How to make a budget in 2021

How to make a budget in 2021

Not long now until it's a new year and a new decade – the perfect time to start cultivating a healthy new attitude to personal finance.

Getting your money under control may sound intimidating, but it doesn’t have to be. As the old saying goes, “if you can measure it, you can manage it.”

Here’s a step by step guide to creating a basic budget, to help you keep track of your money and achieve your goals.

Step one – Goals

What do you want to achieve this year? Do you want to:

  • Buy a house?
  • Start a family?
  • Go on a major holiday?
  • Get out of debt?
  • Make plans for retirement?

Keep your goals in mind when planning your budget, as they may affect the decisions you make with your money.

Step two – Gather money information

The more closely you can track your money’s comings and goings, the more you’ll have to work with when preparing your budget. 

Collect as much information as you can about your personal finances, including:

  • Bank statements
  • Bills
  • Payslips
  • Tax returns

If it’s written down, in paper or online, it may be useful. Every little bit helps.

Step three – Work out your income 

How much money do you take home each month? How about over a whole year?

Finding your income could be as simple as checking your bank statements or payslips from your job.

You may also receive income from other sources, such as earnings from a side business, renting out an investment property, interest on a term deposit, or dividends from shares. Make a note of which income streams are regular, and which ones are irregular.

For example, you may have a day job, but also freelance on the side, which could complicate your budgeting. The wages from a regular job should stay the same, but your freelance income will depend on how much work you have and the fees you charge per job.

For simpler budgeting, consider working out an average estimate for any irregular income.

Step four – Work out your expenses

Once you have money, where does it go?

Take a look back through your bank statements and receipts to work out how much money you typically spend in a normal month. If you’re making a budget in January, remember that December isn’t exactly a normal month, thanks to holiday spending!

Consider categorising your expenses like so:

  • Needs: Everything you can’t live without, or realistically avoid paying e.g. rent or mortgage payments, food, utility bills.
  • Wants: The fun stuff you spend money on, but could do without if you had to, e.g. pay TV and streaming service subscriptions, eating out, impulse purchases.
  • Savings: Money you stash away for a rainy day.
  • Debts: Paying off outstanding loans or credit card debts.

Just like your income, note which expenses are regular and irregular. For example, if you pay the same amount for streaming TV every month, that’s a regular expense. If you bought a couple of pairs of shoes last year, those are irregular expenses (unless you go through a LOT of shoes).

Some regular expenses are for irregular amounts. For example, your gas and electricity bills may be due every quarter, but their cost will likely vary by your seasonal usage. Similarly, the cost of your supermarket shopping may vary from week to week, depending on what you’re buying. In cases like these, consider working out an average to include in your budget.

Also consider leaving some extra room in your budget for surprise expenses, such as car repairs or medical bills. One rule of thumb you could use is to add a 10 to 15 percent buffer to your total estimated expenses. You may also want to review the last five years of car repairs and medical bills, to get an idea of the average annual cost.

Step five – Compare your income to your expenses

If, on a monthly or yearly basis, you receive more income than you spend in expenses, then your budget is in surplus. This is often a good thing, as there’s money left over that could be put towards your goals.

If you spend more money per month or per year than you receive in income, then your budget is in deficit. This could indicate a problem, which may need to be addressed to bring your finances back under control.

Step six – Work out what needs to change

If your budget is in deficit, think about what steps you can take to get things back in the black.

You could:

  • Cut expenses: Run through your expenses and get ready to make some hard choices. Pay special attention to both your irregular expenses and your ‘wants’ to work out what you can cut down or cut out. You may be surprised by how much you can spend per year on the little things!
  • Switch and save: You may be able to save money on both your ‘needs’ and ‘wants’, simply by switching to more affordable options. You could change your electricity or gas provider, swap supermarkets, or refinance your home loan with a new bank. If you’ve been putting this off due to the hassle, remember that it may be worth it in the long run.
  • Clear debts: If a chunk of your money is currently going toward a personal loan or outstanding credit card debt, work out if you could put even more of your money towards paying off this debt. Making extra repayments may mean some short-term pain, but once your debt is cleared, the income you’d been setting aside for repayments can instead be put to work elsewhere.

