Jacqueline Barton

Budgeting doesn’t have to be complicated. In fact, one of the most effective frameworks is also one of the simplest—the 50/30/20 Budget Rule. Whether you’re just starting your financial journey or refining your current strategy, this rule offers a clear, flexible way to manage your money and stay on track with your goals.

What Is the 50/30/20 Rule?

The 50/30/20 rule divides your after-tax income into three categories:

• 50% for Needs
  These are your essential expenses such as housing, groceries, utilities, insurance, and minimum debt repayments. They’re the foundation of your financial stability.
• 30% for Wants
  This covers discretionary spending that enhances your lifestyle, such as dining out, entertainment, hobbies, and travel. It’s about enjoying life while staying within your means.
• 20% for Savings and Debt Repayment
  This portion goes toward building your future, think setting up for retirement contributions, emergency funds, investments, and paying down debt.

Why It Works

The beauty of the 50/30/20 rule lies in its simplicity and adaptability. You don’t need to track every dollar—just focus on the big picture. It helps reduce financial stress by balancing responsible spending with enjoyment and long-term planning.

For clients navigating complex financial decisions, this rule can serve as a starting point. It’s not rigid, as percentages can be adjusted to suit individual circumstances, such as higher debt levels or aggressive savings goals.

How to Get Started

1. Calculate Your After-Tax Income
   This is your take-home pay after taxes and deductions. Use this figure to apply the 50/30/20 split.
2. Define Your Needs vs. Wants
   Be honest about what’s essential. For example, groceries are a need; dining out is a want.
3. Automate Your Savings
   Set up recurring transfers to savings accounts or debt repayments to stay consistent.
4. Review Regularly
   Life changes—so should your budget. Revisit your allocations quarterly or after major life events.

Tailoring the Rule to Your Life

While the 50/30/20 rule is a great framework, it’s important to personalise it. For example, clients in high-cost areas or with irregular income may need to adjust the percentages. The key is to maintain balance. Cover essentials, enjoy life, and build financial resilience.

The 50/30/20 rule is more than a budgeting tool, it’s a mindset. It encourages clarity, discipline, and flexibility to move confidently toward your goals.

In this month’s update, we provide a snapshot of economic occurrences both nationally and from around the globe.

Key points:

• US Fed reactivates interest rate cutting cycle.

• Big downward revision to US jobs data.

• The legality of Trump’s tariffs has been challenged and is to be adjudicated by the Supreme Court.

• RBA did not cut interest rates due to slightly stronger inflation data.

We hope you find this month’s Economic Update as informative as always. If you have any feedback or would like to discuss any aspect of this report, please contact your Financial Adviser.

THE BIG PICTURE

After immense pressure from President Trump, the chairman of the US Federal Reserve (“Fed”), Jerome Powell, announced a 0.25% cut in the Fed funds interest rate to a range of 4.00% to 4.25% at its September meeting. Not only did the Fed cut interest rates, but it also signalled another two rate cuts this year and one in each of the next two years.

We have long argued that the Fed rate was far too high for current economic conditions. Powell may well have privately agreed but we suspect he didn’t want to be seen to be running a Fed that was not independent from the government.

There seem to have been two trigger points. We reported last month that there was a big revision to the previous two months’ new jobs data and a lower-than-expected number for the latest month (at the time). September’s release was a paltry 22,000 new jobs, and the unemployment rate inched up to 4.3%! Less than a week later, the BLS (Bureau of Labour Statistics) that produces much of the government economic data reported its annual revision to the recent twelve-month period (April 2024 to March 2025) was a downward move of 911,000 jobs. In the previous year, the BLS reported a downward revision of 818,000 jobs. That revision prompted Trump to accuse the BLS of being politically motivated – hiding poor data before the run-up to the November 2024 election. Trump’s claim was that the BLS wanted to support a Biden victory. That revision also heralded in a 0.5% Fed cut in September 2024 to start a new rate-cutting cycle.

We have seen no reasonable evidence that the BLS has done anything other than the best job it can in difficult circumstances. The nature of work and jobs are changing, and the response rate to the BLS monthly telephone surveys has been declining rapidly since the pandemic – as has also been reported response rates in Australia and Britain.

