, if your annual health insurance costs $350, divide $350 by 12 to find the monthly cost ($29.16).
7. Allocate savings
   • Decide how much you want to save each period and subtract this amount from your remaining income. 
   • For example, if you’re saving for a $5,000 car deposit within two years, divide $5,000 by 24 months to find the required monthly savings ($208.33).
8. Subtract non-essential expenses
   • Next, think about your non-essential expenses, like entertainment, dining out, and hobbies, which are important for a balanced lifestyle. Subtract these costs from your remaining income.
9. Analyse your balance
   • After subtracting all your expenses, look at your remaining balance. If you’re spending more than you earn, you’ll need to cut back on expenses or find ways to increase your income.
   • Tip: Look for areas where you can reduce spending, like dining out less or cancelling unused subscriptions, to improve your budget.

Additional Practical Tips:

• Automate your savings: Set up automatic transfers to your account on payday to ensure you’re consistently saving.
• Review and adjust regularly: Your financial situation can change, so check your budget regularly and adjust it as needed. This keeps your budget on track.
• Plan for emergencies: Set aside part of your budget for an emergency fund to cover unexpected costs without throwing off your financial plan.
• Create a flexible budget: It’s important to assess your budget and think about what might increase or decrease over time. Spend time each month reviewing your budget and comparing it to your bank statement and savings goals.
• Set calendar dates:  Use a calendar to note when your expenses and bills are due. Transfer or pay the bill a few days early so your money can earn interest in your savings account until it’s due.

Managing your bills is important for keeping your finances stable. In Australia, it’s helpful to understand your bills, choose the best payment methods, and stay organised to avoid late fees and financial stress.

1. Understand your bill statements: Start by carefully looking at each bill. Check how often the bill is due and the next due date. This helps you plan how much money to set aside for each bill in your budget.
2. Choose payment methods: Bills usually offer different ways to pay. Choose the method that works best for you.
   1. Direct debit: This option automatically deducts payments on the due date, helping you pay bills on time.
   2. BPAY: A secure method where you pay through your bank’s online service or app using a biller code and reference number.
   3. Centrepay is a voluntary bill paying service which is free for Centrelink customers. You can use Centrepay to arrange regular deductions from your Centrelink payment to manage your bills
3. Keep records: Always keep receipts for your payments, digital or paper. These can help if there’s ever a problem with your bill. Use spreadsheets for budgeting apps to track your payments and make sure nothing is missed.
4. Create payment plans: If you’re having trouble paying a bill, contact your service provider immediately. They may offer hardship programs or flexible payment plans to help you manage your payments.
5. Avoid late fees: Pay your bills on or before the due date to avoid late fees. Setting up automatic payments can also help you avoid missing a payment.
6. Watch for errors and scams: Regularly review your bills for errors or unauthorised charges. Be cautious of scams and verify suspicious bills by contacting the provider directly.

You can manage your bills effectively and reduce financial stress by staying organised and proactive.

Note: To set up utility accounts, refer to findamover. 

Use these services to find cheaper deals on your expenses. Remember that you must provide an email and phone number to get full access, and these companies may call you unexpectedly.

• Whistleout.com.au - cheaper mobile phone and internet plans
• Comparethemarket.com.au - compare loans, insurance and utility providers
• Moneysmart Unclaimed Money Finder 
• Moneysmart Budget Planner - budget templates
• Compare Energy - for electricity and gas

A good savings strategy can help you plan for big financial goals like a house deposit or a car. Here are some practical tips to help you save effectively:

• Set clear goals: Decide what you’re saving for, whether it’s an emergency fund, a house deposit, or something else. Set a specific amount and a deadline for your goal, and keep track of your progress. Visual reminders, like a note on your fridge, can help keep you motivated.
• Treat savings like an expense: Think of savings as a necessary expense, just like paying rent or bills. Set aside a portion of your income for savings each month. Regular savings can also help when applying for loans, as banks look for proof that you can save regularly.
• Start small, think big: Save small amounts, like $5 notes or $2 coins. Use a jar or piggy bank at home to collect spare change. When it’s full, deposit the money into a savings account. Over time, these small amounts can add up.
• Create a separate account for savings: Keep savings separate from everyday money. Open a different account for your savings, and don’t link any cards to it. This helps you avoid spending your savings.
• Automate your savings: If you get a regular income, set up an automatic transfer to a separate savings account on payday. This way, the money is saved before you can spend it. Look for accounts that offer higher interest rates and avoid linking this account to your everyday banking to reduce temptation.
• Shop around for the best savings account: Not all savings accounts are the same. Use comparison tools like Mozo or Choice to find accounts with the best interest rates and lowest fees so you can earn extra money on your savings. Be sure to read the terms and conditions to avoid any surprises.
• Use cash, avoid debit/credit cards: When possible, try to withdraw the cash you need for expenses and pay with this. Avoid spending more than you intend to, and leave your eftpos cards somewhere safe.

