Where do you see yourself?

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“Where do you see yourself in five years?” “How about in 10?”

These were always the sorts of questions that I dreaded, the ones that scared the hell out of me in job interviews. And I always admire those who have mapped out their goals and seem to know how it will all play out. I can’t always picture it.

One thing’s for sure – we will all want our finances to be in better shape than they are today. If running our money is like running a bath, we want to make sure that it’s filling up, not draining. Have a look:

 

Can you see yourself enjoying that bath? Seeing future versions of ourselves is tough, which makes saving and investing for the future all the more difficult. It’s like giving away money to someone you don’t know! Researchers have had some success in helping people make more future-oriented choices when they are able to interact with computer-generated images of their older selves.

Setting goals and working towards them also helps you focus on the future. But for those of us who have difficulty seeing it, I’ve often found it easier to visualise the process of getting there. This has been particularly helpful when I’m preparing to give a seminar or perform my music – it’s like rehearsing in my mind. Not so much fantasising about enjoying that bath, but rather on visualising the bath not leaking and steadily filling up.

Sorted’s net worth calculator helps you see the future, too – 5 and 15 years ahead, to be precise. One of my favourite things about it is a tiny tick box marked ‘Plan for future years’. Ticking it lets you figure out what financial shape you’ll be in down the line. And if you play with the numbers a bit, you can see where setting aside your dollars today will help your future self (and of course those around you) the most.

Even if you have difficulty picturing yourself so many years on.

boom

Tick, tick, boom too

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boomFour years ago, on 16 December, a family put almost an entire house’s worth of stuff on tick.

It was all for just $150 a week, which must have sounded too good to be true at the time. And since it was that festive time of year, I’m sure that had something to do with it. (Hopefully it was all delivered in time for Christmas morning at least.)

There was practically a partridge in a pear tree:

  • A lounge suite
  • 32, 42, and 43-inch televisions
  • Two stereos
  • Two computers
  • A glass-top dining table and eight chairs
  • Two fridge/freezers
  • A microwave
  • A glass-top coffee table
  • A washing machine
  • One queen bed, one double bed
  • Two dressing tables and mirrors
  • And a three-quarter marble pool table

This is just another example among the many anonymous credit contracts and balance statements that I’ve been going through – examples of borrowing gone terribly wrong. (If you haven’t seen it, here’s the first tick-tick-boom post.)

Get help right away

Someone you know or you yourself may be coping with debt that’s got out of control. If you or they are about to miss a repayment or have already done so, don’t hesitate: call a budget adviser at 0508 BUDGET.

When it comes to credit contracts, it’s a bit of a wild, wild West out there. It really pays to read the fine print and know what you’re getting into.

And while there’s no good data on how many of these agreements are being made, we’ve got our share of sometimes-unbelievable stories from budget advisers, who are the heroic paramedics stopping the haemorrhaging at the bottom of the financial cliffs.

What did they really sign up for?

Let’s unpack the numbers on our Christmas family. Using their house as security, they were able to borrow for $23,932 worth of goods. Like many of us who take on debt, they were probably focused on that minimum weekly payment amount: $150.

All that comes at a price, though. I’ve heard that there are furniture stores that don’t profit much from selling furniture, but rather from the finance deals they make when people buy.

Here are the family’s setup costs:

  • Loan processing fee: $450
  • Legal/registration: $540

And then there was also a ‘payment protection plan’, which is basically insurance that covers the lender but costs the borrower: in this case $2,270!

So our family was on the hook to pay back $27,192, far more than that $23,932 initial price tag.

And of course borrowing comes with an interest rate, which in this case was 25.5%. There was no interest-free period. This meant that over the loan term of 155 weeks, they were also agreeing to pay $11,551 – just in interest!

If you include the interest, the total now came to $38,743, and suddenly all those televisions and glass-top tables are starting to look really expensive. I wonder whether they would have still done the deal if they had been able to see that figure up front?

But we know the only number that was probably on display at the time: that $150 minimum payment.