The problem of monitoring the labour market going forward has been exacerbated by the government shutdown in the US that just started on October 1st for an indeterminate time. There have been 14 such shutdowns in four decades – it is the way the two major parties try to direct funding to their chosen projects. The shutdown allows the president to choose which departments he will shut down. It is widely believed Trump will shut down the BLS before the next jobs’ data, due on October 3rd, to prevent more poor data from being published. We do not think a lack of data will divert the Fed from its cutting cycle, and market pricing supports this view.

US June quarter GDP growth was revised upwards to 3.8%, making for an average 1.6% p.a. for the first half of the year. Volatile trade data, caused by changing news on tariffs, continues to hamper estimating current growth. We think the US is likely to be growing at below trend, but that it is unlikely to go into recession anytime soon.

US inflation data remains a little elevated – currently running at 2.9% pa. Since tariffs have contributed to rates being above the target 2%, there is no reason to change monetary policy to accommodate these small changes. The tariff effect will only be transitory unless it inspires workers to escalate wage demands. With a weak jobs’ market, inflation is not a problem.

Some commentators are calling the current situation ‘stagflation’. We see this claim to be a headline-seeking activity. The term was introduced in the 1970s when unemployment and inflation were both high. Inflation was well into double digits and unemployment rates were about double what they are now.

Trump is still announcing lots of new tariffs, but with so many conditions that it is not feasible to keep up with what is real and what is not. The US Appeal Court found Trump’s across-the-board tariffs to be illegal. Trump has petitioned the Supreme Court to overturn that ruling – and to do that quickly.

Apparently, reasonable legal experts have stated that only Congress can impose across-the-board tariffs, but there are so many variations on what Trump might do if the ruling goes against him, it is not wise to speculate on what might happen next.

What is clear about the tariffs is that the US consumer and US businesses are bearing the brunt of tariffs – which are simply taxes by another name. There is no credible evidence that the exporters to the US are cutting prices to share the tax burden. However, that does not mean exporters are not shifting their exports to other markets to replace lost revenue from previous US imports.

China has turned out to be an awesome opponent in the tariff war. The deadline for a ‘deal’ keeps getting pushed back. China has a near monopoly on rare earth minerals, which are crucial in manufacturing high-tech goods such as EVs, drones, and military equipment. China has resumed exporting some rare earths to the US, but it is keeping a tight rein on where the minerals go. China is still in a position to cause serious economic damage to the US by withholding supply.

China has also stopped importing soybeans from the US – not because there is a tariff on them, but in an act of retaliation. Other examples exist.

Last year, the US exported half of its production of soybeans to China. Brazil has now replaced that supply. When Trump imposed similar tariffs in his first term, the US lost about 20% of market share to Brazil and never recovered.

US farmers are hurting, and Trump is offering $23bn of tariff revenue to compensate farmers. The problem is that the tariff revenue is being sourced from US consumers and businesses.

Other Trump policy initiatives are under fire. Courts also ruled against many of the mass deportations, but Trump seems to be following this ruling as he has now realised deportations are affecting employment and economic growth.

At home, the RBA is seemingly having difficulty interpreting inflation data. The problem lies squarely with our data agency, the ABS, and how it adjusted electricity prices to allow for government subsidies.

Without going into the details, the latest inflation publication revealed that electricity prices had gone up by 24.6% over the previous 12 months (from 12-monthly growths of +13.6% and -6.3% in the previous two reports) but this inflation was reportedly down -6.3% during the latest month! It doesn’t make sense.

The ABS seemingly tried to take the heat out of the inflation reports by calculating an implicit price change from a flat subsidy. As the subsidies come off, electricity price inflation and, hence, CPI inflation will be inflated for the following 12 months or more.

The ABS did report what the 24.6% electricity price inflation would have been without the subsidy effect: 5.9% for the last 12 months. We could have lived with that!

CPI inflation stands at 3.0% for the headline rate, but that would be in the middle of the 2% to 3% range without the statistical massaging!

If it were not for massive government support in the job market and economic growth, the Australian economy would be seen to be in a bit of trouble. The latest growth data support that view. The RBA should have cut on September 30th but it was probably led astray by the ABS inflation data.

