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Managing your money

As soon as you are in a position to think about your finances, the first step is to prepare a family budget.

The term ‘budget’ can be off-putting but it is really very simple and is at the heart of managing your money successfully. All it means is making a list of where you expect your income to come from and where you expect to spend it and then, over time, recording the actual figures. We will explain some of the aids that are available to help you.

The concepts discussed here should apply throughout your lifetime so you can plan for the future. However, when family life is disrupted by loss of income as a result of ill health, it is critical to know your financial position and how you can ‘make ends meet’.

When times are tough, every extra dollar of income you obtain and every expense spared helps to make those ends meet.

When normal income is disrupted you may receive special payments such as income insurance, Centrelink benefits, sick pay, leave or long service leave and investment income. Every single dollar is important. For example, if you have money in the bank make sure it is in an account with the highest possible interest rate to suit your requirements.

When you have written down your list of anticipated expenses, look through it carefully to see what items can be cut back or deferred to a later time.

Having these figures available also will help if you make special requests for financial assistance.

There are three basic ways to establish your budget:

  • Manually – the following illustration of a Handy Budget Planner is easy to complete and the instructions indicate each step.
  • Computer spreadsheet – you can easily set up your own spreadsheet following a similar form to the manual budget planner. Alternatively, several are available on the internet.  The Australian government website www.moneysmart.gov.au has a Budget Planner which can be downloaded free of charge and comes complete with help for first time users.
  • Commercial software – several commercial packages are available which have the advantage that you can record all your transactions and see your exact financial situation at any time. An example of such software is Quicken.  The ‘Personal’ edition is fine for most family situations but if you have multiple investments ‘Personal Plus’ may suit you better. 

Once you get used to recording your income and expenses you will find it an invaluable help in future planning. When you recover your health, and your income returns to normal, the budgeting habit you have formed will help with planning future events such as your retirement.

This illustration of preparing a budget is provided by the Australian Bankers Association and it possible to download the working papers, and other helpful information from their website www.bankers.asn.au.

Taking the first step

You can start a budget by simply writing down your income. Remember income can come from many sources not just your salary or wages. For example, you also might receive dividends from shares you own, rent from an investment property, or board from an adult child. If you receive government benefit payments you should include these payments as income too.

The next task in listing your expenses is more time consuming. Writing down your expenses will identify what you are spending in the major expense categories such as housing, groceries, transportation, utilities, medical/health, insurance, clothing, entertainment, education, travel, etc. It may sound arduous but the effort really pays off.

Here are two different methods to list your expenses.

1. Keep a daily diary

The most accurate approach is to note down every cent you spend on a daily basis over a three-month period. You could simply record your expenses by hand using a separate page for each week or use a spreadsheet. If you can, divide your expenses into the major categories as this helps to identify areas where you can cut back. If you use this approach, also think about including your annual expenses, e.g., your insurance premiums. The advantage of this approach is that it allows you to see exactly how much you are spending. If you have never done this before you will probably be astonished by how much you actually spend and what you actually spend your money on.

2. Refer to your records

You also could use your bank records, such as credit card and bank statements, to establish this information. If you use your credit card to pay for most things and have direct debits set up from your bank account for your regular expenses, this approach can be an effective way to gather information on your expenses. Your credit card, in particular, will itemise your expenses such as groceries, restaurants, clothing purchases, etc. The advantage of this approach is that it allows you to begin your budget now without having to collect information over the next few months.

Alternatively, you could use bills, such as utility bills or school charges, to calculate expenses. If you use this approach it is important to make sure you collect all the information to include in your budget.

Getting the timing right – weekly, fortnightly or monthly?

It’s a good idea to match your budget to your pay period which may be weekly, fortnightly or monthly. That way you can use your budget to help you manage every income payment effectively.

Converting the numbers

Not all of your income and expenses will be for the same timeframe, so you’ll need to convert some of them to make sure your budget figures are accurate. If you pay a certain bill by the month, but your budget is for a fortnight, you might find it easy enough to work out what the fortnightly cost of this bill would be. Some of the conversions might be a bit tricky to do in your head, so the conversion guide below will help you to make your budget accurate (and so will a calculator).

Make my weekly amounts fortnightly:

Multiply your weekly amounts by two – the result is the fortnightly amount.

Example: If your weekly income is $1100 and you want to have a fortnightly budget multiply $1100 by 2 to find your fortnightly income is $2200.

Make my weekly amounts monthly:

Multiply your weekly amounts by 52. Divide the answer by 12 – the result is the monthly amount.

Example: If your weekly income is $900 you multiple this by 52 to obtain your annual income ($46,800) and divide this by 12 to arrive at your monthly income of $3,900. 

Make my monthly amounts fortnightly:

Multiply your monthly amounts by 12. Divide the answer by 26 – the result is the fortnightly amount.

Example: If you receive a telephone expense account each month of $80 and you want to put it in a fortnightly budget, multiply $80 by 12 ($960) then divide that by 26 to find that the fortnightly amount is $36.92.

Make my fortnightly amounts monthly:

Multiply your fortnightly amounts by 26. Divide the answer by 12 – the result is the monthly amount.

Example: If your fortnightly income is $1500 and you want to budget on a monthly basis, multiply $1500 by 26 to find the annual amount of $39,000, then divide that by 12 to arrive at a monthly income of $3250.

Make my yearly amounts fortnightly:

Divide your yearly amounts by 26.

Example: If you receive a yearly rates bill of $3000 and you want a fortnightly budget, just divide $3000 by 26 to find your fortnightly expense of $115.38. 

Make my yearly amounts monthly:

Divide your yearly amounts by 12.

Example: If you have an annual insurance premium of $2100, the monthly amount will be $175.

 

Some tips on getting more accurate budget results include:

  • Use after-tax income figures (this may require you to make an adjustment if deductions have not been taken into account) e.g., imputation credits for dividends paid on shares.

  • Do not include irregular income that may not be reliable, e.g., annual performance bonus, gifts of money.

  • Calculate using consistent expense periods, e.g., weekly, fortnightly, monthly. 

 

Budget Planner

The next step is to complete a budget planner of regular income and regular expenses. You can use one of the many budget planners made available by banks and other financial institutions. These ready-made planners are available online or ask for a printed version from your bank, or use the Australian Securities & Investments Commission (ASIC) Money Smart budget planner.

Remember to select a timeframe for your budget - weekly, fortnightly or monthly.

One last step – are you balanced?

Once you’ve calculated your income and expenses, you can clearly see how much regular income you receive, and where all that money goes over your chosen period. 

If you still have money left over after doing this calculation, you’re living within your means and your income is greater than your expenses – this means you could be saving some money.

If your answer is zero, your income equals your expenses – you may want to consider reducing some expenses in order to build up some savings.

If you get a negative number, you are currently spending more than you earn – you need to review your expenses carefully to see if you can correct the situation.

A little effort in establishing and working with a budget can help to give you peace of mind during your illness and recovery period. The experience gained will then be invaluable in managing your finances in the future.