Uni students to become more debt laden

University students will feel the pinch even more as the indexation rate applied to HECS–HELP loans has jumped from 1 June 2022 to 3.9 per cent (0.6% per cent in 2021), the highest rate in a decade.

With today’s degrees costing between A$23,000 and A$43,000, this is a significant impost for someone coming into the workforce starting on an average graduate wage, in most cases reported as in excess of $70,000.

The inevitable resulting financial stress makes it essential to learn how to budget, control spending and set goals with your money.

We’ll return to those themes. But it’s important to understand how the HECS-HELP scheme works and the real impacts it is having.

HECS-HELP debt has to be repaid through the taxation system once your repayment income is above the compulsory repayment threshold, even if you are still studying. The compulsory repayment threshold is adjusted each year.

For the 2021-22 income year, the compulsory repayment HECS-HELP threshold is $47,014.

Laura Irwin, a Sydney University student who is in her final year of a Bachelor of Arts majoring in International Relations and Philosophy is disappointed with the recent rate increases.

“It’s disappointing. I suppose it is inevitable – everything is going up – but considering three-quarters of my university education was conducted online, I feel cheated,” she said.

“I’m essentially paying for YouTube and a piece of paper, not the quintessential university experience the past generations received.”

“I have not started repaying my HECS debt which is currently around $22,000 with another year to go,  I just can’t afford to. I work on a casual basis as a Fit Technician at The Athlete’s Foot and a payroll assistant at Pharmacy Phusion to make ends meet.”

“I also received the Youth Allowance during 2020-2021 while I was living out of home, but those payments barely covered the rent.”

“The HECS debt is around the cost of a small car, but the idea of needing to pay it off does worry me.  I don’t know how I’ll be able to continue paying living costs and have some type of social life whilst paying off the debt.”

Laura feels she isn’t that badly off compared to some of her friends who are doing science-based degrees.

“Some of my friends are really feeling the weight.”

Studying a science degree costs around $50,000, and if you have the marks and desire to become a doctor, there is another $86,000 over 4 years.

According to the ATO, outstanding HELP debt currently stands at $66 billion of which the 3.9 per cent increase will be applied. Research by Finder in November 2021 found that 28 per cent of Australians – equivalent to over 5.4 million people – still have debt in student loans.

With the size of student loans growing and showing no sign of slowing, it’s easy to see where this is headed. Graduates seem certain to arrive in their careers burdened by financial stress, the single biggest cause of stress for Australians.

In the United States, the situation is even worse.

The latest student loan debt statistics for 2022 show that there are 45 million borrowers who collectively owe approximately $1.7 trillion in student loan debt. Student loan debt is now the second-highest consumer debt category — second only to mortgage debt and higher than debt for both credit cards and auto loans.

Living costs in Australia are escalating and the forecast is more of the same.

If you are a student doing full-time study living out of home, as Laura is, not only is your HECS debt 3.9 per cent larger with electricity prices increasing 18 per cent from 1 July 2022, and shopping at Coles or Woolworths rising 12 per cent throughout 2022, this is a lot to sustain for any student.

“There should be some HECS debt relief like a 2-year indexation pause, not large increases” Laura says.

There are actions students can undertake to help manage financial stress says Andrew Fleming, Founder and CEO of Financial Mindfulness.

Budgeting, controlling spending and setting goals are the three key positive actions Uni students can do. “

So why budget?

Instinctively, we know that budgeting allows us to manage money wisely, avoid financial stress, and be in control.

The simple answer is that it’s a habit that is always helpful to our financial situation.

Here are some first-person perspectives on what budgeting did for people:

Andre, 28 of Bunbury, Western Australia admitted he had never known what he was really spending.

“I started seeing just how much I was really spending on my lifestyle, and it was a sobering experience,” he said.

“I also wanted to save for an overseas holiday but couldn’t make it happen as I didn’t have enough money.”

Melissa, 29, from Brisbane, said budgeting was finally enabling her to save.

 “I now have made changes on how much I spend on eating out and catching Ubers,” she said.

“It was great to feel in control of where I spend my money now and how much I will have left,” added Phil, 46, from Sydney.

Lisbet, 40, Adelaide said budgeting allowed her to understand how much interest she was paying on her card.

“I now manage my spending to avoid paying credit card interest, and this has saved me a lot of money,” she said.

Controlling your spending sounds simple, but let’s be honest, without a budget; you are more likely to over/impulse spend.

You’re trying your best to make good choices, with a rough idea of how much you can spend.

But without actual financial boundaries, it’s easy – and extremely common – to spend more than we meant to.

