What the experts recommend about managing your finances in a smart way
What the experts recommend about managing your finances in a smart way
Photography by Emma Bass
In the next 20 years, according to forecasters, there will be a huge transfer of wealth from men to women as female baby boomers outlive their husbands and partners and come into the couple’s accumulated wealth.
They are probably the lucky ones.
Others will come to retirement with very little – especially if they have been through divorce or other big life upsets. Either way, flush or skint, survey after survey shows women from a range of countries disdain thinking about money, and particularly loathe financial planning for the future.
For example, the readers of www.DailyWorth.com, an American website aimed at getting women talking about money, held a survey last year in which it was shown a full 30 percent of readers had given no thought at all to what they were going to live on in retirement.
New Zealand investment guru Carmel Fisher recently wrote about Australian women, many of whom will have just a few weeks’ worth of funds to live off when they retire. She made the point that New Zealanders are shown not only less generosity from our government in retirement, but save far less through Kiwisaver than do our Aussie cousins through their superannuation schemes. So if they’re in the clag, we’re really in the donkey-doo.
The BNZ bank can confirm that yes, we really do have our heads in the sand when it comes to the green stuff. Quite frankly, we think we are ‘sorted’ – but we’re often not. Surveys undertaken by the bank recently – and confirmed by Visa’s 2012 International Financial Literacy Barometer – found many Kiwis would survive no longer than three months if hit by financial disaster. Debt is another big issue, with nearly half of those over the age of 50 expected to be in debt when they finally pass 65.
Financial planner, author and high-profile wealth creator Lisa Dudson has worked with clients in overcoming their financial issues and creating better futures for many years, and says a significant number of New Zealanders from all over the wealth spectrum simply don’t have finances top of mind.
“We’re very good at pretending we don’t need to deal with it,” she says. “People will talk about everything else – sex, gambling addictions, alcohol – you name it, because they feel there is less judgement involved than when it comes to money.”
But money really matters – and getting your finances in shape, particularly with a view to retiring comfortably, is of huge importance, Lisa says. “I think Zig Ziglar said it best when he said ‘money is not everything but it ranks right up there with oxygen’.”
Your money personality
It’s worth thinking about how your personality is wired to deal with cash. Using the Enneagram tool (find out more at www.good.net.nz/enneagram), here’s what could be motivating you to splurge – or hoard:
• Ones: The Perfectionist Honest,
organised and methodical, Ones are not particularly materialistic but tend to take good care of their possessions.
• Twos: The Helper Generous, empathetic
and sentimental, Twos feel good when helping (and perhaps spending on) others
• Threes: The Achiever Competitive and
image-conscious, Threes seek the admiration of others and are drawn to displays of wealth and success.
• Fours: The Artist Seeing themselves as
somehow unique, Fours are creative and individualistic but can struggle with envy.
• Fives: The Observer Solitary and visionary,
Fives seek to attain knowledge above all. They’re frugal and are often minimalists.
• Sixes: The Loyalist Reliable and
trustworthy, yet anxious, Sixes look for security and the support of others.
• Sevens: The Adventurer Outgoing,
spontaneous and acquisitive, Sevens are the life of the party – generous and extravagant.
• Eights: The Challenger Driven to be in
charge of life, Eights are strong-willed, can make the tough decisions and are often financially independent.
• Nines: The Peacemaker Optimistic
and trusting, Nines desire to feel connected to other people and the world, but their desire to avoid conflict can make them averse to change.
–Sarah Heeringa
THE EMOTIONS THAT DRIVE US
One of the big findings of the BNZ study was that impulse buying injects $16 million a day into the economy. That’s all well and good for the retail and services sector of course, but bad news for those trying to hammer home the point about keeping finances under control and the importance of being ‘future oriented’.
It does, however, perfectly illustrate the enormously influential subconscious element at work in our attitudes to money and our behaviour with it; how we view our financial choices and the consequences of them, and the approach we take to finances overall.
Studies have shown, unsurprisingly, that emotional instability, low levels of distrust, and high levels of anxiety predict more debt and more compulsive shopping, and that those who believe material possessions can provide happiness manage their money less.
More fundamental personality types can also predict our ways with dosh. UK psychologist Dorothy Rowe talks about introverts and extroverts – with introverts running the risk of overspending on their homes and extroverts at danger of blowing their cash on making themselves look attractive and having fun.
A more standard classification sees variations on these four money types: miser (motivated by fear of not having enough money); speculator (motivated by excitement about hitting the jackpot); avoider (who leaves bank statementsunopened out of fear and denial) and spendthrift, who can’t resist the impulse purchase.
And although money psychology is a relatively new field of study, famous psychologists from the past provide yet another set of criteria to classify consumers into. Carl Jung, the father of modern psychology, believed all of human kind displayed innate, universal personality prototypes that could be used to interpret behaviour and attitudes.
The eight money types based around Jung’s ideas are the innocent (the ostrich, who wants to be ‘rescued’), the victim (blame others for their situation), the warrior (takes charge and gets things done), the martyr (busy taking care of others, neglects self), the fool (looking for the windfall), the creator/artist (tension between material and spiritual world), the tyrant (uses money to control others) and the magician (ideal – knows how to realise financial dreams).
Layered on top of these innate qualities are also a person’s socialisation – not only the obvious aspects, like learning to be either careful or spendthrift from your parents’ examples, or growing up rich or poor, but other, less obvious learnings you take from childhood. Studies have found, for example, that lots of conflict between parents tends to grow children with more materialistic attitudes, while poor family relationships can lead to behaviours that derail financial success.
