Friends With MoneyThree in four Australians rely on a specific method to manage their money, so which one could be the right fit for you?
This week on the Friends With Money podcast, Money's Tom Watson is joined by Andrew Morrison, chief product and growth officer at Ubank, to talk about money management and five popular budgeting methods. They discuss:
- The importance of budgeting for financial health
- Five of the most popular budgeting methods
- The 50/30/20 method, envelope system and zero-based budgeting
- Automating the savings and budgeting process
- Quickfire money management tips
friendswithmoney #tomwatson #andrewmorrison #moneymanagement #budgeting
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Welcome to the Friends with Money podcast, brought to you by Money Magazine, creating financial freedom for Australians since nineteen ninety nine.
Hello, and thanks for joining us for another episode of Friends with Money, money Magazines podcast to help you earn, save, and achieve your financial goals. My name is Tom Watson, a senior journalist here at Money Magazine, and as always it is a pleasure to be with you. On today's episode, we are going to dig into a topic that we are we haven't touched on in quite a while actually for many, though would say a fundamental part of money management and a core pillar upon which so many other parts of our financial lives are ultimately built. We are talking about budgeting, and I've very pleased to say that joining us today to dig into all things budgeting is chief product and a growth officer at You Bank. Andrew Morrison, Andrew, welcome to Friends with Money. It's great to have you on the show.
Hey, Tom, thanks for having me.
You are so welcome, Andrew. As I was saying before, I think many of us appreciate that budgeting can be a really crucial part of financial life, even if we don't actually do it ourselves. So to start us off. Why should people care about budgeting? Why is it important?
Yeah, Tom, I think budgeting is a particularly powerful tool. I think not just because of its importance in our financial.
Lives, but our overall lives.
Money plays such an important role in everything that we want to do, and particularly being able to do the things that we really enjoy or that we love to do. And so I think there's really three sort of key reasons that people should care about budgeting.
The first is it does do exactly that.
It puts you in control, puts you in the driver's seat of your money matters of your financial decisions, where your money's going, how often you spend, the types of things you spend on, and just knowing how and when you're going to spend your money, so putting you in control of your finances. I think the next one is peace of mind.
It can really give you a lot of anxiety.
It can really bring on those thousands of decisions that we need to make every single day. And adding into that sort of money matters or thinking about if your pay is going to last until the next payday, if you can afford that coffee every day this week, or to eat out instead of making a meal tonight is a big deal, and I think it really can be a burden for a lot of us. That those amounts of decisions and budgeting gives you a way of sort of bringing some clarity to that, bringing some peace of mind to all those decisions. And the third one I just touched on as well is clarity knowing where you're spending your money, Knowing where you're going to spend your money, how often you spend it, and the types of things that you want to spend it on. And so when we think about this at you Bank, we think about sort of financial wellness sort of in just like you would think about sort of your nutrition or your health and having a daily sort of expense routine, having a regular health check on your finances and budgeting can really be a way.
For you to do that.
And just like your sort of your financial or your fitness and me trying to get to get out and go for a run or go to the gym, it's something you can do every day and become part of.
Your regular habits.
And I think just getting out and starting it is a really good way to get on top of your money matters.
As soon as you mentioned the word coffee and budgeting. I immediately started thinking about my own kind of budging method and allocation method, and then how much of a role that are that coffee and caffeine place within that are but enough of that it's probably just start. It's early in the morning, so our coffee is on my mind. Andrew, I know that you Bank recently conducted some research on the buzzing and savings habits of Australians, particularly younger Australians. So what were some of your I guess top takeaways from that.