For further information on savings, see MoneySmart.

An emergency fund is a critical safety net that provides financial security during unexpected situations, such as medical emergencies, car repairs, or sudden job loss.

Why it’s important: An emergency fund helps you handle surprise expenses without relying on credit cards or loans, which can lead to debt.

How much to save: Try to save at least three months' worth of living expenses. This might seem challenging, but starting small is important. Even saving $5 or $10 a week can slowly build your fund.

How to start

• Set a target: Decide how much you need based on your monthly expenses.
• Automate savings: Set up an automatic transfer to your emergency fund.
• Keep It Accessible: Make sure your fund is easy to access in emergencies but not so easy that you’re tempted to use it for non-emergencies.

If you receive a lump sum, like a divorce settlement or inheritance, it’s important to plan how to use the money to improve your financial security. Start by looking at your current finances. Think about any debt you have, how much you have in savings, and any important purchases you need to make. It’s a good idea to get advice from a financial advisor.

How to Use the Money

You should use the money for the most important things first, such as:

1. Pay expensive debt: Pay off debt with high interest, like credit cards or personal loans. Some creditors might accept a reduced lump sum payment to settle the debt, especially if it’s overdue.
2. Add to savings: Make sure you have enough savings for unexpected emergencies, like a broken fridge, car repairs, or travel to see a sick family member. Aim to save at least three months of living expenses or six months if your income is unstable.
3. Make essential purchases: Think about any urgent purchases you need to make, like school uniforms or new tyres. This might also be a good time to replace an old appliance with a more energy-efficient one.
4. Make additional mortgage payments: Check if your mortgage payments are up to date, you might make extra payments to be ahead. Check with your bank if they accept additional repayments. 
5. Superannuation: You can add money to your superannuation (super) fund. Use MoneySmart’s Superannuation Calculator to see if you’re on track to have enough super for your retirement. Remember, once you put money into your super, you usually can’t access it until you reach retirement age.
6. Treat yourself: If you have money left after covering the essentials, use some to treat yourself, like a holiday or a nice dinner. Just be careful not to do these as regular activities, as they can quickly drain your savings.

What is most important to you might be in a different order to this list, and that’s okay. The main thing is that you make a plan for the money so it doesn’t just disappear over time.

Important note: If you are receiving any payments from Centrelink or have declared bankruptcy in the last three years, you must let Centrelink know you have received a sum of money. Failure to do so could result in a Centrelink debt or a penalty. The Centrelink Financial Information Service Officer may be helpful here. Learn more at Financial Information Service Officers.

Credit cards can be helpful if you use them wisely. They offer convenience, allow you to make purchases online, and help you build a credit history. But, it’s important to understand how to use credit cards carefully to avoid problems.

Advantages of credit cards

• Convenience: Credit cards make it easy to buy things quickly, both online and in stores.
• Building credit: Paying your credit card bill on time can help you build a good credit history, which is important if you need a loan or want to apply for more credit in the future.
• Rewards: Some credit cards offer rewards like cashback, points, or travel perks that can give you extra value.

Disadvantages of credit cards

• Interest costs: If you don’t pay your full balance each month, you’ll be charged interest on what you owe. Credit card interest rates can be high, so carrying a balance can get expensive.
• Fees: Some credit cards have annual fees just for using the card. Make sure the benefits of the card are worth the cost.
• Minimum payments: Paying only the minimum amount monthly might seem easier, but it can lead to long-term debt. Interest will keep adding up on the unpaid balance, making paying off what you owe harder.

Practical tips for managing credit

• Pay in full: Try to pay off your balance in full each month to avoid interest charges.
• Use rewards wisely: If your card offers rewards, use them to your advantage, but don’t overspend just to earn points.
• Stay within your limits: Keep track of your spending and stay within your credit limit to avoid fees and keep control of your finances.

Personal loans can give you a lump sum of money for specific needs, like home renovations or paying off other debts. It’s important to understand the different types of loans and the costs involved so you can make a smart choice.