But wait, it gets worse

Now these are credit horror stories, so unfortunately this situation gets worse. Christmas had come and gone when, despite making regular fortnightly automatic payments of $300, our borrowers somehow defaulted on the loan.

This meant that a default interest rate, typically 5%, was then added on. There were also fees for letters just to let them know the trouble they were in, at $40 a pop.

And this was the point when the loan started rolling backwards at times, with the balance growing instead of shrinking like all debt should. It does happen.

Tragically, by mid-May, there were repossession costs of $200, too.

What’s even more tragic is that this story did not stop there – the loan payments still had to be made and kept the family paying through a couple more Christmases almost up to last year’s.

Like I said, tragic. Spread the word: we all need to know what we’re signing up for!

kids

Why KiwiSaver is rated PG

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kidsNot long ago I came across a father who had enrolled all six of his children in KiwiSaver, taking advantage of the $1,000 kick-start that the government offers for anyone getting started in the scheme. I’m sure it seemed like a great idea at the time – a way to get the kids headed in the right direction financially.

Fast-forward five years, however, and this dad was infuriated to find that their KiwiSaver provider had been charging each child $50 per year as an administration fee, which is a typical cost to run a scheme. Over that time, a quarter of the kids’ ‘savings’ had been wiped out.

They’ll need an IRD number

One of the things you’ll need if you’re setting up kids with a KiwiSaver account is an IRD number. Here’s how.

‘This is gouging and predatory,’ he wrote. ‘Appropriating (stealing!) 20% of the value of these children’s accounts is opportunistic… Fair enough IF they were actively contributing but simply because they are small the $50 or 1% for EACH year is simply a rip-off.’

Is it worth setting up KiwiSaver accounts for kids?

As you can see, the issue with KiwiSaver accounts for kids is essentially the fees. KiwiSaver accounts make sense if there are regular contributions going in – from employees, employers, the government, the market returns. Kids don’t get these, so fees can quickly eat away the balances.

That being said, there are a couple of providers, Craig’s Investment Partners and Westpac, who have chosen to waive fees for kids and teens. Westpac waives their administration fee for the first year, then continues to do so as long as some contribution is made (there’s no required dollar amount).

Now it’s easier to see the fees

This past year the way that KiwiSaver providers are required to report their fees changed, so it’s now easier to find other funds, like Smartshares, that do not charge a flat fee for management or administration at all.

Our KiwiSaver fund finder is a handy tool you can use to check if fund fees are above or below average and compare.

KiwiSaver is actually rated PG: some parental guidance is recommended. It can certainly be worth setting up for the kids, but make sure you pick a fund where their balance won’t be eaten away by fees.

And if you can manage to contribute regularly – even just a small amount – KiwiSaver will work even more in their favour.

birdbath

Leaky bath syndrome

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birdbathManaging your money should be as easy as running a bath. Just as you would turn on the taps and make sure more water flows in than out, with your money you bring in the income and make sure more stays in than goes out.

If you forget the plug and spend more than you earn, the bath never fills.

But even if you put the plug in, you may still find that the bath never fills very high for very long. Do you find yourself wondering where your money is actually going?

If you’re like me, your bath may have sprung some leaks – your everyday spending keeps draining it and stops it from filling as high as it could.

So much month left at the end of the money

It’s practically impossible to remember what we spend money on every day. It’s even harder to keep a running tally of what we’ve spent on one kind of thing over the last week or month, like takeaways, snacks on the go, groceries or clothes. Can you remember what you spent on movies in the past month, for instance?

Little by little, our spending here and there on things we don’t even think about makes that bath leak without us noticing.

What we all need is a way to see where our money’s flowing. That’s what money tracking is all about. Tracking your spending can give you a clear picture of what’s really happening with your cash.