Yeah, yeah, so we definitely did that piece of research and maybe before I just dive into sort of what we heard there. The reason that we sort of did this, You Bank is the digital bank for NAB and so we set out to sort of help our customers help Australians be more successful with money, and so to do that, we offer proactive features and insights inside the digital lab in the palm of your hand. And our customers were telling us that their major pain points were sort of three main things were saving money. Just sixty six percent of people of our customers were saying that it was difficult to save money. It's difficult to know how much money they have for bills and for savings and knowing if their bills are covered and taking those insights from our customers. We then went out to a broader group of younger Austraians to really see how they are managing their money, how they different tools and techniques that they use for budgeting. And I personally was really surprised to see that three out of four of the respondents are actually doing some sort of budgeting. So that's seventy four percent of younger Austraians we're doing some form of budgeting. I did a bit of a straw popt around the office and this sort of correlated. It was, you know a lot of people are doing some form of budgeting. But what also correlated in my little stroll pole in the office with the research we saw is that one in four people are still struggling to make their pay last to the next payday. They're either always or almost always not making it to the next payday. And if you're adding people that are sometimes struggling it to make it to the next payday, that takes it up to fifty percent, so it's one in two are struggling to make it through to Payday, and again that was consistent across the office. So we really were doing this research to find out how we can build on the tools and features that we already offer today to help people manage their money better.
And I think we'll touch on some of those tools a little bit later on the episode, but the main kind of thrust of the episode today is obviously looking at some of the kind of budgeting methods and techniques out there. And I know that you uncovered some of these are some of the more popular ones in your research Andrew, you know obviously with the younger shames, and I want to kind of take time to dig into each one of those in a second. But before we get into each one in more depth, as I said, what would they kind of I guess the top five that you uncovered that are the most popular.
Yeah, so were there were five of them, and I'll be honest, none of these are really piffy names, so we'll sort of get into them. They do sort of bring up images of excels breadsheets. But the first one is traditional budgeting, and so as you say, we'll go through each of these in more details. So traditional budgeting, pay yourself first budget, what's called a fifty to thirty twenty split budget. So that's sort of an allocation by percentage a budget or envelope system, which I think many people would be familiar with, particularly me. I remember my nana doing this in the drawer in the kitchen, and the zero based budgeting system. They're the five types that came out most in the research.
Well, as you said, there are, they've all got very different names. I'm kind of intrigued by some of them because I'm not familiar with it. Single while on that list, So let's start off with that with number one there, which is obviously traditional budgeting. What do we mean by that though, Andrew? And then I guess how does it work in practice?
Yeah, so it's probably the most familiar to most people. And thirty percent of respondents said that they were doing traditional budgeting. Literally, it's just listing out your income sources and listing out your expenses and putting a number against each of those.
Okay, very straightforward. That number two pay yourself first budgeting. I mean the name kind of suggests what it is, but what's involved with this?
Yeah, So twenty seven percent of respondentse we're doing this form of budgeting so pay yourself first. And it's really about setting aside some money straight away when you get paid for your savings or investments. So the first thing you do, you get one hundred dollars, you set aside twenty bucks for your savings or investment, and the rest is for everything else.
Simple as that.
So I might allocate money and as it hits my bank caunduct to get paid towards my bills, towards streaming services, towards you know, maybe my rent or my mortgage, and then I'm left with a kitty that I can kind of tap into for the purposes. Is that kind of outworks?
Yeah.
And so just before you do all of that though, setting aside your savings, so knowing that I've already said, so you left with instead of one hundred dollars, you've got your eighty dollars to do everything you just described there.
Number three is one that I'm intrigued by. I've definitely heard of this before this. This is the most ex sally of all of them, at least in my opinion terms of the name. And it's a fifty thirty twenty method. It could could be a kind of dieting method by the sounds of it, but it's not as budgeting. So what's involved here, Andrew?
It does sound a little bit like some sort of dieting method. So fifty to thirty twenty eight is percentages. So fifty to thirty twenty one hundred percent of your income, and it's about allocating that first fifty percent to your obligations, to your commitments, so your rent, your electricity bill, your phone bill, your fuel to get around in the car, those things that you need to have. So fifty percent of your income is set aside for that one and then the remaining half is split twenty and thirty. So twenty percent is set aside for your savings, so setting that money away so that you are saving something, and thirty percent is left for the things that you love to do. So it might be like we just talked about that coffee on the way and to work every day, or it might be eating out instead of making your meal for dinner. But whatever those things are, that thirty percent is set aside for those discretionary items.