It feels like a kind of freedom to splurge, and spend without worrying – buying a shiny new pair of shoes, that next level smartphone, taking a cab over a bus, even just getting an extra dish when ordering takeaways.

We don’t want to see these choices as actually creating our financial reality. But when you sit down and discover you have taken 10 cab trips in a month or bought takeaway dinners 14 times, the cost adds up, and the areas you can cut costs become apparent.

In other words, budgeting makes us aware of unconscious and unhelpful choices with money. It gives us control over these self-defeating behaviours.

Setting goals also sounds simple. It seems easy to set goals; it’s a creative exercise that seems responsible and feels good too. You settle on a goal and work out a timeline.

But achieving a goal is difficult – or everyone would be kicking financial goals all the time. And we are not doing that.

Budgeting is an essential part of achieving any personal financial goal. You’ll find it challenging to commit to any financial goals without budgeting.

A budget allows you to reverse engineer your goals via a clearly defined process. It keeps you on track, day in, day out, week in, week out, month by month. Each budgeting action is a recommitment to your goals.

Over time, the benefits of budgeting help you achieve financial goals and ensure there is money left over which helps reduce financial stress.


Revisiting your 2022 goals, yes already

Most of us recognise the importance of setting goals, but what happens when we break promises to ourselves and a goal suddenly looks unachievable?

So, a goal didn’t work (or won’t work). What now?

What is the first thing to do when we fall ‘off’ our goals and they suddenly appear unrealistic?

With goals related to money, it’s essential to do a little self-examination to stop any negative patterns taking hold that might lead to financial stress. Patterns such as compulsive spending as a coping strategy.

Firstly, it’s important try not to abandon a goal just because it didn’t work out perfectly, or even if it seemed to fail entirely.

The reason for having that goal is may still be sound.

It sounds obvious, but don’t give up! Regret over failure is far harder to deal with than the failure itself.

Really, falling off a goal creates a valuable opportunity to learn and grow – new skills and the resilience to cope with future setbacks.

This is incredibly important.

How to get something out of a failure: get curious

Giving up on goals could set you back months or even years on achieving important milestones in your life.

‘The first thing to do is to get really curious about what didn’t work and why,’ says money behavioural coach Lea Clothier.

Use this information to help you reset your strategy. i.e. if the goal was too big – can you break it down into mini goals or milestones?

If you didn’t have enough motivation, can you explore why you wanted to do it in the first place? Was it really something you wanted?

Was it really a priority when placed in the context of your whole life?

Did you have enough support? Trying to achieve ambitious goals without sufficient support can be a recipe for failure.

Think about what other support you need to make the goal happen – is there a person or people who can help?

Do you need to make yourself accountable to someone else, or publicly?

Use your failings as learnings to help you create a new strategy!

Taking stock of what didn’t work

It’s worth taking a step back right back for a few hours, or even days – back from the emotions that may accompany unmet goals and a sense of failure – to look at why our goals don’t work.

Detachment is a useful tool in this situation.

While you’re bound to have some feelings about your failure – that’s healthy and normal – it may not be productive to sink into deep emotions for days, that can lead to unhelpful negative thinking.

You do need to return to your motivation for setting this goal. Do you still have that motivation? If not, why not? Is it still factually relevant to have this goal?

‘This is probably the major point to make about returning to our goals.’ Ms Clothier says. ‘They have to be a big enough priority to maintain daily commitment motivation and willpower.’

If your objective is not really that important then it becomes easy to give in or give up.

Analyse your goals again

Did you use the suggested and successful tools to analyse your goals? Did you use a SWOT analysis? Is your goal SMART?

A SMART analysis involved asking if a goal is:

    • Specific;
    • Measurable;
    • Achievable;
    • Relevant; and
    • Time-bound.

SWOT means asking:

    • What are the strengths of our plan?
    • What are the weaknesses?
    • What are the opportunities?
    • What places it under threat?

Even if you did use these tools, run your goal through them again now.

See where the weak points are. Is your motivation strong enough to sustain the tasks you need to perform? Acknowledge them, note them and look for solutions.

Many people give up on goals, rather than realise that with just a few changes they could actually achieve the goals they set.

Very often that change is just breaking a major goal into achievable smaller goals or getting an accountability partner to help you stay on track.

Were we just too ambitious?

The reality of progress in all fields of life and also business is that it seldom happens without bumps in the road, a step back before we take two steps forward again.

Sometimes even a sideways step is better than a backwards step.

That’s because we learn from mistakes, stebacks and barriers.