Four ways to follow your funds

Now there are different ways to do this. You can:

  • Carry a small notebook and write down how much you spend every time you buy something
  • Use an app to record everything you spend on your phone or tablet
  • Keep receipts and then write down your expenses at the end of each day
  • Use EFTPOS for everything you buy and then go through your statements

One trick I’ve found is downloading the last three months of statements online. I can easily sort through everything I’ve spent. Since we all tend to return to the same places over and over to shop, it’s simple to see how much I’m spending on entertainment or at the local dairy.

The key is to find a way that works for you and stick to it. You’ll be glad you did.

The more accurate your money tracking is, the sharper the picture you’ll see of where your money’s flowing. It pays not to miss a thing.

As you record each expense, group them by what they are for, like groceries, takeaways, entertainment, petrol, transport fares, clothes, gifts, household bills– whatever you typically spend money on. If you’re using a notebook or spreadsheet, make a column for each, so it’s easy to add up.

Get ready for a real eye-opener

When you do your sums, get ready for some surprises. You may even be shocked at how much you spend on some everyday things.

But wherever the surprise leaks are, that’s where your opportunities are, too.

You’ll be able to see where your money is actually flowing and make some important choices about where you want your money to go instead.

And as you plug those leaks, you’ll see your bath fill.

no strings

Found in Translation

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no stringsThe most exceptional gifts are those given freely. I’m sure you’ve experienced this.

At our house a dad and kids whom we had invited for lunch turned up with the most beautiful tarakihi fillet just off a fishing boat. We promptly fired up the barbecue! Then there was the mum, who, dropping off her two kids at the birthday party we were throwing for our four year old, brought along enough lemonade for everyone.

Te Kupu o te Wiki

Over the next year there will be a Word of the Week for everyone.  Looking ahead, how many do you already know?

July
āpōpō (tomorrow)
heihei (chicken)
August
poitarawhiti (netball)
nau mai (welcome)
engari (but)
waea (phone)
September
rangi (sky)
niho (tooth)
pahi (bus)
awa (river)
kaiako (teacher)
October
wahine (woman)
Tāwhirimātea (god of the wind)
marama (moon)
homai (pass to me)
November
inu (drink)
Ōtautahi (Christchurch)
āporo (apple)
pāremata (parliament)
December
ra whanau (birthday)
whare hākinakina (gym)
kaukau (swim)
whakatā (rest)
January
maranga (get up)
kura (school)
Poihākena (Sydney)
February
manuhiri (visitor)
īPapa (iPad)
rū (earthquake)
pirihimana (police officer)
March
Te Waipounamu (South Island)
ukurere (ukulele)
ngutu (lips)
taihoa (hang on/wait)
Aranga (Easter)
April
horoi (wash)
maumahara (remember)
Papatūānuku (Earth)
manu (bird)
May
ika (fish)
moana (sea)
tio (oyster)
taringa (ear)
June
Hāmoa (Samoa)
āe (yes)
whetu (star)
tohutō (macron)
tākuta (doctor)
July
whakaata (mirror)
Wīwī (France)

Now neither that dad or mum had to do that – we certainly hadn’t counted on them bringing anything – and of course that’s what made their gifts all the more appreciated.

This is the true sense of ‘koha’, the Māori word and custom: a heartfelt gift, given freely, without conditions or expectation. It’s what you bring when you turn up. It’s fantastic.

Giving in this way is a part of our culture that, even if it didn’t come directly from tikanga Māori (customs), has certainly been heightened by it, and it’s something worth celebrating.

No strings

When I look at the koha I give these days, however, it can be a far cry from unconditional.

It’s almost as if I can see the strings attached to my outstretched hand as I make a gift. There are strings pulling at me out of obligation (I’m giving this because I have to). There are other strings of conditions I put on my gift (I’m giving this so you’ll do something for me). There are probably even strings of pride (I’m giving this to make myself feel good).

I’m sure I’m over-egging the whole thing, but if you look at the reasons why we hand things over these days, gift-giving is, well, a bit stringy to say the least. Why am I really giving this again?

It’s hard to keep all that other stuff out of it.

Lately I’ve come closer to hitting the mark by giving surprise gifts to the kids. This is just because no one expects them, no one demands them, and sometimes I even don’t know I’ll be giving them ahead of time. So the strings are out of the way.

