“Never waste a good crisis” said your hairdresser after your last nasty break-up, but also the late great Winston Churchill. Good advice from two unimpeachable sources... okay, maybe the bangs were a debatable choice pre-lockdown but you catch our drift.
If lockdown was good for one thing it was the new financial habits we seem to have picked up, so we asked a serious suit—aka David McLeish from Kiwisaver provider Fisher Funds—to help us out. It turns out we’ve all developed some top routines without even trying, so now we need to find out how to hold on to them as the temptation to spend rears its head again.
To help us get our heads around it, David has come up with some top tips to get our financial ducks in a row.
The Real Price Of Those Cheap Thrills
Our social channels are full of people talking about the virtues of their newfound spendthriftness. From bike rides to sourdough baking, board games to home baristas, people are loving getting ‘back to basics’. Society has been shifting away from rampantly consuming ‘stuff’ in favour of experiences for a while now, but COVID-19 looks to be accelerating this trend. By creating more mindful spending habits, frivolous spending is reduced, leaving more money for the things that really matter. Maybe that single-origin organic beard oil can wait after all?
Spending For Good
There’s more to financial awareness than how much you’re spending and there is now much more discussion about where you should spend your money and why. Our generation has proved we care about the impact of personal choice—conscious consumerism prioritises society over your bank balance, but there’s no reason it can’t be good for both. Recognising that support for your local businesses comes with an added benefit to the community is great to see. But it feels deeper than that. People are more selectively sponsoring those businesses that uphold their social and environmental values. This form of natural selection is really encouraging, as it will ensure that the best companies survive and the products and services we legitimately love will be there for us for years to come.
Investing In A 'Financial Umbrella'
The heart-breaking number of jobs being lost at the moment is a harsh reminder of the need for a ‘rainy day’ financial umbrella fund, but unfortunately, Kiwis are terrible savers. This makes us particularly vulnerable to unexpected surprises and the effects are harsher on lower wage workers. A financial umbrella is a pool of funds that are set aside to keep you warm and dry when a financial storm hits. During the Global Financial Crisis (GFC) more people started to save, but as memories of that crisis faded so did our more prudent spending habits, particularly as more young people without memories of the GFC started working. The hope is, with more New Zealanders directly affected by this crisis, that we’ll realise the importance of owning a financial umbrella and that, unlike last time, more will stick with it. For those that are wondering, a rainy-day fund with enough to cover three months’ worth of expenses is a great goal to have—but six months is the gold standard. Then think about next steps. A savings account is a safe option but if you’re ready to think about the long-term why not make your money work for you? Rather than keeping it in the bank, you should clue yourself up on other options—investing to maximise your moola. It’s easier than it seems and your future self will thank you for it!
Get Your Priorities Straight
One thing most of us have in common is that we are time-poor. The good news is that the lockdown has provided us with a window into what can be achieved if we set aside even a small amount of time for the things that should matter. Connections with whanau and friends, learning new skills, feeding body and soul—your financial freedom is one of those things—#selfcare. Beyond the obvious financial benefits, previously unimaginable health and social benefits await those that can break the shackles of too much debt. Taking advantage of any of the number of free financial advice outlets is an easy place to start—there are so many great ways to begin wrestling back control of your finances.
Creating The Right Kind Of Debt
For a lot of people, Kiwisaver is a great toe-in-the-water to investing but how many of us actually know which fund we’re in and how it works? Step one is to make sure you’re in the right type of fund for you and get out of the default—you wouldn’t marry the first person to swipe right, right? But not all debt is created equal. There is also a healthy rethink going on about the right uses for debt—believe it or not, experts don’t all believe debt is the devil. If you’re investing in yourself or something that is likely to produce financial benefit in the future, debt can make previously unattainable goals possible. The problem is, most of us use debt to simply spend now what would otherwise need to have been saved up for. When we do this, we not only increase the cost of these things (credit card interest rates are still 20% p.a. just quietly) but we also create a habit of living beyond our means. A good rule-of-thumb is that using debt for consumption (i.e. a big night out you might not even remember in the morning) is a big no-no and should be avoided.
Financial stresses can be hard to look beyond at times like this. But knowing that family and friends will always be one of your most priceless assets should help lighten the load. Kia Kaha.
David is a Senior Portfolio Manager with Fisher Funds where he has overseen the firm’s fixed income and cash portfolios since 2011. His expertise and experience spans over 20 years of fixed income trading and investment both in New Zealand and overseas. By his own admission, David is a pointy-headed economics major. But he also takes particular pride in trying to make his insights relevant and enjoyable through the use of plain English.
Now you know the importance of budgeting, check out these 5 super easy budgeting methods to help you get on top of your savings.
Image credit: Alexander Nikitenko