‘One of the most useful things I’ve heard about the science of goal setting is for us to build in room for us to slip or plateau in our progress,’ says Ms Clothier.

Allowing for the reality of imperfect progress – or even failures along the way – makes goals realistic and means that we may not be as tempted to give up.

If we have a strategy for how to deal with these slip-ups or a slowing in momentum, we are more likely to get back on track and not just give up entirely.

Visual goal-setting tools

Visual representations of our progress help enormously – because they help us maintain perspective and see our overall progress even when we had a bad day or bad week.

They can show how much further ahead you are compared to the same time last year, even if you didn’t keep up with your milestone targets.

There are some complex visual goal achievement charts out there, but like anything, often simplest is best. Complex charts can end up complicating progress and being hard to follow.

Examples include:

    • Action plan template – essential as an over-arching planner to keep referring to for monitoring overall progress against targets and dates;
    • Kanban boards – these allow you to see work in progress as it’s happening by stages in a process. They use columns to represent important stages such as: ‘to do’, ‘in progress’, ‘in review’, ‘needs attention’ and ‘completed’. A Kanban board enables you to optimise your workflow and promote focus, task visibility and productivity;
    • Daily planner that allow space for you to tick off small tasks – such as a phone call to discuss a course/qualification, or to make an appointment with an advisor – these mini tasks are the daily nuts and bolts of achieving goals;
    • Old fashioned weekly planners stuck somewhere you will see it every day – such as the fridge. They allow you to highlight the little wins and milestones; and
    • Thermometer-style charts – these are good for goals that require dozens of or even hundreds of repetitions of the same action and over time they show clear progress towards one big goal. They work well with things like fundraising.

There are many great goal achievement charts that can capture your journey towards achieving your goals. Just go online and look at the many examples to find one that suits your goal.

These tools can help us to stay focused and connects us to our bigger goal or purpose. It also helps when we’re feeling a bit flat or negative as visually we can focus on our progress and this can help us keep on track.

Financial Mindfulness also has a goal setting feature in our app

The hidden secret of successful goals

Did you know that typically we are more inspired to make successful changes when we create emotional and not financial goals?

Why? Because more often than not it’s not actually the goal we are chasing, it’s the feeling.

When we set goals, it’s important to understand why we want to achieve them. We can do this by asking ourselves, how will it make me feel when I achieve this goal?

We might be chasing feelings of hope, happiness, pride, joy, love, happiness or security.

At the core of all our goals is a desire to feel good. When we can identify what feeling good means to us, and set goals that lead us to feeling this way more often we’ll work harder to hit those goals!

By getting clear on how we want to feel in our lives, and then setting our goals based on these feelings. We can aim to do more things in our life on a daily basis that will create more of the feelings we’re chasing.

How to monitor progress so we don’t fall off our goals

Have a plan to start off with. Break down the steps you need to take to achieve the goals. Tick them off as you progress towards them. Check in with others to get feedback and support.

The visual accountability charts mentioned above will help.

Monitoring progress or daily and weekly actions is how goals are met. There’s no easy way to do this.

If we automatically achieved everything we wanted or that was good for us we wouldn’t need to set goals.

We have to set goals because the wants and needs within them are difficult to obtain and achieve. So, no, unfortunately the process of following through on goals to meet tough objectives will not be easy.

Six simple steps to help us achieve our money goals:

    1. Make sure it’s your own goal: While we may share common goals, we need to make them more personal than this. This is where it pays to work out the feelings we will have when we achieve these goals;
    2. Automate: By automating aspects of our finances, we increase the chances of success. For example, if our goal is to save more – set up a direct debit to a new savings account as soon as we get paid, or transfer the savings to an account where you can’t easily access it. If it’s to pay off more debt, try setting up a direct debit payment of regular but small amounts;
    3. Set mini-goals: Breaking down goals to smaller steps makes it seem more achievable and less daunting;
    4. Track progress: Tracking our progress toward a goal can be motivational as we see ourselves getting closer to our goal. It also keeps us focused on how far we’ve come rather than just how far we have to go;
    5. Create accountability: Particularly with money goals it’s important to have somebody encourage us and hold us accountable. We could also make our intentions public i.e. to our friends or social network, which can create additional accountability; and
    6. Allow room for slip-ups: We need to allow for these minor slip-ups and setbacks, and not use them as an excuse for giving up.

And remember, it doesn’t matter how slowly we move towards our goals, as long as we’re progressing.

Achieving our goals is as much about the journey, as it is the destination.

Being mindful and focusing on the moment can bring us more joy, and we can concentrate on how far we’ve come, instead of how far we have to go.