In spite of the economic machinations at home and abroad, equity markets continue to make new highs or close to them. We see the momentum trend continuing.

US bond yields have settled down after the tariff debacle. However, the ‘standard’ 30-year US mortgage rate went up after the Fed’s recent rate cut – as did the 10-year Treasurys’ yield. Long interest rates are determined by the market based on confidence in future growth and inflation. There is no ‘interest rate cut to pass on’ in the US or here.

When it comes to estate planning, few questions are as personal—or as complex—as deciding who should inherit your wealth. Whether you’re passing on a modest nest egg or a multimillion-dollar portfolio, the decision involves more than just numbers. It’s about values, relationships, and legacy.

Start with Your Intentions

Ask yourself: What do I want my wealth to achieve? Whether it’s supporting family, funding education, or giving back to the community, your goals should guide your decisions.

Family Isn’t Always Simple

While many default to leaving everything to family, it’s worth considering:

• Financial readiness: Are your heirs prepared to manage a lump sum?
• Life circumstances: Are there dependents with special needs or strained relationships?
• Fairness vs. equality: Should each beneficiary receive the same amount, or should distributions reflect individual needs?

Use the Right Structures

Tools like wills, testamentary trusts, and superannuation nominations help ensure your wishes are followed and your estate is protected. These structures can also reduce tax burdens and prevent disputes.

Consider Charitable Giving

If you’re passionate about a cause, allocating part of your estate to a charity or foundation can be a powerful way to extend your impact beyond your lifetime.

Prepare Your Beneficiaries

Inheritance can be a gift—or a burden. Educating your heirs about financial management and your intentions can help them make wise decisions and honour your legacy.

A well-considered inheritance plan ensures your wealth supports the people and causes that matter most to you. It’s not just about what you leave behind, it’s also about how you’re remembered.

Saving money isn’t just a financial habit, it’s a psychological challenge. Despite knowing the benefits, many Australians find it hard to consistently put money aside. So, what’s really going on in our minds when we try to save?

Why Does Saving Feel Hard?

Our brains are wired to focus on the present. This is called present bias, and it means we tend to prioritise short-term rewards (like takeaway or a new outfit)over long-term goals like a house deposit or retirement. When we add in emotional triggers like stress, boredom, or social pressure, it’s no wonder saving often takes a back seat.

Rewiring Your Brain to Save

The good news is you don’t need to overhaul your life to become a better saver. Here are a few simple mindset shifts that can help:

• Start small: Even saving $10 a week builds momentum. It’s about consistency, not perfection.
• Make it visual: Track your progress toward a goal, like a holiday or emergency fund, with a chart or app. Seeing it grow is motivating.
• Know your triggers: Notice when you’re most tempted to spend. Is it scrolling online stores at night? A stressful day at work? Awareness is the first step to change.
• Automate it: Set up a direct debit to your savings account on payday. If you don’t see it, you won’t spend it.

Saving Feels Good

Believe it or not, saving can actually reduce stress. Studies show that people who feel in control of their finances sleep better and feel more confident about the future. It’s not just about the money, it’s about peace of mind.

Talk About It

If you’re struggling to save or unsure where to start, you’re not alone. A quick chat with a financial adviser can help you set realistic goals and build a plan that works for you. Sometimes, just having someone in your corner makes all the difference.

Saving isn’t about being perfect, it’s about being intentional. With a few small changes and the right support, you can build habits that stick and feel good doing it!

In this month’s update, we provide a snapshot of economic occurrences both nationally and from around the globe.

KEY POINTS

• Trump’s tariffs go live on 1 August – though some negotiations still ongoing.

• Economic data indicated some softening in growth leading central banks to resume easing.

• Equity markets remaining buoyed by generally positive US reporting season and prospect of interest rate cuts.

• The RBA surprised markets by not cutting the official cash rate at its July meeting.

We hope you find this month’s Economic Update as informative as always. If you have any feedback or would like to discuss any aspect of this report, please contact your Financial Adviser.

THE BIG PICTURE

At last, the August 1st deadline for Trump’s tariff negotiations has arrived. While big numbers are still being bandied around, markets took the deadline in its stride.

