Diana Clement: Start the new year with good financial habits

OPINION:

It’s 2022 and time for a fresh start for your finances. New Year’s is a great time for a reset. I decided to proffer my tip for 2022 and have asked a range of people from different corners of personal finance for theirs.

Don’t spend money you haven’t earned yet. This is my tip for 2022. Buying on credit, even buy now pay later, is spending money you haven’t yet earned. Turn that on its head, only spending money you have, and your financial future will take a big leap forward.

It’s not just that you’re spending money you don’t have when buying on credit. The psychology is just as important. Getting in the habit of spending only what you have can snowball as you learn other good financial habits that come from being sensible with money. A great place to start on this is to read The Barefoot Investor, by Scott Pape, or Mary Holm’s A Richer You: How to Make the Most of Your Money.

Spend less than you earn. Mark Lister, head of private wealth research at Craigs Investment Partners says: “If you’re in deficit from day one, then (talking about saving and investing) is irrelevant.” On the other hand, says Lister: “It’s pretty hard to get into too much financial trouble if you’re spending less than you earn.” Lister accepts that there is a percentage of New Zealanders that won’t have money left over at the end of the week no matter how careful they are. Many more could spend less than they earn if they budgeted.

Get a grip of your situation. Sharon Cullwick, executive officer of the New Zealand Property Investors Federation, says she is often approached by both first home buyers and potential investors who don’t understand their current finances. “Get a grip of what your situation is. ‘How much do I need’, ‘how much would the mortgage be’, ‘how do you get started?’ Go to a mortgage broker (adviser) and find out what you can do. It’s free and a broker can work out what your personal situation is.”

Make a plan and chip away at it. Katrina Shanks, chief executive at Financial Advice New Zealand, says reaching goals requires you set them in the first place. “Pull apart what you’ve got now in terms of your income and expenditure and see what it looks like.” Consider how that needs to change as you go through life stages. People who have written plans and review them regularly are better at reaching goals, she says. Long-term goals will have steps such as opening KiwiSaver, buying a house, increasing retirement savings, and paying down the mortgage.

Buy insurance, not an iPhone.

Steve Morris, financial adviser at Morris & Co has seen how trauma insurance can really help when clients fall ill or become disabled. “I 100 per cent guarantee that you will not see anyone heading to the local mall to buy life or living insurances in 2022. Insurance is the thing no one wants when things are going well.” His advice, however, is to get trauma insurance as well as medical insurance for the “big-ticket items” such as hospital, surgical and medical, before you need it. “The latest iPhone probably feels far more important right now than the $25,000 for a new knee. If you’re not convinced, make an appointment with a financial adviser in 2022 to review your life and medical insurance needs. Unfortunately, most people in NZ are underinsured.”

Get advice: MoneyTalks team lead Angela Smart says free financial mentoring is available to everyone, not just those struggling to pay bills. “You don’t need to be having trouble with your bills to go and see a financial mentor,” she says. “They can help with any goal you might have, whether it’s saving enough to cover your power bill or buying a house.” Visit: Moneytalks.co.nz/find-help-now to find a local network of free mentoring in your city or region.

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