Lisa Dudson believes it is not necessary to label yourself as one kind of money manager or another, but it is important to understand the emotions that underpin your view of money and says when she sees clients she is “as much counsellor as anything else”.
“When I see someone who comes to me with disorganised finances, or problem finances, I do try and find out what drives or motivates them and go from there,” she says. “There are often underlying issues when it comes to any kind of dysfunction with money. If you think about someone, for example, who overeats at night and struggles with their weight – they are often times lonely and eating is a way to provide emotional support and fulfilment. And that’s precisely the same as with over-spending.”
IT’S UP TO YOU
Emotions aside, getting people thinking about how money flows around them – even if they don’t understand the nuts and bolts of a balance sheet – is a good place to start in teaching financial management 101. And that’s what the BNZ had in mind when it launched its newest brand campaign based on the idea that thinking about it is ‘ok’.
While the campaign has had a mixed reception, Louise Harvey-Wills, BNZ Director – People and Communications, says it has been very successful in helping the bank initiate a conversation with customers about how to achieve their financial goals.
“Yes, banks have always helped people achieve their goals – but with our new campaign we feel it’s a chance for the bank to take the initiative itself to ask our customers if they’ve thought about financial planning,” says Louise.
Of course retirement is the big one, and with figures like those the BNZ have unearthed – 32 percent of people making no progress in managing their money effectively, for example – combined with ever-present rumblings about the lifting of the retirement age and means-testing superannuation, the need to instill financial literacy customer segments is compelling.
But Louise says it’s also about more day-to-day money management, or even year-to-year. She says one bad time of the year for financial crises is the end of January, when people have spent their holidays giving the family a great Christmas and holiday period without necessarily weighing up the best decisions from a financial point of view.
It can mean a lean year, or can precipitate disaster. But Louise disagrees that banks have a vested interest in people not paying off their credit cards or meeting their other debts, and says the BNZ for one actively works to help people before they spiral into bankruptcy or mortgagee sales.
“It is highly unpleasant for everyone when people lose their homes and businesses, and we absolutely don’t want to see that,” she says. “When things start going wrong we have lots of consultations to try and get people to tackle their debts in bite-size pieces – trying to find a way forward together.”
Whether we live as though we believe it or not, money doesn’t buy us happiness. And losing it doesn’t have to signal the end of our world – in fact it can force us to get creative. As Ernest Rutherford said, “We’ve don’t have the money, so we’ve got to think.”
THE BASICS
There’s plenty you can do to avoid financial disaster, and even more you can do to maximise a stable situation, say the experts. And whether those experts are financial advisors, banks, those who play the capital markets or your wise old mum, there are a few fundamentals of money management that bear repeating time and again, and they centre around being conscious of your decision-making and keeping a bit away for a rainy day.
TEN TOP TIPS
for getting in tip-top financial shape:
1START THINKING ABOUT IT
If there’s one message to take away from this article, this is it! Think about your incomings, your outgoings, your assets, and most importantly, your goals. Whether it’s just putting a whack away for the future, or saving for a holiday, a goal will focus your mind like nothing else. Make thinking about financial matters a task that is very important, and you’ll find the time to do it properly.
2PUT A BIT AWAY FOR A RAINY DAY
Yes, it’s common sense, and yes, it really is as simple as that. Another way of putting it is spend less than what you earn. Or just spend less, period, and save a percentage of what you make each week.
3PUT KIWISAVER TO WORK
Look at maximising your payments into Kiwisaver
if you can, because it really is money you won’t miss
if it goes straight from your pay packet into your retirement fund.
4A SPECIAL FUND FOR CHRISTMAS (ETC)
For big events like Christmas that can blow the budget, it is worth creating a different account (look for one with low fees) to keep money snugly tucked away. An account that you have no cash-flow card access too is even better. Best of all? No cashflow card, no cheque or credit card attached to the account, at a bank with branches far away from where you live.
5CONSOLIDATE YOUR DEBTS
This seems to be a constant refrain from financial advisors, but it doesn’t mean signing up with the next finance company you come across. Many of those that promise to do this end up whacking you with an enormous rate of interest. A reputable lender will be able to assess you situation and offer a tailor-made solution for you at a reasonable rate of interest. Do your homework.
6PAY OFF YOUR CREDIT CARD EACH MONTH
Not much to add on this. You will pay dearly if you don’t!
7GET PROFESSIONAL HELP
If you are heading towards financial trouble, a quality financial advisor will be an expense worth incurring, but even if you’re not, it may pay to seek good advice to set you up to meet your goals and expectations.
8GARDENS, LUNCHES, AND BULK BINS
Good readers already know the value of homemade and homegrown. A veggie patch, home-cooked meals, and bulk buying in season are all things that are not only good for you but really do make a difference to your bottom line.
9ENSURE YOUR INSURANCE IS UP-TO-DATE
Insure yourself, but also ensure you are not paying for policies that are out-of-date or insuring assets at the same high levels year after year if your assets have decreased in value. Often, having all your insurance cover with one provider can earn you a discount; again, doing your homework on this is vital.
10A LEGACY PLAN
Protecting your finances is an important task; going into co-habitation or marriage, for example, is a good time to evaluate how much of your wealth you’d like to share and how much you need to keep safe and separate. Ditto with death: estate planning and having an up-to-date will at any age will ensure your money goes to those that are important to you.