Trump promised ‘great deals’ for the US in a bid to reduce or remove trade deficits and ‘non-tariff trade barriers’. But the truth seems far from the Trump vision.

The S&P 500 and NASDAQ Wall Street indexes hit repeated highs during July – a far cry from the turmoil created in April when the so-called ‘reciprocal tariffs’ were first mooted. Markets have moved on from Trumps fearmongering.

Trump was fixated on trade deficits and well-trained economists know that tariffs are not a cure for trade deficits. Indeed, deficits are not necessarily a bad thing. He exhorted that the US buys lots of cars from Japan but Japan doesn’t buy US cars. He failed to point out that the Japanese drive on the left (as do we) and so would need expensive conversion kits or a dedicated US production line to manufacture right hand drive cars – and at the right price and size for Japan’s roads!

He made a similar point about Vietnam not buying US manufactured goods. Vietnamese on average earn less than $US5,000 p.a. and how much are US made cars?

As far as we can ascertain, no concrete deals have been made in the sense of signed contracts. CNBC reported that eight ‘frameworks’ or loose commitments have been made but it could take years to formalise these complex notions. Eight deals is a far cry from the 90 deals in 90 days the administration predicted in early April. And 200 deals being negotiated now seems fantasy!

The UK was the first cab off the rank to get a so-called deal months ago – at 10%. But Trump slapped a huge 50% tariff on steel and aluminium (and now copper) after that so-called agreement. As late as July, Trump met with his opposite number, PM Keir Starmer, in Trump’s Turnberry golf course to ‘refine’ the ‘agreement’.

He chose the same Scottish venue to work out a 15% deal with the EU. Part of the ‘deal’ was said to be a $750B purchase of US energy and $600B investment in the US. Several commentators pointed out that these sums included many projects already agreed to! It is close to impossible to get an independent appraisal of these ‘deals’.

In the same cavalier style, Trump and his entourage descended upon the Federal Treasury building in Washington to confront Fed chair Powell over the cost blow out in the Fed refurbishments that were started a decade ago – and to put pressure on Powell to cut rates.

On camera, Trump upped his estimate of the blowout from $2.7B to $3.1B and handed Powell a letter to back up his claim. Powell quickly pointed out that the latest increase detailed in the letter was due to now including a third building that was completed five years ago. A journalist then asked a direct question about whether there was enough evidence to dismiss Powell. Trump dithered but answered no.

Trump appears to be operating without the checks and balances of Congress determining and imposing penalties without rational justification or consultation. Strategically it may be prudent for reluctant combatants to engage as small targets and avoid or limit confrontation until Trump’s term as president ends. Conversely, court cases are currently being heard that might rule his trade deals illegal. Many think the cases will make it to US Supreme Court, this process could take months at least.

Before Trump’s second term as president, the average import tariff into the US was 2.7%. As at August 1st that average is close to 18%. The tariff deals negotiated to date only seem good because of the excessive levels of his estimates of the revenue generated by the reciprocal tariffs.

Trump repeatedly states that US interest payments on its debt would fall by $360B for each point decrease in the Fed rate. As with all loans, the rate charged depends upon a variety of factors including the term of the loan. Just as with home mortgage payments, different rates are offered for loans of different fixed terms such as one, two and three years – or variable rates. Indeed, when the Fed cuts its overnight rate, it is not unusual for the yield on longer-term Treasurys to go up rather than down! Indeed, the 100 bps of cuts so far in this cycle have had no discernible impact on the 10-year Treasury yield. And no-one, other than banks in the clearing system, borrows or lends at the Fed Funds Interest Rate.

At the Fed Reserve building site press conference, Trump pointed out that the US economy was ‘hot’ but that an appropriate Fed rate would be 1%! While we think the US economy is not broken it is certainly not hot. If it were, and the Fed rate was cut to 1%, inflation of a scale we have not witnessed for a long time would probably re-emerge!

