Managing your finances
Take a financial stocktake
If you think you may lose your income or suffer a reduced income as a result of the ill health of you or an immediate family member, the first step should be to take a quick ‘financial stocktake’.
First, assess what income you can expect or what financial resources you have available. Possibilities may include:
- Are you or your partner able to work part-time?
- Do you have sick leave or long service leave?
- Do you have Income Protection or Trauma Insurance, either as a stand alone policy or part of a life policy? This may be included in a policy you have purchased or you may find that your superannuation fund provides this type of cover.
- Do you have money in the bank (and is it in a high-interest account?) or a line of credit against your mortgage which can be drawn against?
- Can any investments be accessed? You may not need to dispose of them immediately but just assessing your position is helpful.
The second step involves checking on important expenses which need paying in the immediate future, including:
- rent or mortgage payments
- electricity, gas and phone accounts
- school fees and other education expenses
- car and other loan repayments
- medical and other insurance policies – it is important not to let these lapse when health is a problem
- day-to-day living costs, such as food.
When you are under financial pressure you should avoid or defer all unnecessary expenses – these can be paid when circumstances permit. Endeavour to avoid making charges to credit cards unless you know you will be in a position to repay the full amount by the due date. Most credit cards have very high interest rates, and if they are not paid in full each month the interest just continues to compound until the amount owing becomes excessive.
Tips for managing your money
Managing your money efficiently becomes even more important when income and expenses are affected by a life-threatening disease. As soon as you are in a position to think about your finances, the first step is to prepare a family budget. A budget means 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. 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 or leave, long service leave, and investment income. When you your health recovers and your income returns to normal, the budgeting habit you have formed will help with planning future events such as your retirement.
How to start a budget
1. Use a budget planner
A planner with help you easily figure out your budget. You can use our template; a computer spreadsheet like Excel; a program like Quicken; the Australian Government’s free Budget Planner; or simply search the internet for one or write your own with a pen and paper. You can find many other ready-made planners online or ask for a printed version from your bank. Remember to select a timeframe for your budget – weekly, fortnightly or monthly.
2. Write down your income
Remember, income can come from many sources not just your salary or wages. For example, you might also 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 also include these payments as income.
3. Write down your expenses
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:
- 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 you could use a spreadsheet. If you can, divide your expenses into the major categories as this could help you identify areas where you can cut back. If you use this approach, also think about including your annual expenses, for example 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.
- refer to your records: you could also 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 that you make sure you collect all the information to include in your budget.
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. 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. But some of the conversions might be a bit tricky to do in your head. The conversion guide below will help you to make your budget accurate (and so will a calculator!).
- Make 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 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 $3900.
- Make 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 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 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 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.
Tips for getting accurate budget results
- 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 (see our guide above if you need to do some conversions, like from weekly to fortnightly and vice versa).
4. Ensure that you’re balanced
One last step – are you balanced? Now that you’ve completed the income and expenses tables, you can clearly see how much regular income you receive, and where all that money goes over your chosen period. Subtract your total expenses from your total income – so your final calculation looks like this:
Your total income – your total expenses = your net result
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 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.
Read another section
» Seeking help
» Advance Care Planning
» Practical implications of a diagnosis
» Accessing superannuation
» Legal matters
» Future planning
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