How to maintain a budget

Setting up a budget is great progress in your efforts to improve your relationship with money and, ultimately, your financial position.

That’s because it is the foundation of managing your cash flow and spending habits.

But setting up that budget is not where most people come unstuck.

Most people who try to budget fail to get the benefits of a budget because they cannot maintain the practice.

Let’s look at the steps to how you can maintain your budget.

Step 1: Schedule your budgeting practice

Budgeting is a practice that requires commitment, willpower, attention, and consistency. It’s not a set-and-forget exercise.

To budget well means paying close attention to your spending within each of your categories to ensure you stay within your identified limits and, therefore, within budget.

It is far easier to stick to a budget when you pay close attention.

This means you will need to set a regular weekly time to review your spending, check you are within your budget, and adjust for changes.

The longer you maintain budgeting the better you will become at forecasting.

You might like to review your spending weekly or daily to see how you are tracking. It doesn’t have to be a manual process; you can use apps to help you track and monitor your spending.

A budget must be realistic and reasonable if you are going to be able to stick to it. Many people set themselves up for failure by underestimating their actual spending or making the budget too restrictive and unmanageable over the long term.

If you want to succeed, you have to push yourself, but you also have to be realistic.

It’s like setting a goal to attend the gym every day when you have not been going. The same is true with your budget. Push yourself to spend better and save more, but be realistic when setting a limit for each spending category.

Don’t cut back too much if you know it’s not going to be something you cannot sustain.

Step 2: Make budgeting a game that you win at

Budgeting doesn’t have to be restrictive or boring. It may seem unlikely for people who have had a problematic relationship with money, but you can make budgeting fun.

It’s worth considering are you more likely to stick with a habit that you enjoy? Of course, you are.

One way to do this is to ‘gamify’ the process and reward yourself when you stick to your budget and reach milestones or savings goals.

This is much more than a game, of course. What you are doing is building milestones and rewards into your budget to celebrate your progress and achievements.

It will change how you think about budgeting, from a chore to an activity you feel satisfied with.

Step 3: Review the value of your money and simplify your budgeting

It might seem obvious, but you may not understand the value of the money you earn if you spend too much.

You work hard for your money, but rarely when spending money do people connect it to the effort, time, and energy that went into generating it.

Thinking about your entire budget in this context can be a simple way to reframe the way you view money psychologically.

Let’s assume you spend $500. If you think about the time and energy it costs to earn this $500; you might see its value in a new light.

Next time you are spending, work out how many hours of labour it would take to earn. Use this idea to weigh up the actual value of any purchase.

Give every dollar you earn a purpose, even if that job is saving or an extra loan payment. It doesn’t mean you spend every dollar you make, but instead, you are intentional and mindful about every dollar you spend.

You may want to break some of your budget categories and expenses into weekly amounts to help you spread out your spending and make it easier to manage.

For example: If you give yourself $200 a month for personal spending, think of it as $50 a week. Suppose you put $900 in your grocery budget; that’s $225 a week.

Thinking in these smaller amounts may make it easier to stick to your budget.

You can do this too with significant living expenses such as car costs, insurances, and medical.

Review them and break them down into smaller amounts to make it easier to consider your budget costs.

Step 4: Get smarter about your use of credit

It’s essential to keep track of your spending in cash and credit.

Studies show that we spend more with credit cards than we do with cash. This is because spending on a credit card takes away the immediate awareness of how much something costs. You are more susceptible to impulse spending as you tap and go.

One often-cited study was conducted by Dun & Bradstreet, in which the company found that people spend 12%-18% more when using credit cards instead of cash.

The buy now and pay later concept means you spend now and don’t get the bill until next month. This way, you don’t have to think about whether you can afford the purchase unless you have planned for it in your budget.

Buy now pay later products allow you to buy something now and pay for it later.

A minimum payment is paid when you shop online or at a store, then you pay the rest of the purchase off over future instalments. Typically, these products require you to pay off your purchase over three or four instalments.

Do people also overspend if they use, buy now pay later products? Two in three shoppers who have used buy now, pay later financing said it’s caused them to spend more than they would have otherwise, a new LendingTree survey of 1,040 Americans found.

With both credit cards and buy now pay later providers, you can pay extra for your product as the company providing the service charges interest if you miss a payment.

Try using a debit card instead. This means you have the money first, before the purchase.

If you continue to use your credit card, track every purchase, this can be time-consuming. However, it’s a way to spend on your cards and keep your heightened awareness.