I like it. I like that kind of splitting it into portions, So that's quite appealing to me, especially when I can allocate twenty percent towards coffee alone. No, that's not the case. I don't do that. Listen. Number four on the list, Andrew is is the bucket method or the envelope system. And you know you mentioned your grandmother. There are we talking about a physical bucket, a physical envelope.
Here, certainly physical envelopes.
And interestingly, twenty one percent of people that they were doing this sort of budgeting. It did have a bit of a resurgence on social media last year. There was quite a bit of sort of stories about people putting cash, physical cash into envelopes and putting it in a draw I think this really appeals to people who need some sort of visualization of where they're spending their money. And as I mentioned, you know, I distinctly remember when Nana doing this one. It was in the drawer with the envelopes and the cash sitting in it with names on it like electricity and you know, groceries and just making sure you have those money set aside.
And you can do that digitally.
Now there's a lot of different ways to do it, and often that's referred to as buckets.
That makes a lot of sense, and I would say I like to use kind of savings buckets as part of my own budgeting slash money management system. That's really appealing. But I can understand why for a lot of people still that kind of that tangible approach where you have, you know, physical notes in an envelope that you can spend and see where each of you know, those envelopes money within them goes, can be really appealing just to be able to kind of really track that better, at least that's how I see it.
Yeah, I think that's right, and I think we see you mentioned the sort of saving buckets there.
We see a lot of.
Our customers using emojis to name their savings buckets, and I think that's a similar sort of element of visualization. You know, a little picture of a car for the thing that you're setting your money, You're setting us life to the car in the future, whatever it might be. And we also really interestingly see customers that use those emojis are more likely to save that money, So there's certainly something to the visualization.
Wow, that's so interesting. I've definitely got a little plane emoji next to my at least to my travel travel kitty Andrew. This Brees is on to the fifth and final budgeting method that we're getting into today, which is zero based budgeting, And I know full well that this is a popular method here in the money office, So can you explain to why SWAR zero based budgeting is all about them?
Yeah, so zero best budgeting is exactly what it sounds like.
So income minus expenses equals zero, so you are accounting for every single dollar that you earn. And fifteen percent of respondent said that they were doing this sort of this sort of budgeting, so fifteen percent, and it just gives every dollar a job.
And again that that makes a lot of sense. I know people who've found that, you know, really a really useful way to approach their budgeting. And I guess what kind of leaps to mind having talked through this now, is that there are obviously so many different budgeting techniques methods out there, and you know they're going to be really useful for certain people. So I guess it's a little bit about finding what works for you, Andrew, and maybe kind of experimenting a bit along the way to find out what actually fits.
I think that's exactly right. Try it out, give it a go, you know, just like exercise. I think you rewarded for just starting and then trying to build it into your daily habits.
Last year we Are we did an episode on the psychology of savings and that's episode one four seven for anyone interested in listening back. And the reason I bring it up is because one of my big takeaways from that episode was that automating parts of the savings process can be really helpful in working towards goals. So, Andrew, can that same idea be applied to budgeting too. You've kind of already touched on this, but you know what kind of banking features are out there these days to help people with their budgeting and money management and kind of automating parts of that process.
Yeah, Tom, I think, as you said, I did sort of touch on earlier the peace of mind that comes with having a budget, and I think automation is a great way to sort of double down on that piece of line, just knowing that something is going to happen without a lot of effort from yourself. I will say that our customers do still want to remain in control of their money. I think we all want a remaining control of our money, even whilst there's an automation there. So ensuring that you're across those automated tools and things that you're using is super important. Just keep an eye on them. But you know, at you Bank, we are definitely constantly building out new features to help customers do that. And one of the things sort of related to the fifty thirty twenty I guess is we've recently introduced what we call a bills account. So now you have a spend account for your daily spending, you can set aside your savings, and a third account for your bills. So as your money comes in, you can set up your pay cycle in the app. You can see the day you're getting paid, you can see how long you need to make your money. Last money comes in, you just go in and allocate it across those three accounts. So putting your money into your bills account straight off the bat, you'll know that those bills are going to be covered over that pay cycle. And to help that, we also have a spotted feature, so it'll look through your transaction history and suggest to you, hey, this we think this is a bill. It might be we're also being complicit in this today multiple streaming services, and so we'll pop that up as a reminder for you to having this upcoming bill, you can click on that and then it'll go into your upcoming bills lists. So on your dashboard now you can see that you have the money sitting in that bill's account, You can see the bills that are coming up, and you know where in the case of streaming services, maybe you might want to be getting rid of one of those because you're no longer watching that channel or listening to that music, and so they're all right there in the app. And I think another great feature that we've introduced and had for a while now is connected accounts, So the ability to see all your banking information in fact, including things like your superannuation, all inside the U Bank app. And so that's what a bill's feature, as an example, will look through all your transactions across those accounts and present to you your bills. So it doesn't necessarily have to be using the U Bank card to do that. You could be using your other bank account and might be coming off your credit card and it'll present to you as a regular bill.