Types of personal loans

• Secured loans: These require something valuable, like a car, as collateral. They usually have lower interest rates because the lender takes on less risk.
• Unsecured loans: These don’t require collateral but often come with higher interest rates.
• Fixed-rate loans: These loan’s interest rates and repayments stay the same throughout the loan, so you know exactly what you’ll pay each month.
• Variable-rate loans: These loan’s interest rates can fluctuate, causing changes in repayment amounts.

Advantages of personal loans

• Lump sum access: Provides lump sum money upfront for specific needs like home improvements or paying off other debts.
• Lower interest rates: Secured loans often have lower interest rates than credit cards, making them a more affordable option for big purchases.

Disadvantages of personal loans

• Interest costs: Interest can add up, especially with unsecured or variable-rate loans. You can use the MoneySmart personal loan calculator to find out how much you’ll pay.
• Fees: Be aware of extra costs like application fees, monthly account fees, and possible penalties for paying off the loan early.

"Buy now, pay later" (BNPL) services like Afterpay, Zippay, Humm, and LatitudePay let you make purchases now and pay them off in regular instalments. While these services are advertised as interest-free, there are important costs and risks to keep in mind.

Advantages of BNPL

• Convenience: BNPL services allow you to purchase without needing the full amount upfront. You can spread the cost over time, making managing large or unexpected expenses easier.
• Interest-free payments: Unlike credit cards, many BNPL services offer interest-free payments if you pay on time. This can be a cost-effective way to buy things without paying interest.
• Quick approval: BNPL services have a fast and simple approval process, often requiring only basic information. This makes it easier to get credit when you need it.
• Flexible payment options: BNPL services often let you choose a payment plan that works best for you. This can help you budget and avoid financial strain.

Disadvantages of Buy Now, Pay Later.

• Fees: BNPL services can charge various fees, including late fees, monthly payments, and processing fees.
• Multiple accounts: It’s easy to sign up for multiple BNPL services, which can lead to a cycle of debt as you try to keep up with all the payments.
• Lack of regulation: BNPL services aren’t regulated, like credit cards or personal loans, so it can be harder to get help paying them off if you need help paying them off.

Practical tips for managing BNPL services

• Limit use: Only use BNPL services for essential purchases and avoid signing up for multiple accounts.
• Track payments: Keep a close eye on payment due dates to avoid late fees.
• Not government-regulated: BNPL services are not currently regulated by the government like credit cards and personal loans. This means it might be harder to get help if you have trouble paying them off.  For support, speak to a financial counsellor.

Payday lending offers a quick and easy way to borrow money, often within hours, for unexpected expenses. However, while these loans can give you fast cash, they have serious risks that can lead to financial problems.

Advantages of payday lending

• Quick access to cash: Payday loans give you money quickly, making them handy for emergencies or sudden expenses.
• Simple approval process: Getting approved for a payday loan is usually fast and easy, with few requirements. This makes them accessible to people with poor credit.

Disadvantages of payday lending

• High-interest rates: Payday loans have very high rates, making them expensive. For example, borrowing $500 for a month could cost you an extra $120 in fees.
• Debt cycle: The short repayment terms and high costs can trap you in a cycle of debt, where you might need to take out new loans to pay off the original one.
• Strict criteria: Payday lenders must follow strict criteria, but their terms are often less favourable than traditional loans, making them a risky choice.

Practical tips for managing payday loans

• Avoid use: Look for alternatives like interest-free loans or financial assistance programs before choosing a payday loan.
• Seek support: If you’re struggling with payday loan debt, consult a financial counsellor for advice and assistance.

There are strict criteria payday lenders must follow when lending you money. These resources may be helpful:

• Consumer Credit Legal Service
• Financial Rights Legal Centre's - Easy Cash Loans.
• Consumer action law centre

Compound interest applies to both savings and debt. It means that interest is calculated not just on the original amount but also on the interest that has been added over time.

Example with savings:
If you save $100 with a 10% interest rate, you’ll have $110 after one year. If you leave the $110 in your savings account, the next year's interest is calculated on $110, not just the original $100. This means you’ll earn $11 in interest, bringing your total to $121. Each year, the interest you earn increases as it builds on the higher amount.

Example with debt:
Compound interest on debt works the same way, increasing what you owe over time. Imagine you have a $5,000 debt with a credit card that charges 2% interest per month. In the first month, you’ll be charged $100 in interest, making your total debt $5,100. If you don’t make any payments, the next month’s interest is calculated at $5,100, adding $102, making your debt $5,202. This cycle continues, and over time, your debt grows fast. After 12 months, your $5,000 debt could grow to $6,341.21; after five years, it could become $16,405.15.

