Managing your money – Financial Literacy Series
Here at Foresters, we are endeavouring to help people by offering a range of fair and equitable personal loans, we also provide support to community organisations and businesses. In this range of blogs, we are exploring ideas that can help people take control of their own finances and in light of the recent federal budget, it might be a nice time to implement or review our own personal budget.
Budgeting, saving, managing debts and donations are akin to the first baby steps towards the development of financial literacy. This, being the first instalment of our pieces on financial literacy, will help to paint a clear picture of just how important money management is. As you’ll see below, while many Australians are confident in their abilities to save, budget and repay, many in fact report erratic savings and budgeting behaviours day to day.
According to a recent survey by the Financial Literacy Foundation, almost 90% of Australians say that they are confident in their ability to budget and manage their money. Despite this, 48% say that they do not budget for their day to day spending regularly, 27% have difficulties setting aside money for major purchases and 17% find it hard to get by in case of a personal financial emergency. These numbers are alarmingly high for a population who claims to be confident in their skills of financial management. Patterns in savings behaviour reflect this trend – the strong majority report high confidence in their savings behaviours, whereas more that 40% exhibit erratic saving behaviours.
So, what exactly do the terms Saving, Managing Debt, Budgeting, and Donation entail for the layperson?
Your income is the most crucial part of your life. How much you earn will determine what you can do with your money. As with many things in life, your income will be taxed. The following table will tell you how much you will be taxed based on how much you earn. In the recently release
|Taxable income||Tax on this income|
|$0 – $18,200||Nil|
|$18,201 – $37,000||19c for every dollar over $18,200|
|$37,001 – $87,000||$3,572 + 32.5c for every dollar over $37,000|
|$87,001 – $180,000||$17,547 + 37c for every dollar over $87,000|
|$180,001 and over||$54,547 + 47c for every dollar over $180,000 (includes Temporary Budget Repair Levy)|
This table does not include the Medicare levy which is currently set at 2% of your taxable income and if the recent budget measures are approved will rise to 2.5% in July 2019, nor does it include non-taxable income.
Taxable income includes Employment, Pensions and annuities, Most government payments, Investments, Capital gains, Income from trusts, partnerships or businesses and Foreign income.
Non-taxable income is income that is not taxed and includes Lottery winnings and other prizes, Small gifts or birthday presents, Some government payments, Child support, Tax-free portions of your redundancy payment and Government super co-contributions.
You can reduce the amount of income tax you pay by:
- Making deductions for work expenses, self-education expenses, donations (see below) and the cost of managing your tax (i.e. paying an accountant).
- Tax offsets: for low-income earners, dependents (children and others under your care), pensioners and senior citizens and the taxable portion of your superannuation.
- Salary sacrifice: putting your pre-tax income towards goods, services and benefits (cars, computer equipment etc.) before you are taxed.
Saving is an excellent endeavour to undertake even if you do not have a current goal. Some textbook techniques used by confident savers to maximise their savings plans are:
- Formulate an achievable plan
- Know how much you will need to put aside per paycheck
- Set a savings timeframe
- Tell your family and friends about your goal
- Make some cutbacks
- Track your savings progress
- Constantly review your process
By starting a savings regime on your next paycheck, you will be well on your way to achieving your goal.
Before setting a budget, you should get a realistic idea of how much debt you owe to various parties. Debt is a reality of living in this day and age – sometimes it’s far easier to use the money you do not have at the present and pay it off in the future rather than save. Paying off your debt as soon as possible is the easiest way not to suffer exorbitant interest.
- Find out what your debts are. Make a tally of how much of you owe and what the debt is for. Understanding your interest rate is another handy piece of information to have for each debt.
- If your debt seems like too much, get help. Seek out a financial counsellor for some professional advice. Free services are offered by government agencies and community centres.
- Factor your debts into a budget. See below for more information on budgeting.
- Make it a priority to pay debts. You will never get out of the red if you still have debt. Furthermore, if something were to happen to you, your debts immediately fall to your next of kin. Pay off your smallest debts first to get that sense of achievement. If you can, close the accounts (like credit cards) as they are paid off.
- Consider debt consolidation and refinancing. This should be your last resort. It can work for some people in that refinancing can give fewer fees and interest rates. However, sometimes it is just a short-term solution that will lead to greater debt down the track.
For most people, budgeting is a sure fire way to maximise how your earnings perform. By assigning every dollar you earn a specific task, whether it is paying off debt, paying bills or saving, you can form an accurate picture of your financial state.
Budgets should be set every time your income changes and should cover monthly or fortnightly increments. The easiest way to form a budget it to input your monthly income and minus all of your expenses to make sure you aren’t performing at a deficit. Some things to include in your budget are:
- Bills: utilities, telecommunications, rent, subscriptions
- Insurance and financial services
- Cost-of-living expenses: food, fuel, clothes
- Personal/medical expenses
- Entertainment: music, movies, alcohol, fine dining
- Debts: student loans, mortgage, credit card repayments, personal loans
- Savings and emergency funds
Donating some of you income to charity will not only make you feel good – it also has tax benefits! There are literally thousands of charities to choose from. You need to do your research and make sure your hard-earned money or time are going towards a worthwhile cause. Chose a local charity based on your interests and values. Overseas charities can be difficult to vet and may not provide you with receipts. You need give to an organisation that is a verified Deductible Gift Recipient (DGR) to claim a tax benefit from a donation. Most Australian charities and religious groups have this status.
You can make donations in a number of ways:
- One-off or ongoing amounts: charities will often approach you to ask for monthly donations. This can be risky if you forget you are donating and then fall short in your budget.
- Workplace giving: you can ask your employer to give money directly out of your paycheck to a charity to take out the hassle of monthly donations. Your tax benefit will be shown on every paycheck and you will be given a result at the end of financial year.
- A bequest in your will: amend your will to take a donation straight out of your estate when you pass.
- Crowdfunding: there are many online avenues where you can support artists or inventors get their ideas off the ground. There are many wacky and wonderful crowdfunding ideas. If you wish to claim a tax benefit, make sure the crowdfunding website holds Deductible Gift Recipient status (most do not).
- Get involved: if you don’t have funds to donate, consider donating time or your expertise.
So why not get started and take some action, and as always a reminder that all information provided in these post is quite general in nature so we encourage anyone making critical financial decisions to seek professional financial advice to ensure that actions are right for you. Follow the links to find out more information about our personal loans, learn more about financial literacy or head to the homepage.