You also touched on the savings buckets earlier.
Regular automated savings is just a fantastic way to budget and we touched on one of those techniques earlier, and so as you're setting up your goal in line, it'll give you that opportunity to just automatically move money from your spend account or your save account into that particular goal that you might have. It might be, you know, you save up for your Christmas gifts every year, or as you say, the plane for that for that holiday, so right there in the app, and all of that is really supported by you know, none of those have any fees and great rates for getting returns on your savings.
I gotta say, personally, did I find the automated saving kind of feature wish aren't which is available and with my account really handy to kind of keep me on track. But I must say I still go back in and check every month because I just it's satisfying to see that money go in. So I guess that goes back to the site that people still want to have a look and have a bit of a hands on approach still even while they're making use of these these great automated features which are out there.
Still, Yeah, definitely, And I think in the case of savings, going back in and you know, making sure that your interest is competitive that's another great element of budgeting is the ability to just keep an eye on your money management and they're getting the returns that you want or that you're. Interest rate on your debts is competitive as well.
Absolutely, Andrew, we've covered a heap already today, but before we let you go, I always like to chickly ask if you have any tips or a single tip perhaps related to budgeting or savings money, you're saving money or money management, anything that you'd like to leave us with.
Yeah, I think I touched on a few of those today, and it's really tackling those pain points that our customers were talking about.
I think first and more foremost, just.
Get started, create a budget, budget that sort of works for you, and then check in on it, you know, sort of engage with that. And I think doing that across a few pay cycles, a few of your payt cycles will really help you just get a handle on how you want to manage your own money and making sure that you have some money set aside to do the things you love. Thinking about it not as a spreadsheet, but as a tool to get to do the things you enjoy. I think changes is the mental model around for what can be otherwise a bit of an administrative exercise. So I think just getting started and then sort of building that habit is great. Looking for savings opportunities, you know, wherever they might be in your spending. Maybe you can do meal prep on a Sunday night for your lunches during the week rather than buying a few or you know, think about those coffees we've talked about. I'm still going to bank my coffee every day, I must say.
And setting aside money for an emergencies.
You know, we saw during COVID savings rate across the country is just you know, just increased across the board, and I think it was that, you know, the sort of emerge situation that we were in there, and having money for when you do have something like a fender bender or other emergencies in your life is just another way to get peace of mind. And so I think there's some really quick tips around getting involved in budgeting.
Listen, I think that was a great and a great place to earn to leave things on for today, Andrew, it's been an absolute pleasure running through all things budging with you. So thank you so much for coming on the show. And we'll have to have you back on.
Before too long, love to thanks for having me Tom.
That's it for this episode of the Friends of Money podcast, but don't forget to jump on our website moneymag dot com dot Au for your daily dose of financial news, or you can go grab yourself a copy of the leaders edition of Money Magazine in all good newsagents. As always, Friends of Money will be right back in your podcast feed next week, so until then, my name is Tom Watson. Goodbye for now.
Thanks for listening to the Friends with Money podcast. For credible, independent and easy to understand financial commentary, visit moneymag dot com dot au. Please remember that the views and opinions expressed in this podcast are general in nature and further, independent advice and research based on your personal circumstances should be sought before making an investment decision