Managing your money can help you avoid debt and find other options when needed. Here are some effective strategies:

• Negotiate with your provider: If you’re having trouble making payments, contact your service providers early. Many of them offer flexible payment plans to help you avoid missed payments and more debt.
• Consider a no-interest loan: No Interest Loans (NILs) offer up to $3,000 for essential items without charging interest. This is a safer option compared to high-interest loans. Learn more in Rebuild 3D.
• Start or review your budget: A budget helps you track income and expenses, making it easier to manage your money and avoid overspending. Visit Thrive 4A for budgeting tips.
• Explore grants: Financial assistance grants can help cover essential living costs, reducing the need to borrow money. Check out Rebuild 3D for more details.
• Manage debt wisely: If you have existing debt, prioritise high-interest payments and consider consolidation. Visit Rebuild 4D for more debt management advice.
• Use financial resources: Websites like MoneySmart offer tools and advice to help you make informed financial decisions and avoid debt.

Managing debt effectively starts with a solid plan. Here’s how to take control of your finances and work towards becoming debt-free:

1. Create a budget: Create a budget that includes all your income, expenses, and debt payments. This will help you see where your money is going and ensure you don’t spend more than you earn. Including an emergency fund in your budget can also prevent future debt if unexpected expenses arise. Find more information about creating a budget at Yourtoolkit.com. 
2. List your debts: Make a complete list of all your debts, including:
   • The total amount owed
   • Minimum monthly payments
   • Interest rates
   • What each debt is for (e.g., mortgage, credit card, personal loan)
3. Prioritise payments: Decide which debts to tackle first:
   • Small debts: Paying off smaller debts first can give you a sense of achievement and reduce the number of payments you manage.
   • High-interest debts: Focus on paying off debts with the highest interest rates to save money over time.
   • Critical debts: Prioritise debts with serious consequences, like mortgage payments, to avoid losing your home.
4. Use extra money wisely: Apply any additional money—such as from a tax refund, overtime, or selling unused items—directly to your debt payments. Reducing non-essential spending can also free up more money to pay down debt faster.
5. Seek help if needed: Resources like MoneySmart and the National Debt Helpline can provide guidance and support if debt is overwhelming.

If you're a homeowner struggling with mortgage payments, some options can help:

• Hardship variation: You can ask your bank to temporarily pause or reduce your mortgage repayments. This can give you short-term relief while you work on getting back on your feet. Contact your bank to find out what options are available. Learn more about financial hardship and how to request hardship variation.
• Refinancing: In the long term, consider refinancing your mortgage to a loan with lower fees or better interest rates. Be aware of hidden costs, like exit or new loan setup fees.
  • If you’re already behind on mortgage payments, it might be hard to switch banks. Talk to your bank as soon as possible to explore your options.
• Accessing superannuation: In extreme cases, you can access your superannuation to help pay your mortgage. However, this should be a last resort because it can affect your retirement savings.

Bankruptcy is very serious and has consequences both short and long-term. While it allows you to cancel many types of debt, it also means you will be listed on an insolvency register for life. This can affect your credit file, some future jobs, and your ability to travel overseas. Bankruptcy should only be considered as a last resort. If you are considering bankruptcy, speak to the National Debt Helpline or a financial counsellor first.

If you need help with payments, contact your utility providers, banks, or other companies as soon as possible. They can help you create payment plans that pay back your debt in a manageable way. The following organisations can also help you manage debt:

Your tax file number (TFN) is your personal reference number for the tax and superannuation systems. Without a TFN you can’t receive government benefits, lodge your tax return online, or get an Australian business number (ABN). You may also end up paying more taxes.

If you don’t know what your TFN is, you can find it:

• On your income tax notice of assessment or other letters from the Australian Taxation Office (ATO)
• on payment summaries (provided by your employer) or your superannuation statement
• through myGov if it’s linked to the ATO
• ask your tax agent
• contact the ATO on 13 61 28, 8 am-6 pm, Monday to Friday

For further information on applying for a Tax File Number, see the Australian Taxation Office.