And then money gets involved

Of course, as the word ‘koha’ gets used these days it can mean any of these things:

  • Gift
  • Present
  • Offering
  • Donation
  • Contribution

Traditionally koha has taken many forms, like food or precious taonga (treasure). More recently, though, it has tended to be in the form of money. And so the word is typically used in a way that means ‘donation’ or ‘contribution’.

And little by little, with each gold coin ‘donation’ I hand over for the kids to take to school, the more I seem to get away from the truest sense of koha… a gift from the heart.

Which of course is fair – there need to be ‘expected’ donations and contributions. A marae can’t run on aroha alone and it’s not fair for those in the community to cover all the costs of a hui, for example.

Koha can be food, koha can be money. It can even be the money smarts you bring to others – like helping people manage their debt or showing them how to compare KiwiSaver funds.

This Māori Language Week, let’s celebrate all that koha can be: unconditional gifts given freely.

Christmas

Christmas in July

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Beach ChristmasOne of our Sorted team was telling me about a midwinter party she attended last week, where people brought gifts for each other (these had to be under $10) and toasted each other with mulled wine. Although it’s never been our tradition at home, it sounded brilliant, a likely antidote to the midwinter blues.

Of course, it brought to mind that the real Christmas will come around soon enough, when the days will certainly be longer – hopefully much warmer – and the presents will most likely run much higher than ten dollars. What sort of holidays will we have this year?

Let me declare it publicly: we have now officially entered planning season for the holidays. We’re at X minus six months and counting!

Now there are many planner-types out there who are more than aware of this – they’re the people who have got it so together that they book ferry rides to the South Island months ahead of time (now’s good). They’re the people who have already reserved their favourite campsites far in advance. Kudos to them.

But what if you’re not the planning type?

Take heart – it doesn’t come easy to me either. The thing to keep in mind is that our financial struggles develop our money strengths.

Saving from now, in the run-up to the big spend, will be the cheapest way to go (and help us avoid any dumb debt early next year), so we need to see how much we can set aside each week.

Hang a target to hit

Let’s start with setting a goal, a target to shoot for. If you had to fill out the following sentence, what number would you put?

‘I will have $x for the holidays by 15 December.’

Of course, I could pull a number out of thin air and, say, put down $500,000 for me, but the number needs to be realistic and achievable. (And I wouldn’t want to spend half a mil on the holidays if I had it anyway.) Many of us could use the equivalent of an extra pay around that time of year, but even smaller amounts can be a big help with travel, gift and entertainment money for the holidays.

Working backwards

Now, with the number you’ve hung as a target for you and the whānau, you can figure out how much to set aside each week. (We’ve got the perfect tool for all of this, by the way: Sorted’s savings calculator.) Here are some examples of amounts to be saving.

If you’d like this much for the holidays by 15 December… … aim to set aside this much each week, starting now.

$500

$21

$700

$30

$1,000

$42

$1,200

$51

$1,500

$64

 

So that’s how much you need to be putting into an interest-bearing account each week to reach your goal. These days accounts take all of ten minutes to set up online. Pay yourself first, make it automatic, make it happen.

No spare cash?

What if it seems like you don’t ever have any money to save? I’ve certainly been there – where entire pay cheques vanish almost immediately after each payday to cover the bills. Or worse: sliding backwards into debt, digging my way out each month, only to slip back all over again. (Some of us are still paying for last Christmas…)

The truth is, though, that if you’ve got income coming in, that money is going somewhere. And it literally pays to crunch the numbers and see where it’s going. (Need help? Call 0508 BUDGET.)

Take a hard look at your account history and credit card statements. How much is going towards alcohol, cafés, music or movies? It may be more than you think, and it may not be what you really want to be happening.

If it’s not – why not make a change and put it towards the holidays instead?

May your money plan for the holidays come into focus quickly and take hold. And come this Christmas, you’ll look back at what a gift to yourself it was to get started way back in July