How to budget after the stage three tax cuts

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Team MONEYME|25 June 2024| 2-minute read

As of July 1, millions of Australians will pay less income tax. The Albanese Government, as promised, will make $313 billion in tax cuts. Those earning between $45,000 and $135,000 will pay 30 cents per dollar, as opposed to 32.5-37%. This means someone on $100,000 per year can expect around $1,375 more in the pocket. 

A change like this calls for a new look at your budget. How can you make the most of the extra money, so you get closer to hitting your financial goals? 

Those who fail to plan plan to fail

The most successful budgets are those that are planned carefully. Leaving your finances to spur-of-the-moment decisions or mere willpower doesn’t usually pay off. 

A good first step could be deciding on a budgeting strategy. One of the most appealing is the 50/30/20 method. This involves spending:

• 50% of your income on needs, such as mortgage repayments or rent, groceries and bills; 
• 30% of your income on wants, such as new clothing, eating out and weekends away; and 
• 20% of your income on debt repayments and/or savings. 

In addition to, or instead of, this, you might apply the ‘bucket method’. This means setting up separate accounts for each of your financial goals. 

You might have one account for needs, one account for wants and one account for savings. An even more granular approach would be to split these accounts further. For example, your ‘wants’ account might be split into three accounts, labelled ‘annual holiday’, ‘new bicycle’ and ‘new sofa’. 

Next, you might want to have a look at where you are putting your savings. For example, a high interest savings account will make your money work a lot harder. And, if you think you might dip into it, then make it difficult to access. For example, once you’ve earned a certain amount, you might transfer the money to a year-long term deposit.

Prioritising debt repayment

It might be tempting to splurge your share of the stage three tax cuts on a getaway. But, if you’re in debt, then it might be smarter to put it towards repayments. The sooner you get rid of your debts, the less interest you’ll pay in the long run. 

For multiple debts, consider debt consolidation. This means moving all your debts to one provider, then rolling them into one. Benefits include replacing multiple repayment due dates with a single, regular deadline, and, in some cases, a lower interest rate. 

Making the most of the good times

The past few years have been incredibly tough financially. It’s great news that the Australian economy appears to be stabilising, and we can look forward to having some extra spare cash. Spending (or saving) it wisely will help ensure you hit your goals down the track.