Budget blowout recovery tips Resist temptation
Has your bank account been hammered over the silly season? Laura Baker asks an expert for tips on how to sort out your finances.
Probably the last thing you want to think about right now is your drained bank account, but ignoring it isn’t going to make it go away, as much as that would be nice.
If you broke out the credit card last month to finance the Christmas shopping then it’s only going to get worse, much worse, as that interest racks up.
As much as it might pain some, it’s time to get on top of last year’s frivolous ways and put some smart actions in motion to become money savvy.
New Zealand Financial Planning general manager Craig Dealey shares his expertise on recovering from the holiday budget blowout and putting some smart measures in place to spend less and save more year-round.
Kill credit debt
Avoid unnecessary debt in the first place, Dealey advises. While this seems obvious, let’s face it, nobody’s perfect and it can be incredibly easy to swipe away, spending what feels like free money.
If you’re guilty of a little spending spree care of your credit card, Dealey recommends paying off the highest interest debt first, as quickly as possible. ‘‘If possible, consolidate your loans into a lower interest option to save on admin fees and interest paid. But once consolidated, don’t be tempted to get into more debt and start all over again.’’ To avoid the temptation to make non-essential purchases there is always ‘‘the old trick to stick your credit card in a tub of water and freeze it, that way you have to wait for it to thaw before using, but with the summer heat, and access to online shopping, that’s probably a short lived block,’’ Dealey laughs.
To put more solid practices in place to rein in spending have a good spring clean – and be ruthless. ‘‘Realise how much stuff (junk) you probably already have, and hopefully you’ll think twice to buying more must-have-now stuff. Make a wish list of the things you really want to buy, and set yourself a goal of when you’ll be able to afford it.’’
Divide and conquer
The oldest and most effective trick in the book is to make sure you pay your future self first. This means dividing up your income and setting up direct debits to pay off debt and/or contribute to savings before you even see your salary in your bank account. You won’t even notice the difference, says Dealey. Budget and live off the remainder, allocating some money to fun.
Pay off the big one
Paying off the mortgage quicker than the fixed term can often be put in the too hard basket. But a little can go a long way. ‘‘Paying off debt is a great financial goal to have, even the longer term stuff like your mortgage. If you pay just a little extra each month you could shave years off the total mortgage period and save 10s if not 100s of thousands of dollars in interest paid.’’
Dealey’s money tips
To spend less and save more:
Spend cash rather than credit or eftpos. There’s nothing like handing over green notes to make you realise how much money you’re forking out. If you don’t do cash, then at least keep all your eftpos receipts and make a point of adding them all up each week. When you see how all the small items start quickly mounting up to a large spend, you will be more conscious about your habits.
Don’t rush to pay full price. Wait for the inevitable sale. If it’s not on sale, don’t be embarrassed to ask, most retailers have some leeway on ticket prices.
Buy the best quality you can afford and hopefully it’ll last longer and cost you less per use than the cheap version.
If you have any surplus at the end of a budget period, lock it away in savings or tip it into the mortgage before the next payday so it ‘‘disappears’’ and can’t be wasted.
It might sound ironic, but plan to treat yourself periodically either with a bit of fun or that item you’ve been hankering to buy. The human brain is funny. If you starve yourself of the good stuff, you may end up buying something under impulse that doesn’t actually fit the bill.
Make money work
Dealey says it’s important to play the long game when it comes to saving and investment goals. Here’s some things to keep in mind:
Try to avoid speculating (betting) on a winner, but rather have a long term focus and investment strategy.
Take advantage of ‘‘free money’’ out there like matching contributions from employers into KiwiSaver, the government’s KiwiSaver tax credits, bonus interest on savings accounts if you don’t make a withdrawal etc.
Ensure your money is saved and invested in a way that is risk appropriate for you. Don’t gamble with the stuff you cannot afford to lose.
Diversify. Don’t put all your money in one asset or one marketplace. Understand what the drivers are for the returns on the things you invest in like property, shares, cash, and spread the risk.
Don’t ignore the impact of inflation on future costs or the real value of your investments.