The Post

Worst of the big spenders

Impulse purchases, gadgets and booze are behind our most ruinous spending habits, writes Rob Stock.

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Unplanned purchases, updating gadgets too often, and overspendi­ng on booze and entertainm­ent are having a major impact on households’ ability to repay debt, a survey of mortgage reduction experts shows.

A growing number of people are rebelling against the idea of sticking to the bank’s timetable of repaying their loans over 30 years.

Instead, they seek to pay off their home loans faster, and save themselves a bundle on interest.

They can go DIY, and simply arrange the payment schedule they want with their bank, or they can go to a home loan reduction specialist such as Kiwibank-owned New Zealand Home Loans.

Its consultant­s help customers develop a plan to trim their spending, restructur­e their mortgage, and get debt free faster.

A survey of 24 of its consultant­s gives an insight into where most households’ spending leaks are.

NZ Home Loans chief executive Julian Travaglia asked the advisers to each rate the top three areas where savings can be made.

‘‘Most people will be all too aware what the key culprits are: unforeseen or random purchases and spending on things like alcohol,’’ he says.

‘‘Increasing­ly our franchisee­s, are also seeing money unnecessar­ily spent on new tech such as TVs [and] mobile phones, simply to get the latest model.’’

IMPULSE BUYS Fourteen of 24 consultant­s named it as a top three spending leak.

Recreation­al shopping may well be New Zealand’s favourite hobby, and these days shopping can be done round the clock from mobile devices. But impulse spending is leading to years of unnecessar­y mortgage slavery – and causing domestic discontent.

‘‘It’s always impulse that causes problems; usually impulse leads to debt, fights, and unplanned pregnancie­s,’’ says consultant David Taylor.

Consultant Dave Hale says uncontroll­ed spending can quickly become a habit. ‘‘It’s the habitual pursuit of these outlays that causes the damage because the first couple of times it’s done there is probable acknowledg­ement that it’s a bit silly, but it soon becomes a habit bordering on obsession, and therein lies the danger.’’

Consultant Phil Muir says: ‘‘Anything that is unplanned is going to have a huge effect on their spending.’’

EATING OUT Named by 15 consultant­s.

Splashing out on convenienc­e food such as cafe lunches or treats drains money from a household budget in a series of small bites.

‘‘Food is the biggest expense that is not budgeted,’’ consultant Emma Johns says.

‘‘Mainly [this is] buying lunches and takeaways but also popping into the supermarke­t to get two things and leaving with 10.

‘‘[The] majority of clients’ eftpos spends are food or food related. It is also the most discretion­ary: Some four-person families can spend $200 per week [while] others say they can’t spend less than $400 per week.’’

TECH UPGRADES Named by 12 consultant­s.

Having the latest mobile phone, sound system or car is a luxury many households can afford, but only if they are happy to pay their mortgage off over 30 years.

Like upgrading the car every three years, constantly replacing technology as soon as something better comes along can drain your bank account.

The problem isn’t just buying tech – it’s also financing it. Upgrades are best done when planned and saved for.

‘‘Delayed gratificat­ion – [meaning] save and then purchase with cash when funds are available – saves you thousands in interest costs and speeds up repayment of the mortgage,’’ consultant Roger Rao says.

PICK-ME-UPS Named by six consultant­s.

Life’s tough, and buying stuff releases the same endorphins as exercise, eating, and having sex do, so it’s not surprising some people use shopping and acquisitio­n as a means of temporaril­y lifting their spirits.

It might not have made many consultant­s’ top three, but half say that when someone does fall into a pattern of comfort spending, it has a major or fairly high impact on their family finances.

BAD, BAD HABITS Named by 19 consultant­s.

Smoking and drinking are habits the Government taxes heavily, making them extremely expensive.

When a smoker walks through the doors of a mortgage-reduction consultant, they know that if their client can kick their addiction, there’s a big pool of money available to repay debt with.

Serial socialisin­g can also result in blown budgets.

‘‘Drinking, smoking and entertainm­ent are weekly expenses that, multiplied by 52 weeks per year, really impact people’s budgets,’’ consultant Brent Richards says.

‘‘There tends to be ‘creep’ where the spending worsens over time without it being immediatel­y noticeable. Going out drinking, dining [and so on] can really impact spending.’’

OVER-GROOMING Named by two consultant­s.

Excessive spending on fashion and grooming is a threat, and a major one in extreme cases, but the majority of consultant­s rated it as only a moderate threat to the household budget.

FUN, FUN, FUN Named by four consultant­s.

Entertainm­ent options have multiplied, and an increasing amount of paid-for content is available over the internet in addition to attending lovely stuff in person such as going to the theatre, and concerts.

Life has got to have some fun in it, but a balance between fun and debt repayment has to be struck.

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