Financial mentors are best known for their work helping families plot a course out of crushing debt.
But Auckland mentor David Verry reckons one in every 10 of the people he helps aren’t struggling, but are trying to do better.
These days, that includes homeowners forced to spring-clean their finances in anticipation of a large increase in their home loan rates.
In May, a professional couple in their early 40s came to see Verry worried about their $1.1 million home loan, which they would have to refix early next year.
“It’s not terrifying. This is their second home. They’ve traded up. They can pay the mortgage,” Verry says.
But repayments on loans of this size are not insignificant, even for people on generous incomes.
They were paying $1157 a week on the home loan, but soon expected to have to pay a lot more.
“They said, we’ve got our mortgage. This is what we are currently paying. We’re worried mortgage rates are going up,” Verry says.
“Good on them thinking about it now.”
“A lot of people have mortgages, but are they thinking about the numbers?”
Banks maintain they do affordability checks on their borrowers, and are confident they can manage rising repayments.
ASB chief executive Vittoria Shortt, says the bank had been closely monitoring the progress of borrowers locking in higher rates.
“Our customers are telling us they are okay,” she says.
Step one for any financial spring clean is to have a budget.
After he analysed the couple’s income and expenditure, Verry says, it looked like they were only breaking even.
“They are netting $2550 a week in their bank account,” he says, giving them an annual after-tax income of just over $132,000.
Verry modelled their budget with them factoring in an extra 2% on their home loan interest rates, and they were suddenly looking at a $300 weekly deficit.
Exactly what rate the couple, who have one child, will end up locking in remains unknown, but even an extra 2% would not be fatal for their lifestyle.
The couple’s budget included $370 going to savings each week, on top of their KiwiSaver contributions. They also allowed themselves each $215 personal spending money each week for things like clothes, lunches, and eating out.
There were also household savings that could be made on services, like mowing their own lawn.
Research released for Money Week by Te Ara Ahunga Ora The Retirement Commission showed large numbers of other households were doing similar things to manage the increased cost of living as inflation rose over 7%.
Inflation, as measured by CPI, does not include interest on home loans.
The commission found 45% had changed their food shopping habit, 44% were eating out less than they used to, and 27% were socialising less.
Shopping around for better deals was not mentioned as a strategy by the people surveyed by the commission.
“Power, phones, insurance. There’s all those things you can look to,” Verry says.
For people in real financial distress, saving $50 to $60 a month on utilities is the key just to financial survival.
Looking for such small savings helped one woman he met with over 30 times get into a $9.31-a-week surplus.
But that surplus depended on her making no repayments on 19 of the 30 debts she had, many of which would have to be written off by lenders.
Among the strategies families can use to improve their finances is to seek pay rises.
“That’s a damn sight better than cutting expenses,” Verry says.
The commission’s research suggested relatively few people felt so confident about seeking pay rises, despite the tight jobs market.
The couple had in-demand skills, and were actively seeking opportunities to lift their incomes.
As a result of the changes they had made so far, they were now saving extra hard to build up a buffer for when they had to make bigger home loan repayments.
“We just wish more people would think about this sort of thing,” Verry says. “They’re on to it early.”
“Most people live payday to payday.”
Part of mortgage adviser Karen Tatterson’s business is keeping in contact with people she’s helped to get loans.
She drops them a line in the weeks before their home loan refixes, as that’s a good time for people to work out which is the best fixed term to go for.
“If you go into a bank, they can’t give advice about what rate to take, whereas we can,” she says.
Banking is increasingly done remotely. At the time of writing Bank of New Zealand was running ads on how people could fix their home loan through its banking app.
Verry says people who want to understand their home loans better, and understand where their repayments might go next can use the tools at Sorted.org.nz, a taxpayer-funded money website.
Some on higher incomes desiring personal help hire financial coaches like Katie Wesney from enable.me.
While inflation was eroding people’s spending power, EnableMe’s financial coaches found there was usually room in household budgets to make cuts.
“There’s generally about 15% of income that slips through the cracks,” she said.
Often that was money spent on food and eating out, but households should also be looking to increase their incomes.
When house prices aren’t increasing, the only way people can build equity is drive down debt, she says.
Tom Hartmann, personal finance lead at Sorted, says debt is a drag on your finances.
“The faster you get rid of it, the cheaper it is, and the lighter it is,” he says.
But while some people can tackle their debts alone, others should seek help.
“We don’t always see ourselves very clearly, and we don’t always see the habits we have fallen into, or the solutions that are available to us,” Hartmann says.
People shouldn’t shy away from seeking help, he says. The rich do it.
“People have personal accountants, personal trainers. Most people don’t try to cut their own hair,” Hartmann says.
“Getting some support is a savvy thing to do.”
Sorted’s debt calculator allows people to plug all their debts into it, and work out how fast they can pay them off.
Step one is to write down all your debts, so you know where you stand, ranking them in order of the loan with the highest interest rate, to the loan with the lowest.
While the quickest way to get out of debt fast is to pay off the debt with the highest interest rate first, some people prefer to tackle their smallest debts first to feel they are making progress, Hartmann says.
People can explore debt consolidation loans, and things like credit card balance transfer deals, but taking out loans to pay off loans is risky.
Revolving loan facilities like credit cards are designed to keep people in debt for the longest amount of time, Hartmann says.
Thousands of people invest their time in improving their money skills. Christians Against Poverty (CAP) offers free money courses, alongside of one-on-one financial mentoring.
Abbey Peters, a CAP money coach, said: “We can’t help you get a pay rise, but we can help you feel as if you’ve received one by helping you create a budget.”
So far, more than 16,000 people have taken a free CAP Money course.
“Money-saving tips enable you to budget and spend well, plus they empower you to start saving. From there you can begin setting goals. For some it might be paying off that overdraft. For others, it might be planning a holiday with the whānau, or even saving for a house deposit,” she said.
DIY and advice are the two options for people spring cleaning their KiwiSaver, says Hartmann.
Some KiwiSaver providers like Booster and Generate can link savers up with advisers, but most people in KiwiSaver go the DIY route, with help from family, friends, as well as using online tools from Sorted, Mindful Money and BetterSaver.
After a decade’s march up, KiwiSaver funds have posted negative returns over the past 12 months, which has shaken many savers.
Hartmann says Sorted’s hierarchy for choosing a fund started with savers checking they had a fund of the right risk level for them: cash, conservative, balanced, growth, or aggressive.
Next in the hierarchy came the fees funds charged, and then the services they provided.
Lastly, people should look at the longer-term performance of their funds in case they were with a serial underperformer, he says
Savers also needed to look at strategy, answering the questions: What are you trying to achieve with KiwiSaver, are you saving enough, and are you getting your full government contribution of $521.43 each year.
Inflation, and wild weather, has pushed up the cost of insurance.
Premiums are on the rise, despite the EQC taking on more of the natural disaster risk for homeowners in October.
Justin Lim, founder of the Quashed insurance comparison website, says the majority of home and car insurance is sold directly to customers, but some is sold by advisers, often to business people they are helping to insure their businesses.
People could shop around for house and car cover by getting quotes directly from insurers, or they could use a service like Quashed, which lets them shop around more quickly.
“I would say that getting the quotes probably only takes 15, 20, or 30 minutes,” he says.
The hard part is then comparing the policies, and making sure the cover is adequate, which includes checking that the sum your house is insured for is high enough.
The cost of building a home has risen in the region of 21% in just 12 months, and that’s not only pushed up premiums, but means people are having to lift their sum insured.
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