Declutter Your Money
Holiday time is a great time to declutter. As well as cleaning out your cupboards and wardrobe, it’s a good idea to do some housekeeping on your financial affairs. Start with your bank accounts. Do you have accounts you seldom use? It is best to have all your accounts at one or two banks rather than three or four, especially if you use internet banking to track your spending. Having too many accounts means you may be paying unnecessary fees and also makes managing your money more difficult. Arrange to do regular saving by automatic transfer into a high interest account and to pay your bills by automatic payment or direct debit. Set up your online banking so you can easily see the balances of all your accounts and arrange to have your bank statements sent to you electronically.
Next, take a look at all your credit cards and store cards. With multiple cards, your total debt can easily get out of hand. Aim to have no more than two cards on which you owe money.
Investments should also be reviewed. If you have small holdings of shares that you own purely for historical reasons (for example if they were gifted to you or you inherited them) consider whether you should continue to own them. A good test of whether to sell them is to ask yourself whether you would buy them now if instead you had their equivalent value in cash.
Finally, sort out your paperwork. Put all your important documents together in a safe place. Record important details such as policy numbers or account numbers in a separate place (computer or notebook) in case they get lost. There is a great little tool called myINFOSAFE which helps you organize and protect your personal information. Happy holiday!
Grow Rich Gratefully
One of the most important lessons learned by our forebears in the Great Depression was to be grateful for whatever you have. There is nothing like experiencing disastrous financial times to make us painfully aware of the potential for future hardships. Focussing on what you have rather than what you don’t have increases feelings of happiness and contentment and reduces the urge to spend. Our forebears combined their grateful attitude with a strong work ethic and avoidance of debt. Despite the difficult times they were able to use these values to gain financial security and independence.
Today’s beliefs and values are very different. Top of the list is an attitude of self-entitlement; that we deserve a certain standard of living regardless of how hard we work or how much we earn. This attitude is responsible for people spending more than they earn or, even worse, committing theft or fraud to obtain the standard of living they feel they deserve. Next on the list is a belief that what we want is what we need, or failure to clearly distinguish between wants and needs. What were once considered luxuries (for example televisions and mobile phones) are now considered to be necessities. In today’s society, spending has become an antidote for unhappiness or dissatisfaction with life. Unfortunately, it has only a temporary effect. The joy of a new purchase turns to remorse when it’s time to pay the bills.
Your ability to create wealth is directly linked to your beliefs and values. The best way to get rich is to:
- Be thankful for what you already have.
- Be clear on the difference between wants and needs.
- Be prepared to work hard.
- Find happiness in friends and family rather than shopping malls.
Follow these principles and grow rich gratefully!
Spending your Nest Egg
There comes a time in life when you have to flick the spend/save switch from saving to spending. If you have been careful with your money during your working life, it can be hard to spend and watch your savings dwindle. Spend too much and you might run out of money; spend too little and it will be your children who get the benefit of your life savings.
There are three phases to retirement which each have different spending requirements:
- The Live It Up phase where you travel, enjoy sports and participate in community activities
- The Fix It Up phase during which the house needs renovating inside and out, you need a new car, and various body parts need replacing (hips, knees and hearing aids)
- The Wind It Down phase where issues such as home help or moving to a rest home become important
Making the right decisions about how much to spend and when can be difficult. The three major risks to be considered are:
- Timing. It is hard to judge when each of the three retirement phases will start and end. Spending too much in the Live It Up phase may leave you short by the time you get to the Wind It Down phase.
- Longevity. With improved health care, people are living much longer in retirement and there is an increased risk of running out of money before you run out of time.
- Inflation. The longer you live, the greater will be the impact of inflation on your savings. With 3% inflation, the purchasing power of your money will be almost halved after twenty years.
The best approach is to plan ahead as far as you can and steer the middle course of living in comfort rather than poverty or luxury.
The True Cost of Lunch
People who complain about not having enough money to enjoy life are often guilty of spending their money on things that aren’t important to them but which make them feel good for a few brief moments. The classic example of this is money spent on takeaway food and drink, especially lunches and coffee breaks at work.
If you spend $10 a day on lunch, that’s $50 a week. If you ‘brown bag’ your lunch and instead invest $50 a week for a return of 3% per annum compounded, here’s what you can do:
- After one year, you will have around $2,638; enough for a holiday in Australia
- After five years, you will have around $14,021; enough for a trip to Europe
- After ten years, you will have around $30,310, which would go a long way towards a deposit on a house or your children’s education costs
- After twenty years, you will have around $71,222; enough to buy a brand new luxury car
- After thirty years, you will have around $126,443, which might allow you to retire much earlier than age 65
- After forty five years, you will have around $247,513 which, combined with your KiwiSaver funds, could allow you to live a very comfortable life in retirement.
I am reliably informed by several ‘brown baggers’ that the best way to take care of work lunches is to cook extra for your evening meal and serve it into a container that you can freeze or refrigerate for the next day or later. If you don’t have a microwave at work, stock up on easy to prepare cold food that won’t go soggy if prepared the night before. Do a quick internet search for ideas for lunches that taste good and help you save to enjoy life.
