The ostrich approach and other painful money lessons
There are many great oldschool sayings about money. Never a borrower nor a lender be, for example, seems quaintly out of its time in the days of Afterpay and crowdfunding.
A penny saved is a penny earned is still a good one, and speaks to the benefit of saving regardless of how much you earn.
But for every saving which encourages a good habit, there are mistakes with money to be made.
So we asked some money-savvy Kiwis about their biggest money mistakes.
Kendall Flutey, founder of Banqer
The biggest mistake I’ve made with money is ignoring it, in the hopes that that would solve my problem.
There was a period when cash was really tight for me and I found this time extremely mentally taxing. Even the simple act of looking at my bank account gave me anxiety because I knew the situation wasn’t great and things felt out of my control.
For quite some time, I tried ignoring it to try in an attempt to remove the angst and make myself feel better. While this served me okay in the short run, as the months ticked by the situation understandably got worse. It took me going in the other direction and getting really involved in my finances to understand I did have some control over the situation, and to see the little steps I could take to get things back in balance.
Economist Shamubeel Eaqub
Eaqub cautions against not contributing the maximum to KiwiSaver, and not paying off your mortgage early.
He also says being too defensive with retirement savings when you will be retired for near on 30 years is another no-no.
Tax expert Terry Baucher
Not paying your taxes is a big mistake according to Baucher. Firstly because it’s the law and secondly because between late payment penalties of 1 per cent per month and interest of 8.35 per cent it adds up to being as expensive as the rate charged by credit cards.
This is even more true of child support – the late payment penalties on which are more than 36 per cent per annum. As of June 30, 2018 Inland Revenue was owed more than $2.2 billion of child support – over $1.6b of which was penalties.
Personal finance author Amanda Morrall
Broadly speaking, there are two that tie on the disaster-impact scale.
❚ Putting off and underestimating retirement savings.
❚ Thinking that things will just work out.
With an ageing population living longer than ever and draining the public purse, individuals need to make careful and conscious decisions early on about what kind of retirement they want. That’s especially true for millennials who end up raiding their KiwiSaver accounts to buy their first home and then start retirement savings from scratch again in their mid-30s, a decade or longer after joining the workforce.
In the years preceding mortgage obligations or other big life expenses, consider upping your KiwiSaver contributions to compensate for a potential drawdown or savings break. It’s now possible to pay 10 per cent, which is considered the norm worldwide. It’s a prudent savings target if you want a retirement that affords some options.
Many people cruise through life, neglecting their finances and making clumsy, unconscious decisions about their money with a ‘‘she’ll-be-right’’ attitude. The longterm effect is financially crucifying if there is no savings habit implemented amid a mountain of accrued debt. It’s also way more
‘‘Many people cruise through life ... making clumsy, unconscious decisions about their money with a ‘she’ll-be-right’ attitude.’’ Personal finance author Amanda Morrall
difficult to change your habits once they become entrenched. Save early, save often and be smart with your money.
Financial adviser Martin Hawes
Failing to take charge of your money and get started costs more people more money than anything else. For investors and KiwiSavers, compound interest is the closest thing to a free lunch you’ll ever get and the sooner you get going, the better off you will be. Even if you are 60 years old, get started and set the eighth wonder of the world to work on your money. Now.