How to Budget and Save on a Low Income after JobKeeper.

As new JobKeeper changes take effect, it’s important to learn how to budget and save on a low income.

Please note that while JobKeeper payments ceased on March 28th 2021, the budgeting and savings strategies in this  article remain relevant for everyone.

The Australian Government introduced the JobKeeper payment, to help keep Australian workers in a job they may have already lost or be in danger of losing because of the COVID-19 crisis. It’s been confirmed that JobKeeper payments will remain available for eligible employers until 28 March 2021. For employees of these employers who remain eligible for JobKeeper, the amount paid each fortnight for JobKeeper payments will reduce commencing 28 September 2020 and will be further reduced for the fortnights commencing 4 January 2021, until the JobKeeper scheme ends on 28 March 2021. More information about JobKeeper is available on the ATO website. If you have been impacted by changes to JobKeeper payments, learning how to budget and save on a low income may help you find your place on the path to financial freedom.

JobKeeper payment rates from 28^th September to 28^th March 2021

The following JobKeeper payment rates apply:

Source (ATO’s JobKeeper extension)

The impact of changes to JobKeeper are likely to be significant. There will be some businesses that will no longer be eligible for JobKeeper and others that whilst still eligible will pay less in JobKeeper payments each fortnight to their employees. For employees around the country, that are currently receiving JobKeeper payments, it may well be a confronting time. In this article we explore, what employees can do to prepare themselves and be more financially resilient.

1. Try to focus on the positive.

Asking people close to you for financial advice may help you realise that you aren’t going through this alone.

Thinking about the positive aspects of your money management skills, is just one way to help you remain calm, be ready to consider your options and formulate a plan. With more clarity on your money mindset, you can identify beliefs and habits that impact your ability to stick to or even create plans.

2. Have a plan.

Your budget is your spending plan that outlines what money you expect to earn or receive (your income) and how you’ll save it or spend it (your expenses) for a given period of time. If you make a habit of saving money when you’re on a tight budget, over time you’ll set yourself up with an emergency fund for the future.

Regular budget checkups are essential, particularly if your income is likely to vary given changes to JobKeeper. Moreover life, and all its expenses, are rarely constant.

Check the following items off your to-do list to plan effectively, budget and remain calm.

Record: Try recording when you receive your pay, when bills are due and when automatic payments are due. This can help you to identify spots when you may your cashflow could be low during the month.

Review: Check your bills, and make sure your figures are accurate by ensuring that your receipts and bills align with your budget. Of course, some things may fluctuate from month to month because of emergencies and other unpredictable events.

Reduce: Try to ensure that your expenses are less than your income, as going into debt is generally a cause of stress. If your expenses are greater than your income, it may be time to rethink your expenses. With many incomes reduced due to COVID19, we've put together a handy cost-cutting checklist which may help your planning and ease some of the strain on your finances.

Repay: Create a plan to pay off debt, so you know when your credit card balances, student loans, car or personal loan payments are going to be paid off.  A key point to debt reduction is focusing on paying down your debt with the highest interest and fees first.

Revisit: Your plan on a regular basis so you feel more in control of your finances.

The following scenario outlines what this involves in practice:

Kym updating her budget.

Kym works in the hospitality industry; her employer is eligible for JobKeeper after 28^th September 2020. She usually works 37.5 hours per work and shares a rental property with 2 friends.

Prior to 28^th September, Kym is eligible to receive JobKeeper - $1,500 per fortnight (before tax). She has a net income, after deductions for tax, the Medicare levy and her superannuation, of $1,205 per fortnight equivalent to $2,610.83 per month.

Between 28^th September 2020 and 3^rd January 2021, Kym is expected to be eligible to receive JobKeeper - $1,200 per fortnight (before tax). She has a net income, after deductions for tax, the Medicare levy and her superannuation, of $992 per fortnight equivalent to $2,149.33 per month.

Between 4^th January 2021 and 28^th March 2021, Kym is expected to be eligible to receive JobKeeper - $1,000 per fortnight (before tax). She has a net income, after deductions for tax, the Medicare levy and her superannuation, of $863 per fortnight equivalent to $1,869.83 per month.

Kym looks at her current budget and plans what monthly expenses she can modify after 28 September 2020.