Even if your budget is already in surplus, that’s no reason to rest on your laurels. Think about where the extra money could best be used to help you achieve your goals: 

  • Put it in a savings account or term deposit to earn interest and grow your wealth while you wait for a rainy day
  • Add it to your superannuation to help grow your retirement nest egg
  • Make extra repayments on your home loan (if you have one) to pay off more of your property, which can in turn help reduce your interest charges
  • Invest your spare money in shares or other assets

When you’re working out what to do with your money, keep your financial goals in mind and make your decisions accordingly.

Step seven – Keep it up!

Simply making a budget won’t be enough to turn your relationship with money around. You also need to put your plan into practice.

Life is unpredictable, and your circumstances will almost certainly change over the course of the year. Stay flexible, and be ready to review and your budget every three to six months, to account for new changes and check that you’re still on track to achieve your goals.

Hints and tips

Be realistic

It’s natural to hope for the best-case scenario. Unfortunately, it doesn’t always come up.

Try not to underestimate how much you spend or overestimate how much you earn. Sometimes it’s better to hope for the best but plan for the worst.

Use apps and other online resources

MoneySmart has a budget planner that can take a lot of the hard work out of organising your money.

If you have a smartphone (chances are good you’re reading this on one), then you have options available to help you manage your money.

Check if your bank has an app that offers more than just basic online banking. Several major banks offer apps that can track your spending and savings goals, or alert you if you go over a self-set spending limit.

There are also apps available that can help put your digital “spare change” towards your savings or investments. For example, if you were to buy a large coffee in the city for $4.60, and pay with your debit card or phone banking, the app can “round up” the transaction to $5.00 and put the spare 40c into a savings account. It may not sound like much, but in time it can add up. Similarly, there are apps and reward programs that can help you get cash back on your shopping.

These apps include, but aren’t limited to:

  • ATO app and myDeductions
  • Carrott
  • Cashrewards
  • Everyday Round Up
  • Expensify
  • Finch
  • Free2Spend
  • Frollo
  • Goodbudget
  • Mint
  • MoneyBrilliant
  • MoneyPad
  • Moneytree
  • Pocketbook
  • Pocketsmith
  • Quit That! (helps you give up expensive habits, like smoking or drinking)
  • Raiz (formerly Acorns)
  • ShopBack
  • Sipora
  • Spendee
  • YNAB (or You Need A Budget)

Ask for help

If things aren’t going well, or you’re struggling to keep track of your finances, there’s nothing wrong with asking for help.

Consider contacting an accountant or financial counsellor that can offer personal advice on how you can best manage your money. Check their qualifications first, to be sure you don’t end up with a less than reliable budget management business.

If you’re struggling with debt, consider contacting the National Debt Helpline on 1800 007 007.

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Learn more about bank accounts

Can debt collectors take money out of your bank account?

Many people find themselves struggling to cope with debt at one time or another. In these cases, a debt collector could contact you to demand payment for a debt, to explain the consequences of you failing to pay a debt, or to organise alternative payment arrangements.

If you’re contacted by a debt collector, you may be wondering what their rights are and whether they can take money out of your bank account.

Creditors cannot access money in your bank account unless a court order (also known as a ‘garnishee order’) is made to allow creditors to recover debt by taking money from your bank account or salary.

If this happens, the creditor can take money out of your bank account unless you pay the debt in full or make an alternative payment arrangement such as paying in instalments through the court.

Can the government take your money from your bank account?

There are some instances when the government can take money from your bank account. This generally occurs in situations where you have an outstanding government debt.

Before it can take money from your bank account, the government authority owed money would first need to issue a garnishee notice. 

A garnishee notice is issued by the government agency (such as Centrelink or the ATO) to a third party that holds money for you or owes you money.

To take money from your bank account, your bank would be issued with the garnishee notice requiring it to pay ‘your money’ to the requesting agency to satisfy the debt.

How do you transfer money from PayPal to a bank account?

Transferring money from PayPal to an Australian bank account is simple. Just follow these three steps:

  • Go to your Wallet
  • Click ‘Transfer Money’
  • Follow the instructions

The money will take three to seven business days to reach your bank account.

Once you’ve made the transfer request, it can’t be withdrawn.

Can you deposit money into somebody else's bank account?

One of the easiest banking tasks in the world is depositing money. You can even deposit money into someone else’s bank account if you wish.