The impact of new tariffs on US inflation has been a long time coming. Front loading inventory building and delays in tariff impositions has pushed out that impact. However, the June US CPI and PCE inflation reads published in July did show a slight blip up in the data. There are two reasons not to worry too much about tariff-induced inflation. First, tariffs are a one off and, therefore, do not constitute inflation in the sense of macroeconomic policy. Keeping rates on hold or otherwise will not affect any blip. Secondly, it is now thought that the tariff-induced price increase (not inflation!) is likely to be only about 1% (or possibly up to 2%) and it will be gone by late 2026.

The Australian economy is in a very different position to the US. Our jobs data are showing nascent signs of weakness and GDP growth (in per capita terms) has been negative for most of the last two years and more.

It was reported that more than half of the Australian electorate derives its major source of income from the government (i.e. the taxpayer). The impact of private sector wealth on total employment is, therefore, muted.

The RBA astounded economists by not cutting Interest rates at the July meeting. The market is now pricing a reasonable chance of a double interest rate cut at the August 12th meeting. The RBA claimed it was waiting for the quarterly CPI Inflation data as a more accurate reading than the monthly variant. The quarterly read for June quarter came in at 2.1% and the monthly at 1.9%. With the target range being 2% to 3%, the RBA needs to get a move on and resume reducing the cash interest rate.

Earnings season for US companies is going well for the June quarter and much better than many expected not that long ago. We believe that there is a long way to run on the AI boom and Trump’s ‘Big Beautiful Bill’ will add some stimulus in the near term. What the future of the US economy is in the longer term is more opaque but we are optimistic about US equities for the rest of this year – at least.

US Treasury yields have stabilised in recent weeks. The 10-year and 30-year Government Bond yields are now comfortably below the 4.5% and 5.0% thresholds that rattled markets back in April.

The Fed kept rates on hold at their July meeting and until the announcement of weaker employment data, had stepped back from an interest rate cut in September. However, market pricing indicates the Fed may produce one or two more cuts this year.

Asset classes

AUSTRALIAN EQUITIES

The ASX 200 had a strong month to start the 2026 financial year. Capital gains for the broader index were +2.3%. Healthcare led the way with a gain of +9.1% and Energy (+5.7%) and Materials (+4.1%) were not far behind; Utilities gained +5.1% and IT (+5.0%). Financials (-1.0%) was the only sector to lose ground.

INTERNATIONAL EQUITIES

The S&P 500 also performed strongly in July with a gain of +2.2%. Indeed, this index posted six consecutive daily closing highs late in the month.

The London FTSE Index was even stronger at +4.2%; Emerging Markets posted a gain of 3.1% and China’s Shanghai Composite Index +3.7%.

BONDS AND INTEREST RATES

The Fed continued to resist Trump’s calls to cut interest rates and remained on hold at its July 30th meeting. Powell moved markets slightly when he mentioned, in questioning, that an interest rate cut in September was not the almost forgone conclusion that the market had anticipated.

The yield on 10-year and 30-year US Treasuries remained comfortably below the ‘psychological’ levels of respectively 4.5% and 5.0% throughout the month.

The CME Fedwatch tool reduced the chance of a September interest rate cut from about 67% to 40% during Powel’s post meeting press conference.

The RBA astounded markets by not cutting the official cash interest rate at its July meeting but it looks set to make at least one 25-bps (0.25%) cut on August 12th. The chance of a double cut was priced at 51% on the RBA tracker tool located on the ASX website.

The Bank of Japan was also on hold – but at 0.5%. Another hike is expected this year to help combat inflation.

The Bank of Canada was on hold at 2.75% but it forecast GDP growth in June quarter of -1.5%.

The ECB was on hold at 2.15% and June quarter growth came in at +0.1%.

OTHER ASSETS

Brent Crude oil (+7.3%) and West Texas Intermediate crude oil (WTI) (+6.4%) oil prices were up strongly in July.

The price of gold was flat (+0.4%) in July while the price of copper (-4.0%) was down sharply after Trump announced a 50% tariff on the US imports of the metal. The price of iron ore was up +6.2%.

The US equity market VIX ‘fear’ index was range-bound near normal levels.

The Australian dollar (-1.2%) was down modestly against the greenback.

