Setting up your finance systems

Introduction

Each person’s financial situation is unique. Before you embark on finding a more independent living situation, it is important to have a clear understanding of your finances and a plan in place for the ongoing management of your money. This includes understanding how you yourself deal with money and being clear about the type of help you will need to manage things on a day-to-day basis.  

Planning for financial stability

Planning for the financial side of your new living situation is about more than just knowing if you can afford the rent. It is about creating a budget that covers all aspects of the household expenses, and making decisions about the systems you will use to handle your cashflow, savings and financial decision-making. Building and following a plan for your finances will help ensure the stability and sustainability of your new living situation.  

Building financial literacy

Money is a complex and abstract concept that many people struggle with. Moving to a new living situation can mean increased responsibility in money management and will often require some degree of skill-building.  

Before taking on more financial responsibility, it is important to consider areas where you may need additional support. Financial skills are often an area where we have ‘blind spots’, so discussing this topic with a trusted member of your support team can add a valuable perspective. Some common financial challenges include:

• Understanding how money works
  It can be hard for some people to understand the complexities of the value of money; learning takes a lot of exposure and experience. While building these skills, it is important you have really clear information and put protections in place so that big mistakes cannot be made.

• Knowing how much things cost
  Many people don’t realise how expensive it is to run a home. Things that might not seem like a big deal at the time, such as leaving the heater running, taking taxis when it rains, or spending money on fun extras, can quickly add up and make a big impact on your budget.  

• Understanding the budget
  In some instances, a budget may be in place but the person using it might not know what it means or how to follow it. It's important to break down costs like rent, food, and hobbies clearly in a way that you understand.

• Identifying which costs can be variable
  Some costs change with the seasons, such as power, which can be more expensive during the winter months. This can make it difficult to plan ahead; however, setting up fixed monthly payments with your provider can help make things more predictable.

• Choosing between wants and needs
  Sometimes, people choose to spend their money on fun things instead of sticking to the budget. If this keeps happening, it’s important to review how your money is managed to avoid getting into debt.

Strategies for support

Money management is often a skill built over a lifetime. If maintaining full control of your finances isn’t the best option for your situation, there are ways that you can involve others in the management of your money while retaining the level of decision-making that is right for you. These include:

• creating joint-signatories on your bank accounts
• creating rules for when you can buy certain things, or how often (e.g. takeaways on the weekend)
• setting up Work and Income (WINZ) payments to go directly to your landlord to avoid accidental spending
• making use of separate accounts to divide your money into clear categories, e.g. bills, saving, personal spending
• paying a fixed rate for your variable bills (arranged with the provider)
• identifying areas of your budget that can be prepaid, e.g. travel cards, phone cards, food or entertainment vouchers
• making sure there is no overdraft facility on any of your accounts to avoid accidental debt (It is worth speaking directly with your bank to confirm this is in place.)
• arranging for someone to be with you when you are paying your bills to double check any details you are unsure of
• creating visual budgets to clearly illustrate where money is allocated – e.g. how much of a $300 pay check is allocated to a ‘bills’ account and how much is left for spending money.

Finding the balance

It is important that you aim for the least restrictive financial set-up possible. It can be tricky to find the right balance between being free to access all of your money and being able to stick to your budget. It is likely that you will need to adjust your system along the way.

Getting help with your finances

Budgeting services

Most communities have free budgeting services that can be useful if you are trying to understand what is affordable. They can help you to create a personalised budget based on your income and expenses.

Benefits and financial support  

Some people need help to afford things, especially when they first move away from home.  

Work and Income provide some supports around living costs that may be worth looking into, depending on your situation (see Engaging government and community supports – Stage 1, Chapter 4).  

If you are getting financial help from a friend or family member (whether that is in the form of money or help with the management of your budget), consider how long this support is going to be available to you.  

Money conversations

Having regular, practical and detailed conversations with your support team about money and how it works can help you to build your confidence and practical skills. It is important to discuss topics such as:

• what to do if the budget isn’t working
• your rights around money
• how to avoid scams  
• your financial goals  

It is also important to reflect on what you have found problematic in the past when you are considering how best to manage your finances in a new living situation.  

Building a budget

Every living situation will incur different costs depending on variables such as rent, the number of housemates contributing to expenses, or travel costs.  

Building a budget is important to understand how affordable different living scenarios might be. It is easier to create a clear picture of what is affordable and how you want to prioritise your spending when you consider:

• the funds you have available
• the costs required to maintain a particular living situation
• the costs associated with the lifestyle you want to create

There is also value in understanding how your funds are allocated between ‘committed’ costs (such as rent and expenses) and ‘recreational’ spending.  

For example, when it comes to choosing a new rental situation, being able to see the relationship between an extra $20 a week on rent and the impact on your available spending money will help with informed decision-making.  

If you don’t have a budget, or you don’t follow your budget, you may risk the ongoing sustainability of your new living situation.  

Household vs personal budgets

When setting up a new living situation, there are two kinds of budget to consider: a household budget and a personal budget.  

A household budget relates to the costs of keeping the house running smoothly. In situations where there are multiple flatmates, these costs are usually paid for by contributions from each member of the household. Household budgets often include:

• rent or mortgage, rates (if applicable)
• utilities – e.g. power, gas, water, internet
• house maintenance – e.g. lawns, repairs
• shared household supplies – e.g. cleaning products
• shared food costs – e.g. if sharing meal responsibilities
• subscriptions – e.g. newspapers, Netflix
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A personal budget relates to the overall management of your own money. A portion of your personal budget will go towards a household budget, but there are other considerations for your personal budget that are not related to the household. Personal budgets often include:

• your contribution to the rent/mortgage
• your contribution to household expenses – utilities like power or gas, house maintenance, shared household supplies, shared food costs, shared subscriptions
• personal food costs (separate to any shared food in the household budget)
• transport – e.g. car costs, public transport, taxis/Uber
• insurance – e.g. contents insurance
• hire purchases
• debt payments
• personal expenses – e.g. clothes, shoes, haircuts
• pets
• health – e.g. medical expenses, prescriptions
• entertainment/recreation
• personal spending
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Budgeting for moving costs

If you are looking at renting a home, it is important to plan for one-off costs prior to moving in.

These will likely include a bond, letting fee and a couple of weeks’ rent in advance. More information on this is available from the Tenancy Tribunal.

It may also be relevant to budget for furniture or household supplies that are needed to set up the home, and any costs for the moving or installation of furniture.  

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Where to start

Build a plan for your finances

Having a plan for your finances is essential to ensure your living situation is sustainable.  

When building a plan for your finances it is important to consider what supports and systems you can put in place that will help you understand your finances, protect you from financial risk, and enable you to have as much independence and freedom with your money as possible.  

To do this, you need to:

• understand your own history with money and your financial literacy skills

• plan for how you will manage household finances in your new living situation (especially if sharing household expenses with others)

• create a budget for your own personal finances

Next steps:

1. Read through the example scenarios below.

2. Use the ‘Create a financial skills profile’ worksheet below to identify which aspects of your money you are confident to manage independently and which areas you require support.

3. Use the ‘Review your money history’ worksheet below to reflect on the ways you have been supported with your finances in the past; what has worked well for you and what has not.

4. Use the ‘Set up your financial systems’ worksheet below to decide on the rules and systems you will use to manage your finances in your new living situation.

5. Use the two ‘Create a budget...’ worksheets below to plan your finances for your household and/or your personal finances.