Either way, once that money gets low at the end of the month, you will become aware of how much you have left to spend, and that might be stressful if your spending is not within your budget

Be mindful about what you spend each day to keep within your limits and continually adjust your budget as you go.

Step 5: Get real about planning

Emergencies and surprises do occur and impact your budget. In the US, the Federal Reserve found 61 percent of adults say they would cover it, using cash, savings, or a credit card paid off at the next statement.

For the remaining 40 percent of adults, they would have more difficulty covering such an expense, the most common approaches include carrying a balance on credit cards and borrowing from friends or family.

We often think of these as ‘unexpected expenses’. But how unexpected are most of these?

A lot of what we call “surprises” is just poor planning.

When developing your monthly budget, check your social calendar, plan for each month’s events and needs ahead of time.

Birthdays are regular events; ensure they are included. Holidays, weddings, family visits, and time off work can all be planned. So can the annual payment or renewal of something substantial.

So much of improving your finances is becoming and remaining mindful with your money.

Step 6: Experiment with ‘not spending’

Challenge your spending habits with a spending freeze, a spending diet, or a zero spend challenge.

Again, this is an important exercise that you can have some fun with. You can do it by setting up a ‘no-spend week’ challenge with your friends.

Whatever you call it, the idea is the same: a commitment to not spend money on anything that is not a necessity.

You can do a no-spend challenge for a week or a month. It might seem intense, but it’s a remarkable way to change your mindset and spending habits.

Get started with your no spend challenge by identifying in writing what qualifies as a necessity or what area you are challenging yourself not to spend in (i.e., takeaways, clothing, coffees) and how long you’re going to challenge yourself not to spend.

Make it more fun by challenging your friends or family members and see who can save the most.

You can also slow down emotional spending impulses by not rushing big purchase decisions.

When you are in the store or online, find the item you wish to purchase at the cheapest cost and wait one day before buying.

It takes the impulse out of the decision. Your head has a chance to make the decision, not your emotions.

Step 7: Nominate a budget buddy and become accountable

If we were good with our finances on our own, we might have learned to manage our money.

The reality is our habits and attempts at improving our finances have often failed.

Find someone in your life to help: a budget buddy or someone with who you can be accountable regularly.

Someone who would encourage you and be bold enough to call you out. A spouse, partner, family member, or friend make good accountability partners.

So, who isn’t afraid to give you some ‘tough love’?

There is incredible strength in seeking accountability to help you stay on track.

Step 8: Become proactive – and stay positive

Be practical and intentional in your spending decisions.

Ask yourself, does this purchase come with a payment plan. Will this eat into your savings? How will this benefit your day-to-day life? Is the benefit worth the cost?

Weigh the pros and cons to make sure it’s adding value to your life and not creating stress.

If you have a terrible month, have blown your budget, or forgot to track your spending, don’t get discouraged and give up.

Use this to create awareness of where you need to adjust your spending, try new habits and alter your budget. Ask the why do I budget question, and remember those benefits.

Budgeting is learning a new life skill; it takes practice.

You may have to experiment all year before you find a system that works. Having a list of things that work well can help remind you of how far you’ve come and the positive changes it has made in your life.

Budget, learn, adjust, live well.

How to budget

Last week we established that budgeting isn’t easy, so you need to understand why it’s a behaviour that must be followed up with regular – even daily – actions.

We covered in detail why budgeting is essential to improving your finances, using several examples and looking at many reasons why budgeting has to become part of your life for you to behave more mindfully with your money.

Remember, the ultimate goal is to improve your relationship with your finances to move out and avoid financial stress so you can get ahead and live a financially stress-free life.

Let’s take these steps and learn how to budget.

Step 1: Properly determine your household income

Determining the regular amounts of money received for you and your household is the first step.

Many people do not receive the same amount each pay period. There could be different rosters each week, different pay amounts due to overtime, penalty rates, or shifts worked.

The goal here is to review your payslips and last year’s payment summary to understand your income clearly.

Review the last three months of pay and calculate the average.

Review for any pay amounts that are unusually high or low and think about whether these fluctuations should affect your calculation of what you earn. Consider how things like unpaid leave or unusually long hours (that you cannot sustain) impacted your income.

Try to budget on what income is certain and regular from your employment, other sources and use the after-tax amounts.

It is important to consider all income sources. You may have a second job, receive Government benefits, support payments from a previous spouse and investment income.

Include all income sources to calculate your total income.

Record all this in a spreadsheet. There are good online templates available for free. Money Smart has a great budget planner. You can access a number of budgeting apps or ask a trusted friend who has been successfully budgeting to run you through how they keep their records.

