Getting to grips with debt, budget and cash flow

So when exactly do you become an adult?

Is it when you turn 17, when you can drive unsupervised in most Australian states and territories?

Is it when you turn 18, when you can buy alcohol, vote and get married without your parents’ consent?

Or is it when you turn 21—the traditional age of maturity?

It’s all a bit confusing. But most of us would agree that the transition from adolescence to adulthood comes in stages, with some big milestones along the way like settling down in a long-term relationship, buying your first home and starting a family.

Generational change

The way we live has changed substantially in recent decades. Your parents and grandparents are likely to have got married earlier, had children earlier and bought their first home earlier.

  • The median age at first marriage for Australian men and women was 30.4 years and 28.8 years respectively in 2017, an increase from 27.8 and 25.9 years in 19971.
  • The median age of mothers and fathers for all births was 31.3 and 33.3 years in 2017, compared with 25.8 and 28.6 in 19752.
  • And the average age of first home buyers increased from 27 as recently as the early 1990s to 31 in December 20173.

There have even been suggestions that our extended adolescence in the 21st century only really ends when you turn 30. It’s all a far cry from historical times when children were expected to start working and contribute towards family finances from a very early age.

So does this mean that today’s generation is a bunch of immature slackers? Far from it.

While the average 25-year-old in 1975 was more likely to be married, have started a family and have bought their first home, that doesn’t mean that today’s 25-year-olds aren’t dealing with complex challenges.

In many ways, making sense of the world has got a whole lot more complex, with younger Australians needing to pay off a lot more educational debt and save a lot more to get into the housing market than their parents and grandparents.

Learning about personal finances

It’s a pity there’s no handy ‘How to’ book to teach you about adult life. It’s something that you need to learn on the job.

And three of the trickiest areas to get to grips with in your 20s are debt, cash flow and budgeting.

1. Managing your debt

Don’t be fooled into thinking that debt is all the same. It’s worth dividing what you owe into good debt and bad debt.

Good debt can help you invest in an asset which will deliver a capital gain, while bad debt just helps finance your lifestyle.

One example of ‘good debt’ is a loan taken out to fund higher education or vocational training after you leave school. The name may have changed from the Higher Education Contribution Scheme (HECS) to the Higher Education Loan Program (HELP). But whether it’s HECS or HELP, your debt’s the same—and something you share with 2.7 million other Australians.

The average outstanding HELP/HECS debt in the 2016-17 financial year was $20,303, up from $19,396 in 2015-16. Meanwhile, the number of Australians with debts over $100,000 soared over the same period, from 10,996 to 14,046.

Your higher education debt is a bit different to many other forms of loan as no interest is charged. Most other debts—credit card, car loan, home loan, personal loan—will charge a rate of interest higher (in some cases much higher) than your uni debt. But your HELP/HECS debt does increase with inflation so you don’t want to forget about it altogether.

If you have other debts to pay off, it might be worth dealing with the high interest debts first and working your way through to lower interest debts. And if you’re saving towards a goal like buying a house, you’ll need to weigh up the relative merits of paying off your debts versus putting the money towards your goal, assuming you haven't reached the income threshold for HELP debt in which case automatic repayments are triggered.

It might be worth dealing with the high interest debts first and working your way through to lower interest debts.

2. Understanding your cash flow

Cash flow is just a fancy way of measuring how much money is coming into your account and the amount that’s going out at any time.

It’s made up of three key components.

  • Income isn’t just your wages, it’s also interest from savings accounts, dividends from investments and capital gains from the sale of assets.
  • Expenses can be ongoing, like rent or mortgage payments, utility bills and insurance, or discretionary, like entertainment and clothing. Simply put, there are expenses you definitely can’t avoid and expenses you possibly can.
  • Savings comprise anything you have left over after expenses are subtracted from your income. Hopefully this will be a positive number but if your expenses are more than your income, you’ll have a negative cash flow.

There are some great tools out there to help you make sense of your cash flow.

With three linked Pay, Save and Spend accounts, the AMP Bett3r Account can make it easier to manage your cash flow.

AMP’s free Money Manager tool is an easy way to check out your cash flow and see your AMP and non-AMP accounts in one place, giving you a bird’s eye view of your finances.

3. Creating a working budget

An effective budget can go a long way towards helping you achieve your goals.

It can help to think about budgeting in terms of your cash flow—what’s going out and what’s coming in.

If your cash flow is negative, or you’d like to see your savings increase, you’ll need to look at your expenses and see if you can cut back in any areas.

It could be as simple as buying more home brand groceries or spending less on takeaway food. Or it could be a little more long-term, like moving to a more affordable area to save on rent or mortgage repayments.

AMP’s budget planner calculator is a handy tool to help you work out how much you need to put aside to pay bills and how much you could have left over to spend or save.

Turning to the income side of your cash flow equation, it’s worth reviewing your income sources to see if you can get your money working harder for you. Could you be getting a higher interest rate on your savings account, a better return on your investments, or even earning more money with a second job or side project?

Getting on top of your debt, cash flow and budgeting will give you more control to better manage your money and reach your financial goals.


Australian Bureau of Statistics, 3310.0 – Marriages and Divorces, Australia, 2017, Median age at marriage, Australia, 1997-2017(a)(b)
Australian Bureau of Statistics, 3301.0 – Births, Australia, 2017, Median age of parents, Australia - 1937 to 2017
Sydney Morning Herald, First home buyers getting older, 6 April 2018  

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