Financial Strategist Hannah McQueen On How To Save Money The Smart Way
The managing director of Enable Me gives her savvy budgeting tips — and giving up flat whites isn’t one of them
What’s a reasonable way to approach a shared household budget, or to undertake big purchases (like a house), when you are on different incomes?
Everyone should be saving a percentage of their income — ideally at least 20 per cent — so that ratio can be applied even if you earn different amounts and keep your finances separate, because it remains proportionate. How you blend finances in a relationship is not a case of ‘one size fits all’, but the best place to start is to have joint goals, and a joint strategy to achieve those goals.
In terms of day-to-day expenses, some couples I work with find that having a household kitty account that covers all the essentials and a separate account with some ‘play’ money they can spend how they choose works well. It really depends whether you have blended your finances or not, and whether you’re working towards the same goal or separate ones.
Whether you go all-in and simply accept that your assets will be split 50/50 in the event of a relationship break up, or you decide to opt out of the Relationship Properties Act and lay out in black and white who owns what, that needs to be a decision you make together and is often informed by who brings what to the relationship in the first place.
Blending finances when you have different financial tendencies, incomes, debts and ideas about money can bring risk, so it’s a useful time to seek some independent advice, so you can both get on the same page and work together, before things get fractious.
How much money should you realistically have set aside for a rainy day?
You should be aiming to be able to cover your basic living expenses for 6 months. That might sound like a lot, but I’m not necessarily talking about a ‘luxe’ version of your life, but more a ‘lockdown’ version of your life for that period of time. That means you need to know what it actually costs to keep the lights on, a roof over your head, the car running, insurances in place and food in the cupboard, in order to build yourself the financial resilience to cover that.
That doesn’t necessarily have to be cash. It could, for example, be that you have a revolving credit on your mortgage that you could draw down on if you needed to, or it could even be credit available on your credit card — but that means you need be confident those cards won’t be maxed out when you need them.
Any tips for paying off a mortgage faster/smarter?
It’s important to clock a couple of things first. 1) Low-interest rates don’t automatically translate to progress; they just translate to lower repayments. 2) Generally, your standard ‘table’ mortgage will maximise how much interest you pay back to the bank. I would add, though, be careful about simply shortening your mortgage term, as that will lock you into higher repayments and if you don’t have a reliable surplus it will become problematic if you can’t make the payments.
If you’re going to utilise a revolving credit, only make it equal to your annual surplus, otherwise you’re just paying a higher interest rate without that flexibility translating into progress. I’d also suggest not simply putting everything on the credit card when you’re using revolving credit, because whatever it saves you in interest by having that money against the mortgage for the month will be more than offset by how your credit card changes your spending behaviour and results in you spending more.
Ultimately the best way to get rid of your mortgage faster is to establish a sustainable spending plan that results in a cash surplus and putting that surplus on the mortgage. The best budget in the world isn’t worth much if you don’t stick to it though.
There is a window of opportunity to get ahead right now — interest rates this low mean more of your money can be applied to getting rid of the principal rather than simply paying interest. That said, many also see it as an opportunity to borrow cheaply and so borrow more, or the mortgage is hurting less than usual so they’re feeling quite comfortable to kick back at the moment, rather than motivated to get rid of it sooner.
What are some smart ways I could be saving money every day?
We find that the biggest area outside of your mortgage where there is slippage is in what you spend on food. That’s all food — groceries, cafes, restaurants, takeaways, work lunches. People tend to spend a little more than they think, more often than they realise.
It’s not about cutting out the coffee. Our firm belief is that any budget that doesn’t include the things that make you happy is not sustainable. But it’s about being conscious of what you’re spending and whether more of it actually translates to more happiness, or if you reach the point of diminishing returns at some point.
If food expenses are an area where you constantly go over, try using cash for a few months to get back in check. If you constantly overspend at the supermarket, try using a meal delivery kit, or shopping online with a list. Clock how much food is wasted at the end of each week — how much cash did you effectively just chuck out?
There are plenty of clever ways to save a dollar here and there — it really depends on how much bandwidth you have available to focus on the tiny details. For most of our clients, it’s about setting up the right systems and structures, so they have a safety net to stop overspending when attention or willpower fail them.
It’s also worth doing an annual review of your power bill, your broadband, your insurances, etc, to check your provider is giving you the best deal. Also, do a quick stocktake of your memberships and subscriptions to check you’re actually using them.
Do I need a will?
Yes. Dying without a will is referred to as dying ‘intestate’, which basically just means your worldly things will be split up in a way pre-determined by law, rather than how you might like. That could create problems for your loved ones. It could require involving the courts and it will likely take longer for them to be able to access anything. Remember they don’t just refer to who gets your KiwiSaver or your home, but who will look after your kids or pets, whether you’d like to be buried or cremated, etc.
How much money do I need to budget if I want to have kids? Are they as expensive as everyone says?
As a mother of two I can confirm that kids can be expensive and get more expensive as they grow But when you’re a new parent the biggest factor is the impact of going from two incomes down to one, rather than a baby being particularly expensive in their own right.
That does require some careful planning — you need to get a handle on what your life costs pre-baby, but you can also live a little smaller when the baby first arrives as fancy restaurants and European holidays are likely off the cards for a while anyway.
There are lots of things to factor into the cost of kids question, like whether returning to work earns you more than you spend in childcare, whether the impact of staying at home longer limits future earning potential, as well as what happens to your KiwiSaver.
Preparing for and having a baby tend to come with different financial mindset shifts or phases, which we don’t tend to make well, and certainly not when we are sleep deprived. The phases include building up (increasing the savings pot), resetting spending targets (cutting back), and then holding on.
At each stage, you have different measures of success, and often what happens is people erode their bank balance faster than they’d intended to, which serves to increase their financial anxiety and reduce the choices they have about when to go back to work.
How much should I be saving each week? What split should income be between rent/savings/expenses?
Our rule of thumb is that you should be saving at least 20 per cent of your income. How the rest is allocated depends on your situation — there is a common theory that you shouldn’t spend more than around 30 per cent of your income on accommodation, but for lower-income earners, or those living in our more expensive cities, that figure might be much higher. Ideally, you’d want to keep your cost of living to about 60 per cent of your income — so that’s food, accommodation, transport, bills.
Then there’s room to save, there’s room for some discretionary things that you want and enjoy, and there’s room to create your financial buffer for emergencies.
Is there a better place to put a significant amount of savings other than an interest-bearing bank account? How can I make my savings work harder for me?
You can absolutely make your savings work harder, but how you do that needs to align with your circumstances, or it could have an adverse result. For example, some people had their KiwiSaver settings on ‘growth’ or ‘aggressive’ to try to grow it as fast as possible but actually wanted to withdraw it imminently to use as a first-home deposit when Covid-19 tanked the markets.
So, you need to be clear on your timeframe for investing, your goals, your risk appetite, and, ultimately, whether or not your situation could absorb that investment declining. If it’s retirement you’re saving for and that’s more than 10 years away, then we can start looking at ways to put that money to work.
If you need that money on-call, it’s a different story. In some circumstances, you are better off accepting a lower return in exchange for the certainty of knowing how much money you’re working with, and that you can access it when you need to.