Step 2: Begin tracking your living expenses

This is about fully understanding what your living expenses have been over the past three months. Select a long enough period to reflect what expenses typically occur. This may be a period longer than three months, select the period that works for you. Three months should be the minimum.

To calculate the total, you should examine all the sources of spending, including:

    • Credit card statements;
    • Store cards;
    • Buy now, pay later accounts (i.e. Afterpay, ZipMoney); and
    • Bank statements also account for cash payments.

Review direct debits for all your accounts to make sure they are included.

Look for amounts that you have transferred between accounts you own.

These should be excluded from your calculation; otherwise, you will double-count some of your expenses.

Lastly, look for any one-off amounts and do not occur more frequently than yearly (not a bill like annual insurances or car maintenance). Remove these from your calculations.

As you are doing this, you are bound to notice spending patterns. You’ll see how much, for example, you spend on those morning coffees or evening takeaway dinners.

It could be the cost of various streaming services that stand out.

Pause on these discoveries as you go through and ask yourself honestly: do you use and need all these things? Can I alter my behaviour, for example, make coffee at home. What difference would it make to your life if you didn’t have these types of products and services and their associated costs?

This is an excellent time to review your subscriptions that you may not use regularly.

Question yourself here: ask whether you are receiving value from these subscriptions and discontinue if you are not. Remember, even small amounts can add up and make a difference over time.

In Australia, unused subscriptions are very significant. Research conducted by Finder.com.au found Australians are wasting nearly $4 billion a year on unused subscription services. Collectively Australians have 56.7 million subscriptions – about three each per person – costing about $40 per month. The most popular subscription services include Netflix, Spotify, Foxtel and Stan.

Now add up the amount spent from each account for three months.

Allocate these expenses into three categories:

    • Fixed;
    • Variable; and
    • Irregular.

Factor in any major annual or bi-annual expenses you know are coming if you have household items that will need replacing, for example, microwave, hot water system, washing machine or dryer.

Make sure you factor in the replacement costs of those appliances that are nearing the end of their useful life. These are often overlooked.

Step 3: Balancing the budget

Take your income and expenses for the same three months.

Subtract the expenses from the income and see if you have earned more than you have spent.

If you have a surplus – congratulations!

You might like to consider whether this is sufficient to ensure you can cope with any unexpected expense like those replacement costs.

What happens if your expenses exceed your income?

First, don’t panic.

If you do not have a surplus (i.e., more expenses than income), the first step is to review your expenses a second time to determine any expenses you can change or cut completely.

Step 4: Go back and review your expenses

No, really, do this part again – this may be annoying, but it is crucial. Cut and change those non- essentials.

Some suggestions to modify your expenses are:

    • Changing the frequency of the expense. An example could be eating out less often;
    • Renegotiate with your service providers. An example could be changing the mobile phone plan and electricity provider;
    • Review personal, general and car insurance to ensure you are getting the best deal and make sure you are not over-insured;
    • Consolidate debts to reduce interest charges;
    • Refinance your home loan and select the most suitable product;
    • Select one TV streaming service, not three; and
    • Avoid impulse spending on lifestyle items.

Often in reducing expenses, you don’t need to stop spending in a particular area altogether.

If you reduce the frequency of a few of these items, then you may be able to save enough to ensure your expenses are lower than your income.

If you still cannot balance your budget after reviewing all your expenses, you can look at your income.

Step 5: Review your income potential

It’s time to take an honest look at what you earn. This involves reviewing your capacity to earn extra income, including your potential for a second job or even the sale of unused or under-used possessions.

Some suggestions to modify your income are:

    • A second job, such as an Uber driver on the weekends;
    • Ask your employer if there is an opportunity for overtime; and
    • Do you have unused possessions or items in the home that you could sell to free up space and boost your cash flow?

Selling unused and unwanted household items can be significant.

Online marketplace Gumtree estimates Australians could make an average of $5800 per household by selling about 19 unwanted or unused items lying around the home.

Gumtree’s 10th Second Hand Economy Report found 62% of Australians have pre-loved or unused home and garden items they would sell.

Step 6: Balancing the budget

After making those changes, hopefully, you have determined you can cover your cost of living, and that balancing your budget is very satisfying.

If you are in surplus, that will put a big smile on your face.  Having surplus money gives you choices, and that is empowering; you can make decisions around investments, lifestyle and your ability to support others.

If you are still struggling with balancing your budget, you can seek support. You could consider contacting a financial counsellor or a budgeting coach for help.

Next week we look at how to maintain a budget.

