2019-01-22T09:05:31.422+11:00 Learn more about money basics, good money habits and tips for money management.

Understanding and managing money

Understanding and managing money

Understanding and managing money

Learn more about money basics, good money habits and tips for money management

Basic money terms and tips for managing money

Money – it’s probably safe to say, most of us like to spend it, but how well do we know the ins and outs of our finances generally, so we might be in a position to make our hard-earned cash go further? Let’s start by deciphering some of the jargon (the financial world is full of it), so you can get up to speed with a few of the money basics.

Money terms


Any income you earn including your salary, wages or financial assistance from the government such as allowances and subsidies will be typically deposited into your bank account. This is considered your direct income and it is the foundation of your finances. Other types of income could include dividends paid on shares, interest paid on savings and rent received from an investment property.


Expenses can arise from many categories and could include your rent or home loan repayments, groceries, utility bills, child care, and petrol and other vehicle costs. These types of basic expenses are considered non-discretionary, that is, they are essential things you need to spend money on to live. On the other hand, discretionary expenses refer to spending on the non-essentials such as entertainment and eating out. This is money you spend on your lifestyle and that you don’t always have to spend, but it does make life more fun!

Cash flow

Your income and your expenses make up your personal cash flow. Positive cashflow is when your income totals more than your expenses over a set period (such as over a month), while negative cash flow occurs when your expenses exceed your income.


In order to be able to work out your cash flow, it helps to have a budget.  A budget is an itemised list of the money you expect to have coming in and the money you expect to have going out. By tracking your spending against your budget, you can understand how you use money and where your money goes.


If you have a positive cash flow you might decide to save the extra money you have. You could be saving for a particular goal, like a buying a home, going on a holiday, or simply saving so you have some money to fall back on should your circumstances change or the unexpected occur. This is known as an emergency fund. There are different ways to separate your savings from the rest of your money, the most common is to have your savings in a separate savings account.


Unless you keep your money under the mattress, you’ll probably have some dealings with a bank. You can choose from a selection of banks in Australia, and each one has a range of bank account options. It’s important to make sure the account you choose matches your needs, and that you’re not paying unnecessary fees and charges. You’ll find that there are generally two types of bank accounts: everyday (or transaction) accounts and savings accounts. Banks also offer other financial products such as loans and credit cards.


An investment refers to something you buy with the intention of generating an income or making a profit from it. The most common types of investments are property, shares and cash.


It can help to think of interest as a two-way street. When you borrow money, you are charged interest at a certain rate (which will be a percentage of the amount you borrowed), that you have to pay back to the lender in addition to the amount you borrowed. But when you deposit money into a savings account or other savings product, the financial institution pays you interest (which, again, will be a percentage of the amount in your account).


Tax refers to the money deducted from your various income sources by the government, who use the tax they collect to pay for public services such as schools, hospitals and roads. Common types of taxes include income tax, capital gains tax, and the goods and services tax (GST) which is a tax paid on most purchases.


Debt covers money you’ve borrowed, be it a personal loan, home loan or credit card from a bank, or money you’ve borrowed from family or friends. While having debt is usually considered negative, that isn’t necessarily the case, depending on the type of debt. Bad debt (such as credit card debt) costs you money without improving your financial position, while good debt (such as a home loan) may help you to build wealth or increase your prospects to build wealth.

Credit history

If you’ve got a credit card, personal loan, mobile phone plan or utility account, there’s probably a credit reporting agency out there that has a file with your name on it. This is known as your credit history and it’s a way of keeping track of your creditworthiness. Actions such as paying bills on time, and not missing loan repayments help you build a good credit rating. Late payments or non-payments add up to a poor credit rating and can affect your ability to get a loan in the future.


Superannuation or ‘super’ for short, is money set aside from what you earn during your working life to support you once you’re retired. It’s deposited into a fund, where it’s invested by professional fund managers with the aim of earning a return to grow over time. The amount of super you have is determined by several factors, including how much has been made in contributions (deposits into the account), how long it’s been invested, the type of investment option you’ve selected, the investment returns your money has earned and the amount you’ve paid in fees.

Five habits for good money management

1. Spend less than you earn

Spending less than you earn might seem pretty obvious but having a positive cash flow each (or most) months is the first step in being able to get ahead financially. If you find you’re struggling to do this, it could help to consider whether there are any ways you can earn extra income, or any expenses you can reduce.

2. Keep track of your money

While setting up a budget and tracking your spending against it might seem like a bit of a chore, it’s pretty hard to get ahead financially if you don’t have a clear picture of your finances. Having a regular time each week where you check in with your money could turn this from a chore to part of your routine.

3. Pay off debt 

If you owe money – to a financial institution or family or friends – prioritise paying it off. Start with the debts that are costing you the most in interest charges. And where possible avoid going into debt. If that means cutting up your credit cards to resist temptation, so be it!

4. Put your money to work

If you’ve got some savings, consider how you can put them to work. Whether it just be shifting them to a high-interest savings account or term deposit where you can earn more interest on your money, using money to make money is smart.  

5. Plan for the future

The benefits of thinking ahead when it comes to what you want are pretty clear. For instance, buying a car, going on holiday and moving into a new apartment all within a six-month period mightn’t be financially viable. But if you spread those things out, set yourself goals and break them down to make them achievable, over a longer period of time they might all be doable.


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