BusinessDesk investments editor Frances Cook responds to emails from readers each week, answering questions about money. Below, you will find her expert advice. Send your questions to [email protected].
Hi Frances
Wondering if you have any tips you could share for people who are facing job losses? It’s affecting so many people right now.
I’d love to hear about mortgage options etc, too.
We’ve just started our investing journey and have had to tighten everything and drop all extras/non-essentials, including extra KiwiSaver contributions, investments, and savings.
My partner was the primary earner, so we’ve got a pretty big gap now, and have to adjust.
Thanks heaps!
L
Hi L
You’re right. Times are tough for many right now. Some have already lost their jobs, others can feel the axe hovering, and it’s deeply stressful all round.
Just this morning, as I write this response to you, I’ve seen the closure of Newshub, Kate Sylvester and Sunfed Meats. There are probably others I haven’t spotted. Never mind the cutbacks in government departments.
It’s sad, and I really feel for everyone going through that. The one thing that can help in these situations is taking control of the things that we can control.
I do have some tips and things to consider, but a small disclaimer before I get into these. I’ll provide a range of options, some of which may work for you, some of which won’t.
The risk whenever talking about budgeting is that suggestions are made that have already been tried. I still have to suggest them, just in case it helps.
This isn’t about some out-of-touch nonsense like, “Ah well, maybe cut back from three overseas holidays a year to just one; we all struggle.” It’s just … a range of options, for you to assess which ones would be most helpful in your life.
Cutting back
Whenever a spending adjustment is needed, I like to start with the big stuff. If you can make a change on the big spending categories, that’s often one and done, and sometimes there’s more room for making a big saving.
So go through all of your major bills first, focusing on housing, transport, food and utilities. Take nothing for granted – really think about where you could make any changes.
A seasonal vegetables subscription box, to pad out meals. A boarder, to bring in extra income. A new power plan (check out options using powerswitch.org.nz).
Then print out your bank statement for one month, and have a look through for any parts of your spending that you’re not using, or not getting value from.
Subscriptions are a really sneaky one that catch many people out.
Do you know why businesses love a subscription model? Because people sign up, then forget they did so, never use the service, and keep paying.
Time to cut all of those.
Watch out for fees as well. Bank and credit-card fees are a classic that can add up to a lot; but you can often ask for them to be waived, sometimes for a year or more.
Try calling your provider and saying something along the lines of, “Hi, I’ve been a customer for X years, and recently I’ve been checking all of my costs. I see that there’s a fee of X on this card, which seems quite steep. Could that be waived or reduced?”
Then join your local "buy nothing" group on Facebook.
There’s a surprising number of things you can get through these: an oversupply of vegetables from someone’s garden, a coffee machine because someone upgraded and just wants the old one gone.
You’d be amazed what people just want to get rid of.
This can help you not to feel like you’re living a life of strict deprivation when you’re on a tight budget.
On that note, think of something you enjoy doing that is free or costs very little. You need something that you enjoy to keep you sane and to stop you from snapping and shoving a bunch of fun on the credit card.
Cutting out every last spark of joy from life just to be "good" flat out does not work. Keep what you can, but in a smart way.
Boost your income
After that’s done, is there any way you can increase your income, to make this time a little less tight?
After all, there are usually places we can all cut back, but there’s a limit. You do still need a roof over your head, and food.
Meanwhile, earning more can sometimes take more time or effort but create higher reward.
A quick way to boost cash savings is to sell things around the house that you no longer need or use.
There’s a wide range of estimates out there, with various surveys saying the average household has between $1,500 and $7,000 of unused "stuff" around the house that could be turned back into cash on the secondhand market.
Whoever’s estimate you use, that’s still a lot of cash you could tap into, to make things easier. A good declutter and a rush of activity on Facebook Marketplace or Trade Me could help a lot.
You could also consider picking up some extra hours at work (as long as they’re paid), or freelancing on the side (if your contract allows).
Working all hours isn’t something you want to do long-term, as you’ll burn out, but it can help get through a tough patch like this.
I assume your partner is job hunting, and I just want to say that it’s okay to find a job that works "for now", while keeping an eye out for one that fits your previous lifestyle. It all helps.
Mortgages
On to your mortgage question. The good news here is that the Reserve Bank has just opted to hold the Official Cash Rate steady at 5.5%, so no further mortgage increases look likely.
The rumbling from the money world is that they expect interest rates to start going down again in the second half of this year, with guesses ranging between August and November for when that will start.
I want to emphasise that they are guesses. Educated guesses, based on experience, and clues in the economy. But nobody truly knows the future.
So do with that what you will.
To try to make your mortgage cheaper for now, you could ask the bank to extend your term. That means you pay it off over a longer period of time – say, moving it from 23 years to 27.
This will make it cheaper here and now, but bear in mind that it will make it more expensive in the long term. You’ll be paying more interest. It’s a move to help you for now, but you probably don’t want to put it in place permanently.
You could also consider going interest-only, where you make only interest payments on the mortgage and don’t pay off any of the actual loan. This can be a hard one to get approval for, but would drop your repayments by a lot.
Again, it’s a move that can help you through a budget crunch, but hurts your money situation long-term, so it’s a bit of an emergency lever to pull.
Any of these options could come with a "break fee" if you’re currently on fixed-term mortgages. These fees can be thousands, and sometimes wipe out any gains you make in reducing payments.
The best option is probably to chat to a mortgage broker about your situation. Their services are free to you (almost the entire industry works on commission paid by the banks) so it’s worth talking about your options with a professional.
Don’t make it permanent
Hopefully this situation will be temporary for you, and the many other people facing it.
The problem is, many of the changes you’ll need to make can end up becoming permanent, just because life is busy and we move on.
So when that next job is secured and things get a bit easier, here’s what I’d love for you to do:
Go out for dinner. Get ratted drunk. Celebrate. You’ve earned it.
The next day, get a strong coffee and sit down together to figure out the money changes you can put in reverse. Increase your KiwiSaver contributions again. Consider how you want to change the mortgage structure. Get some autopayments in to savings, to boost them up again.
Make sure a dose of bad luck doesn’t make an impact for longer than it should.
Send questions to [email protected] if you want to be featured in the column. Emails should be about 200 words, and we won't publish your name. Unfortunately, Frances cannot respond to every email received or offer individual financial advice.
This column's information is general and should not be taken as individual financial advice. The article has also been edited for clarity.
Frances Cook and BusinessDesk are not responsible for any loss a reader may suffer.