Why do a personal budget

We have started a new financial year. Like previous financial years, new rules come into effect.

From 1 July 2021, there are significant changes to superannuationtaxation, social security, Medicare and many other systems.

These changes impact how we are taxed personally, our superannuation, indexation of social security, different medical benefits, etc.

All of these changes hit our bottom line.

Do we receive more income or less? Will we be paying more expenses?

Understanding these changes is essential to managing your money.

The practical, ongoing action you can take to make use of this knowledge is budgeting. It’s an indispensable component for managing your money.

So why budget?

Instinctively, we know that budgeting allows us to manage money wisely, avoid financial stress, and be in control.

The simple answer is that it’s a habit that is always helpful to our financial situation.

Here are some first-person perspectives on what budgeting did for people:

“I had never known what my spending was really doing. I started seeing just how much I was really spending on my lifestyle, and it was a sobering experience.  I also wanted to save for an overseas holiday but couldn’t make it happen as I didn’t have enough money.”  –  Andre, 28, Bunbury.

“I now have made changes on how much I spend on eating out and catching Ubers.  I have started to SAVE!!”  –  Melissa, 29, Brisbane.

“It was great to feel in control of where I spend my money now and how much I will have left.”  –  Phil, 46, Sydney.

“I didn’t realise how much credit card interest I was paying.  I now manage my spending to avoid paying credit card interest, and this has saved me a lot of money.”  –   Lisbet, 40, Adelaide.

“Even though budgeting was daunting at first, I actually started to be wiser around what I spend.”  –  Bakthi, 38, Melbourne.

“The first time I took a good look at my payslip and realised how much money was going into superannuation, I could see where my money was going. It felt empowering.”  –  Sunil, 41, Kingaroy.

But there’s a hitch.

Many of us still have trouble following through and sticking to budgets, which means something is getting in the way of committing to the budgeting process.

It’s important to note that budgeting is not easy. It is a commitment to a new way of thinking about money, and it adds a whole new layer to how we interact with money.

Budgeting is a high-level mindful money practice – it’s paying attention to what we earn, what we spend, what we need and our attempts to change for the better.

Succeeding means not giving up in the pursuit of this new life skill.

The proper motivation is needed to undertake this skill of being constantly curious about your money.

Desperation can provide that motivation, but you might not want to reach some kind of financial disaster to start budgeting.

It’s worth having a deeper look at the question of ‘why budget’? To help increase our level of motivation and commitment to building budgeting skills.

We’ve broken down the main reasons to help you understand.

Hopefully, this will help you feel more engaged and better able to commit to building this new life skill.

1. Do you want better control of your spending

Let’s be honest, without a budget; you are more likely to over/impulse spend. You’re trying your best to make good choices, with a rough idea of how much you can spend. But without actual financial boundaries, it’s easy – and extremely common – to spend more than we meant to.

It feels like a kind of freedom to splurge, spend without worrying – buying a shiny new pair of shoes, that next level smartphone, taking a cab over a bus, even just getting an extra dish when ordering takeaways.

We don’t want to see these choices as actually creating our financial reality. But when you sit down and discover you have taken 19 cab trips in a month or bought takeaway dinners 17 times, the cost adds up, and the areas you can cut costs become apparent.

In other words, budgeting makes us aware of unconscious and unhelpful choices with money. It gives us control over these self-defeating behaviours.

2. Do you want financial goals

It seems easy to set goals; it’s a creative exercise that seems responsible and feels good too. You settle on a goal and work out a timeline.

But achieving a goal is difficult – or everyone would be kicking financial goals all the time. And we are not doing that.

Budgeting is an essential part of achieving any personal financial goal. You’ll find it challenging to commit to any financial goals without budgeting.

A budget allows you to reverse engineer your goals via a clearly defined process. It keeps you on track, day in, day out, week in, week out, month by month. Each budgeting action is a recommitment to your goals.

Over time the benefits of budgeting help you achieve financial goals.

3. Do you want financial habits that help your relationship

Without question, whether you are married or de-facto, budgeting helps long-term relationships.

Money is so essential that relationships grow with shared financial goals achieved together or fall apart where people in a relationship feel financially unsafe.

Relationships flourish where people feel safe on many levels, especially when they can see a reasonably good future. Budgeting helps people see what the future might look like, and crucially, it helps the relationship when completed together – giving that rewarding sense of teamwork.

Budgeting is also a tremendous boundary-setting exercise and practice for couples.

It is also well known that money problems are a significant source of fighting, arguing and even relationship breakdown.

If you want to end the conflict in a relationship, you could do worse than having shared financial goals – and as we’ve shown, budgeting is a crucial part of that.

