How to: Budget in 2019 - Raiz Invest

budget for the new year

Budgeting is often pushed as an essential ingredient needed to take control of your personal finance. Whilst the concept of a budget is straight forward, it is common for people to struggle with its execution. This is especially pertinent in today’s day and age, given changing economic conditions.

One of the most popular budgeting methods often talked about is the 50/30/20 budget. This budget stipulates that you should divide your after-tax income so that:

  • 50% is allocated towards your needs, such as fixed living expenses, bills and essentials (rent, groceries, utilities etc.).
  • 30% is allocated towards your wants – everything you spend money on that is non-essential. This includes things like eating out, going to movies, and streaming subscriptions – anything that you spend money on to make life more enjoyable and entertaining.
  • 20% is allocated towards savings and investments. This can also include making debt repayments and other financial goals.

It is important to note that these percentages are not necessarily fixed. The needs and wants percentages are the maximum amounts you should spend for those categories, leaving the 20% allocation for savings as a minimum requirement.

The 50/30/20 Budget Rule
The 50/30/20 Budgeting Rule

Over the last decade, the cost of housing/rent and utilities such as electricity have risen substantially. From September 2017 to September 2018, the Australian consumer price index (CPI), which measures the price levels of a common basket of consumer goods and services, rose by 1.9%, with the wage price index (WPI) only growing by 2.2%.

Wage growth is only just keeping ahead of increased costs of living. This is also just an average, so for some parts of the population, the cost of living would have risen faster than their wage growth.

What this means is that sticking to budgets can become harder if wants and needs begin to take up larger proportions of your income. What if your needs start to take up more than 50% of your income? If that’s the case, then you may need to scrutinise your expenses and look at where you can save money.

This could be hunting around for a cheaper phone plan or limiting usages of utilities like electricity and water to reduce bills.

If you can’t keep needs below 50%, there’s no need to panic. All budgets will be slightly different depending on the person, and the exact percentage breakdown can be altered to make it more optimised for you. Perhaps you could cut back wants to 25% and increase needs to 55%.

The bottom line is to manage your money by tracking your expenses, staying on top of and disciplined with your spending, and resolving to save/invest as much as you can afford (but remembering to leave yourself a little bit to spend on the nice things and enjoy life!).

The mathematics behind compound interest shows how powerful saving and investing can be. If you were to invest $10,000 into an index fund every year, for 30 years, assuming average returns of 7% p.a. that investment will have grown to be worth $944,607. That’s a total return of $644,607.

Check out ASICS MoneySmart compound interest calculator see how much money you could have after saving different regular amounts.

Compound Returns Graph
*Most managed funds will charge fees for their service, but for the sake of simplicity this graph does not include nor reflect their affect on returns – see ASICS managed funds fee calculator to get an estimate on how fees and costs can affect your investment.


Apps like Raiz can be useful tools for helping to keep track of your spending and save money at the same time. ‘My Finance’ is a free feature within the app that provides you with personalised insights and notifications on how you are spending.

It does this by tracking your purchases and breaking them down into categories (e.g. food and dining, bills & utilities etc.), allowing you to see how much you spend on a month to month basis.



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Important Information

The information on this website is general advice only. This means it does not consider any person’s investment objectives, financial situation or investment needs. If you are an investor, you should consult your licensed adviser before acting on any information contained in this article to fully understand the benefits and risk associated with the Raiz product.

The information in this website is confidential. It must not be reproduced, distributed or disclosed to any other person. The information is based on assumptions or market conditions which change without notice. This will impact the accuracy of the information.

Under no circumstances is the information to be used by, or presented to, a person for the purposes of deciding about investing in Raiz.

Past return performance of the Raiz product should not be relied on for deciding to invest in Raiz and is not a good predictor of future performance.