REGIONAL REVIEW

AUSTRALIA

The last two months of changes in Australia jobs data more or less cancelled each other out to leave a flatline in total employment and its major components. The unemployment rate jumped up from 4.1% to 4.3% after a year of little movement. It is too soon to ring the alarm bells but unemployment can rise sharply when a big slowdown gets underway.

Australia appears to be making little headway in getting a trade deal done with the US. The negotiated tariff was said to be 10% in April but now Trump is talking of 20%. It appears Albanese cannot even get a meeting with Trump. The US is not one of our big trading partners, but any new instability could increase the prospect of further slowing in our economy.

CHINA

The US is trying to encourage China into diverting its manufacturing output into domestic consumption. Deflation is still rife; Producer Prices (PPI), or inflation of inputs, stood at -3.6% in the latest reading.

China exports grew at 5.8% against an expected 5.0% and up from 4.8% in the previous month. China is pivoting its export drive away from the US.

The US and China are continuing their trade negotiations. The ’due date’ seems to be flexible providing the US thinks China is acting in good faith. China still holds the whip hand on rare earth exports. It has also brought up relaxing US export controls the US usually attributes to ‘security issues’.

UNITED STATES

US jobs (non-farm payrolls) were up +147,000 and the unemployment rate was down to 4.1% following 4.2% in the previous month.

Trump’s so-called Big Beautiful Bill got through the House and the Senate. The consequences of it are not fully understood. There are tax cuts and some stimulus spending but there isn’t a clear direction for the US economy.

One commentator on CNBC TV speculated that Trump has by stealth created a Value Added Tax VAT (sales) tax through the tariff programme. Trump cannot reasonably be seen to raise corporate or personal taxes but a ‘tariff’ can be seen as being different. Since business and individuals are, in effect, paying the tariffs of around 18%, they are paying the equivalent of a European style VAT without Trump losing face! The US needs the revenue. Perhaps this was a smart way to raise it?

General Motors, in a report to the stock exchange for the June quarter, pointed out that it lost US$1.1 Bn from tariffs in the quarter. It now expects the impact over a full year to be US$2 Bn. Business and consumers are carrying the can and Trump does not acknowledge this.

The new tariffs on cars imported from the EU and Japan are now at a cost advantage to those built by US brands in Mexico and Canada because of the difference in tariffs!

CPI inflation did rise a little to 2.7% p.a. but, ex-shelter, CPI is still on target at 2% p.a. However, that 2% p.a. is a sharp rise over the previous comparable 1.5% p.a. The pass-through of tariffs might well be underway. Fed chair, Jerome Powell, pointed out that the easing of inflation in services has masked some of the tariff-induced price rises in goods.

Growth for the June quarter was published at the end of July. It came in at 3.0% but it should not be viewed in isolation – as Powell pointed out. Imports were up +37.9% in the March quarter and down -30.3% in the June quarter as importers tried to minimise the impact of introduction of tariffs. The average GDP growth for the first half of 2025 was 1.2% p.a., which is about half of what existed in 2024.

EUROPE

Europe diligently tried to negotiate a trade deal with the US. It finished up with a tariff of 15% on most goods but some are tariff free!

At least the US dropped its commentary about VAT (or GST) being a trade barrier. The EU is to buy US$750 Bn of energy from the US and US$600 Bn of investment in the US economy. However, many sources claim that much of this commitment is already in place.

EU growth in the June quarter was +0.1% but Germany’s GDP was down -0.1%. German inflation dipped to 1.8%.

UK inflation hit an 18-month high at 3.6% and core inflation was at 3.7%.

REST OF THE WORLD

The UK has threatened Israel with acknowledging the State of Palestine if sense is not brought to bear over Gaza.

Japan negotiated a 15% trade deal with the US and has agreed to invest US$550 Bn in the US economy.

The US imposed a tariff of 15% on Israel and 35% on Canada (but 40% if there is transhipping). The US imposed an array of tariffs of between 10% and 41% on other countries.

India currently has a negotiated tariff of 25% (plus penalties for trading with Russia). Korea’s tariff has come down to 15% from 25%; they have agreed to spend US$100 Bn on US energy and US$350 Bn on other investments.

The Bank of Canada held interest rates steady at 2.75% in July but it is predicting a -1.5% fall in June quarter GDP growth.