For the period from 28 September 2020 to 3 January 2021:

Kym has decided that she is likely to spend more time at home in the last quarter of the year, particularly with the festive season approaching, and so she increases her food budget but decreases her budget for entertainment and eating out. She decides to reduce some of the money she spends on personal spending and streaming services.

Kym knows that it’s likely that her retained savings will significantly be reduced over this period unless she can reduce some of her other expenses.

For the period from 4 January to 28 March 2021:

Kym has seen her net monthly salary after deductions for tax, the Medicare levy and her superannuation reduce by 28% from $2,610.83 pre-September 2020 to $1,869.83 for the period from 4 January to 28 March 2021. She knows it will be tough, but she is determined to cut her expenses so that she can live within her net income, without dipping into her retained savings in her bank account. Now that the festive season is over, she reduces her expenses on food. She makes a new years resolution to jog to work for 3 days a week instead of using public transport. She looks at her lifestyle expenses and decides to reduce her budget for meals out, for personal expenses and streaming services.

She achieved her goal and is even able to put a nominal amount in her savings account over this period.

In this scenario, the following assumptions have been made:

• Superannuation contributions of 9.5% are deducted from Kym’s gross income.
• The Medicare levy is payable. The calculated Medicare levy assumes Kym is single with no dependents
• Net income has been calculated using the Moneysmart Income Tax Calculator, FY2020-2021 calculator
• Does not take into account any tax rebates or tax offsets
• Kym does not have any debt. She also pays for her expenses using a debit card and does not have a credit card.
• It is assumed that none of the current expenses increase.

Please note that this worked example of Kym’s situation is for guidance purposes only and readers should obtain their own advice for their own situation.

3. Renegotiate and reduce.

It’s worth looking at your large expenses and asking yourself – can I reduce them?

For example, looking at the scenario above and Kym’s situation, she and her two housemates could ask their landlord to reduce the monthly rent by 20%. Alternatively, they could see if alternative accommodation with lower cost rent is available.

Let’s imagine they opt to ask their landlord to reduce the rent for the next six months and the landlord listens to their suggestion of a 20% reduction and counteroffers with a 10% reduction, which Kym and her housemates accept.

The outcome of this decision for Kym is that her share of the rent will reduce from $1,050 per month to $945 per month. This means Kym saves an additional $105 per month and $630 over six months.

Kym may decide that she’s best off retaining the savings of $105 per month in her savings account.

Buoyed by the success of renegotiating their rent, the housemates might decide to have a conversation with their utility providers. For example, they could ask their electricity or gas provider whether hardship support is available to them. The key here is to ask for help.

If you ask for help and your energy providers can’t give you more help, you can always switch providers to try and save money. It’s important to confirm you're on the best energy offer for your household’s circumstances. The Australian Government has a site to help people reduce their energy bills. You can also compare energy suppliers to make sure you’re getting the best deal, using the Government’s Energy Made Easy website. What’s will help you to save money, is to keep a close eye on your utility costs and reduce them where possible. You can often lower your utility payments by making sure you turn off lights and unplugging power-hungry devices.

Other help available.

 From the Australian Government:

Australians on JobKeeper payments may be eligible to claim JobSeeker to top up their income.

To claim JobSeeker, Australians must meet:

• the income test, which varies dependent on their family situation, for a single person with no children it’s a maximum income of $1257 (gross income, before tax) per fortnight; as well as
• residency requirements
• assets test, which varies dependent on their family situation, for a single person with no children who is a homeowner, its $268,000.
• and mutual obligations (these are tasks and activities recipients agree to while receiving certain government payments, for example attending appointments with an employment services provider).

Visit Services Australia, to find out more about JobSeeker payments, including income, asset tests and eligibility criteria.

If your income has been affected by COVID-19, you may be eligible for income support payments. Centrelink have created an online tool to see what payments and services you may be eligible for.

Learning more about personal finance with Westpac’s financial education specialists, the Davidson Institute, will provide you with the confidence to handle difficult financial situations in the future:

• Budget Planner takes you through a simple step-by-step process to help establish a budget that suits you
• Cost cutting checklist has a set of thought starters you can consider to reduce your costs.

 This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness for the information to your own circumstances and, if necessary, seek appropriate professional advice. ©Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian credit licence 233714.

This article was updated on 22^nd December 2020