In Australia everybody must pay taxes on their income, including wages, bank interest, and rental income. If any of the following apply, you must pay tax and lodge a tax return:

• Tax was deducted from any payments made to you (like wages) during the financial year.
• You are an Australian resident, and your taxable income was more than the tax-free threshold
• You are a foreign resident and earned more than $1 in Australia during the financial year
• you are leaving Australia permanently or for more than one financial year

The amount of tax you pay depends on how much you earn: 

• Income tax rates guide
• Tax deduction and income definitions

How to lodge your tax Return

You can lodge your tax return in several ways:

1. myTax: Lodge your tax return online through myTax, linked to your myGov account. Find instructions for setting up and linking your myGov to the ATO.
2. Paper tax return: You can also submit your tax return by mailing it on paper.
3. Registered tax agent: A registered tax agent can prepare and lodge your tax return for a fee, which you can claim as a tax-deductible expense.

Free help with lodging your tax Return

• Tax help program: The ATO offers a free Tax Help Program for eligible individuals who need assistance with their tax return.

Avoiding penalties for late lodgement

Failing to lodge your tax return by the due date (typically 31 October of the following year) can result in penalties and interest charges from the ATO. To avoid these:

• Communicate with the ATO: If you can’t lodge your tax return on time or have a tax bill you cannot pay, inform the ATO as soon as possible.
• Registered tax agent lodgement: Using a registered tax agent may give you a later lodgement date.

Tax return resources:

• Penalties and interest charges that the Tax Office may apply
• ATO Do I need to lodge a tax return? Tool
• National Tax Clinic Program -  Accounting and taxation students can assist with tax advice and tax assessments

Capital Gains Tax (CGT) is generally applied when you sell an asset for more than you paid for it. The tax is calculated on the profit (capital gain) you made from the sale. However, there are certain situations where you do not have to pay CGT, including:

• Selling the place you live in
• Selling a car, motorbike or similar vehicles
• Any asset you’ve had since before 20 September 1985
• When assets are transferred due to a relationship breakup, learn more about capital gains tax and asset redistribution after a breakup.

Capital losses

If you sell an investment for less than it cost you, this is considered a capital loss. You can use a capital loss to offset any capital gains made in the same tax year. If you don’t have any gains to offset, you can carry the capital loss forward to reduce capital gains in future years.

Learn more about capital gains tax and exemptions.

Investing can be a powerful way to build wealth, secure your financial future, and achieve your long-term goals. 

What is investing?

Investing involves putting your money into assets that have the potential to provide profit. The main idea is to buy assets that will increase in value or generate income, such as shares, property, or bonds.

Benefits of Investing?

Investing is essential for growing your wealth and securing financial independence. Here are some reasons why you should consider investing:

• Grow your wealth: Investing can help your money grow faster than traditional savings accounts, which is crucial for long-term financial goals like buying a home or retiring comfortably.
• Beat Inflation: Inflation reduces the purchasing power of your money over time. By investing, you can potentially earn returns that outpace inflation, preserving the value of your wealth.
• Achieve financial goals: Whether you’re saving for a child’s education, a down payment on a house, or retirement, investing can help you reach these goals faster.

There are various types of investments available in Australia, each with its own set of benefits and risks:

• Shares (Stocks): Buying shares means owning a part of a company. Shares can offer high returns but also come with higher risks.
• Bonds: Bonds are loans you give to companies or the government, which pay you interest over time. They are generally lower-risk than shares but offer lower returns.
• Property: Investing in real estate can provide rental income and potential capital growth. However, it requires a significant upfront investment.
• Managed funds: These are professionally managed investment portfolios that pool money from multiple investors to buy a diversified mix of assets.
• Superannuation: This is a long-term investment for retirement. It's important to regularly review and manage your super to ensure it aligns with your retirement goals.

All investments carry some level of risk. Generally, the higher the potential return, the higher the risk. It’s important to assess your risk tolerance before investing. Consider factors like your age, financial situation, and how long you can keep your money invested without needing to access it.

• High-risk investments: Shares and property can offer high returns but are more volatile.
• Low-risk investments: Bonds and cash investments are safer but typically offer lower returns.

A diversified portfolio can help manage risk by spreading your investments across different asset classes. Here’s how to build one:

1. Start small: Begin with a small investment in a diversified fund, which gives you exposure to different assets.
2. Regular contributions: Consider setting up regular contributions to your investments, such as monthly deposits into a managed fund or superannuation account.
3. Review regularly: Review and rebalance your portfolio to ensure it aligns with your financial goals.

Investing is a long-term strategy. The longer you keep your investments, the more you can benefit from compound returns. Avoid the temptation to react to short-term market fluctuations. Instead, focus on your long-term goals and stick to your investment plan.

• Stay informed: Keep yourself informed about market trends and economic conditions, but avoid making impulsive decisions based on short-term market movements.
• Patience pays off: Long-term investments have the potential to grow significantly over time, especially with the power of compound interest.