The basic information you need to deposit money into a third-party bank account is:

  • Payee’s name
  • Bank, building society or credit union (though this isn’t necessary)
  • BSB (or bank code, which is the branch identifier)
  • Account number

Including the name of the financial institution isn’t necessary – particularly with online banking – because the BSB will identify this for you.

A handy tip is to record yourself (or add a personal message) in the transaction description or reference. This will show up on the recipients account, letting them know who’s paid them the money.

How can I wire money to a bank account?

You can wire money to an Australian bank account either through your own bank or by using a money transfer company such as Western Union or MoneyGram. Either way, you’ll need the other person’s name, BSB number and account number. If you use a money transfer company, you might also need to provide the recipient’s address for large payments.

How to transfer money to another bank account

Transferring money to another bank is often called a bank transfer, and it can be done a few different ways.

Customers generally need three pieces of information to transfer money to another bank account. Customers need the account name, BSB and account number of the account they wish to transfer money to.

One way of transferring money to another bank account is in a branch with the help of a staff member; they will often give you a receipt as well as confirmation of the transfer.

Transfers can be also made via internet banking and phone banking.

Some banks also allow customers to make transfers via partnered ATMs, especially if the account is with the same bank.

How do you set up a bank account online?

Once you’ve compared bank accounts and found the right one, the process of opening a bank account online is quite simple and can be done in around 10 minutes.

To set up a bank account online, you’ll need to prove your identity and provide an approved form of ID as well as your tax file number (TFN).

If you’re a new customer of the bank, you’ll need to verify your identity and potentially upload documents before you can complete your online application.

Once your ID has been verified and you’ve set up your bank account online, you should receive your bank cards in the mail along with your PIN and any other account details.

How can I close a Commonwealth Bank account?

You can close your Commonwealth Bank account at any branch, provided you have appropriate identification. You can also close your account over the phone, by calling 132 221, 24 hours a day.

Can foreigners open bank account in Australia?

If you’re migrating, studying or working in Australia, you’ll be pleased to know that you can open an Australian bank account. For the most part, opening a bank account in Australia is a simple process which starts by comparing the types of bank accounts foreigners can open in Australia.

Once you’ve found a bank account that suits your needs, you can start the application process.

When you apply for the account, you’ll need to provide proof of ID which may include your passport, overseas ID or credit card. You may also need to provide a copy of your visa and proof of address in Australia.

Depending on the bank and the type of account you choose, you may be able to apply for the account online or over the phone before you arrive in Australia.

How do I close my bank account online?

You can usually easily open a bank account online, but you often can’t close it online.

Many banks and credit unions will only let you close an account if you go into a branch or call them on the phone.

However, some banks will let you request to close the account via your internet banking. Check your financial provider’s website for details.

Just remember: If you still have funds in the bank account, transfer them to another account, or withdraw the cash. Also, if you have any payments like direct debits going in or out of the bank account, these will also stop when you close your account.

What do I need to open bank accounts online?

Opening a bank account online is a simple process and only takes between five to 10 minutes to complete. To get started you will need a computer or smartphone with internet access.

Information to have available when you’re ready to apply is:

  • Identification (such as driver’s licence, birth certificate, passport, proof-of-age card)
  • Tax file number
  • Residential address, email and a contact number

In some cases, you might be asked to provide employment details. If you’re not able to verify your identity online, most financial institutions let you provide this in the branch at a later date.

There are some types of bank account that you can apply for only in a branch. However, most bank accounts can be applied for conveniently online.

How do I overdraw my Commonwealth Bank account?

Overdrawing a bank account can happen by accident. It’s often hard to know what your balance is, particularly with direct debits, scheduled repayments and pending transactions competing for cash.

To avoid being stuck with a bank fee every time your account is overdrawn, you can apply for a personal overdraft. This will enable you to overdraw your account up to an approved amount.

A personal overdraft is connected to your CommBank Everyday Account, so you can enjoy easy access to extra funds once approved – anywhere from $100 up to $20,000.

Your overdraft funds can be accessed via your CommBank keycard or Debit MasterCard, or online through NetBank and the CommBank app.

To apply you can either call the Commonwealth Bank directly or visit your local branch.

How do you deposit change into your bank account?

One way to deposit change into your bank account is to visit a branch. Many lenders will also allow you to deposit your change through one of their ATMs.

Can you open a bank account at 16?

Yes, you can open a bank account at 16, or even younger. If you’re 13 or under, you will probably need a parent to accompany you to a branch.