How to make a budget in 2020

How to make a budget in 2020

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.

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 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.

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 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.

Can I find my bank account number online?

Yes, you can find your bank account number by logging into your online banking and clicking on the relevant account.

Do I need to open a business bank account?

Just because you’re in business doesn’t necessarily mean you need a business bank account. You could be a sole trader not registered for GST, and use your personal bank account for business.

If you do want a business account, there are plenty of benefits attached to business transaction and savings accounts, as well as business term deposits.

There are business bank accounts designed for businesses with a high volume of transactions, and those for start-ups with a small amount of trade. You could also include an EFTPOS service with your account.

Some business bank accounts charge for the number of transactions per month, while others offer a pay-as-you-go fee structure, where you only pay fees for transactions you make.

It’s up to you whether your priority is mainly transactions, or earning the maximum amount of interest on your principal. There’s a business banking solution for you if you need one.

Can a debt collector garnish my bank account?

A debt collector can garnish your bank account, but only with a court order. This drastic action is usually taken only if you’ve ignored several notices asking you to pay the debt.

If this happens, there is nothing you can do to stop it other than immediately pay back your what you owe in full or make arrangements to pay it off in installments.

Once a garnishee order is issued, your bank will put a freeze on your account as it processes the order. This usually takes two to three days and you won’t be able to access any of your money during this time.

If you have Centrelink payments, they may be protected, depending on what the court order says.

Are bank accounts frozen when someone dies?

Yes, Australian bank accounts are frozen when someone dies. If you want to close the account of somebody who has died, you might have to provide proof of death and a copy of the will. You might also have to prove your relationship to the deceased person.

If you have a joint bank account with somebody who has died, you will generally be entitled to all the money in the account. Again, you might have to provide proof of death if you want to change the bank account from a joint account to a one-person account.

Can I start a bank account online?

Yes, most lenders that operate in Australia will let you set up a bank account online. The process is usually simple and takes five to 10 minutes. You will probably need to provide a passport or birth certificate, as well as a driver’s licence, Medicare card or another form of secondary identification. Requirements differ from lender to lender, so some institutions might ask for more or different forms of ID.

How can I find bank accounts in my name?

To find ‘live’ bank accounts in your name, you’ll have to ask individual lenders, which involves contacting them one by one and proving your identity each time. To find ‘unclaimed’ bank accounts (those that have been inactive for at least seven years), you can use this website.

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.

How do you find a bank account number by name?

For privacy reasons, Australian banks won’t hand out account numbers or other details about their customers. However, if you provide a bank with a BSB and account number, they should be able to confirm if those numbers belong to one of their customers.