4. Do you want to feel more peace and contentment about money

It’s an odd thing but true. Feeling financially secure and content reduces the desire to spend.

Reducing unnecessary spending then helps you to start enjoying your money.

One of the key elements to finding financial contentment is to stop comparing to others. Stop the practice of wanting things that you see others with, whether they are showing off a gadget or a new car on Facebook or at work.

Don’t compare yourself to anyone but yourself. Keep your focus on how you are doing, not how are they doing. No budget doesn’t have a column for ‘keeping up with the Joneses’.

Going back to your budget, checking, re-checking, confirming, adjusting keeps you focused on your goals, your life. It is excellent financial but also an emotional and mental self-care practice.

Ironically, people who focus on improving themselves and not bettering others end up being admired by others.

5. Do you want to end the feeling of being overwhelmed by money

Nobody enjoys feeling overwhelmed. We all know our decision-making can suffer when there is too much going on all at once.

Being overwhelmed leads to bad decisions with money, impulse buying, bad investments or shopping to escape reality and somehow find comfort. As a short-term measure, it can appear to work, but it’s disastrous for your finances as a habit.

Routines are good for preventing overwhelming feelings, and the best financial practice of all is budgeting. Being diligent daily with money means you won’t overspend as a habit and will be less likely to experience shock and become overwhelmed when unexpected expenses occur.

6. Do you want to avoid debt

Being stuck in debt feels depressing, like working to repay others which can build a negative belief that you’ll never get ahead.

Budgeting will stop you from living beyond your means, so options like quick credit to buy must-haves disappear. In this way, budgeting will prevent you from getting into crippling debt.

But because budgeting is a life skill about carefully planning your finances, it is also absolutely vital to help you get out of debt.

Sometimes a budget will show that you need extra help, or even extra income, to service your spending and repayments. That can be an unpleasant truth, but being in reality with money is essential and the first step to improving your finances.

7. Do you want to be better organised

Being disorganised with money is stressful.

Trying to run your finances on the run, without a budget, without a plan is flying by the seat of your pants. If money is tight, it’s hazardous to be disorganised.

It’s not just repayments, reminders and other bills that can slip through the cracks; you may miss out on cost-savings and good deals because you are not paying attention to your finances or worse incur late fees and interest.

Getting organised is a bigger job than staying organised.

8. Do you want to be ready for unexpected expenses and emergencies

Unexpected costs are unpleasant facts of life; hopefully, they don’t come along too often.

The best way to prepare for unwanted financial nasties is to have a buffer.

Many sources recommend building up and maintaining three to six months of ordinary living expenses in case of unexpected expenses – which is more than many people have.

Using gambling and lotteries as a way of building a buffer is a big no-no. People who gamble and win tend to spend what they fluke: easy come, easy go.

But equally, hard-won savings tend to be something we fight to keep; we are proud of them, so we protect them and nurse their growth.

Effective, committed budgeting will lead to savings that are likely to be better than you have ever maintained – and good savings are the best buffer against emergency costs and unexpected expenses.

To start a budget, live on a budget, keep living on a budget – and that buffer will grow. As it grows, so will your peace of mind. 

9. Do you want to save some money

We touched on this point about emergencies, but it’s worth asking the question again: do you want savings?

We are not talking about the kind of savings where you get together enough money for a holiday, or a motorbike, or even a wedding. That is just delayed spending – and there’s nothing wrong with that.

If those things improve your life, then do it, and enjoy the fruits.

But it’s not the kind of saving that builds and grows and increases steadily over time – and keeps rising.

Who doesn’t want those kinds of savings? Yes, that can seem impossible. But it’s not impossible, though it does take discipline and a plan. That plan is a budget, and that discipline is sticking to your budget.

Budgeting allows us to save for the things we want and to grow a separate amount that will enable us to reach long-term life goals.

10. Do you want to get ahead

Think about the question regarding a choice: what would you prefer, getting ahead or lagging?

It seems obvious, but disorganisation, impulsive and out-of-control money habits that weaken your relationship and make you feel overwhelmed will lead to you falling behind in so many areas of life.

Living week-to-week is stressful, and it doesn’t help you plan for the future.

Budgeting is a consistent answer to ending that feeling of falling behind in life, and it is the action that allows you to ‘get ahead’. Commencing a budget and building the skill of budgeting with consistent attention and action will change everything.

Budgeting is one of the most apparent, empowering and impactful ways to live mindfully that we can think of – and everyone can do it.

Next week we provide a practical guide to learn how to budget.