"Middle-income people justify that they need a bigger car, clothes, meals out or a week in Fiji," says Tierney, who used to be a financial adviser. "It is not that they are making a mistake, but they could make better choices."
Despite having good incomes many Kiwis in this bracket don't plan for the future. "If the middle-income earner has surplus funds, they might put this towards another or a longer holiday, staying in a nicer place, buying a nicer car, or another renovation on the home that didn't need it," says Tierney. "Many may not see this as wrong, but it may only offer short-term value.
"If they could have bought a more basic holiday, cheaper car or not renovated the kitchen again, they could have saved more and made other longer-term choices."
Tierney cites the example of a sports coach who, despite struggling to make ends meet, didn't want to take his kids out of boarding school. The children's schooling enabled him to rub shoulders with lawyers and professionals and he liked the lifestyle. He was keeping up with the Joneses, Tierney says, but was short of cash.
It's a problem that the Christians Against Poverty budgeting service sees as well, says communications manager Julie Navatsyk. "They might think of saving for upcoming expenses such as a holiday or put money away for the future in KiwiSaver or another scheme, but often people don't plan - and save - for the $2000 car repair, a refrigerator breaking or surprise dental expenses.
To maintain a healthy budget, it's important to put money aside into an emergency fund so that those little disasters don't pull from money for everyday expenses or long-term savings."
A big difference between lower and middle-income clients is that the latter have a get-out-of-jail-free card. They can stay afloat by increasing the home loan, effectively mortgaging their future.
It's easy. But charging the new car to the mortgage means they're paying about 6 per cent more at current interest rates than others for the same consumer spending and are eroding their equity. Mortgage broker Geoff Bawden of Prosper Group sees clients topping up the mortgage all too frequently.
"My gut feel is that the spending is often for toys," says Bawden. He cites the example of a client who has done about four top-ups in the past 12 months. The client "needed" to upgrade his car and then the spa pool needed repair.
"Clearly he doesn't have the cash flow to provide for those things. You know they are not being really smart."
It's common, says Bawden, to have clients who top up their mortgage to pay off credit cards. This is smart if they have changed their ways and won't keep spending. But mostly that isn't the case. "You can bet it's not tangible," he says. "It's things like dinner out and then they find that their credit card is up to the limit again pretty shortly."
Another example of budget mistakes is homeowners who fool themselves into thinking that all renovations are investments. They may use the justification that remortgaging to pay for the kitchen or bathroom will add value to their property. They see it as an investment. But it isn't always, says Tierney.
Mark Trafford, of Maintain to Profit, says most homeowners don't do the maths and "kid themselves" about the return renovations will give them.
A property investor may add real value by converting three to four bedrooms and adding a bathroom within the existing footprint of a house and garage. In that case an $80,000 investment might translate into an $180,000 capital gain, says Trafford.
A homeowner who spends considerably more on an extension to get those extra bathrooms and bedrooms or more living space also believes that he or she will be repaid handsomely in capital gain.
Many of them would make the same capital gain by simply sitting on their homes in the current market, says Trafford. Most kitchen and bathroom renovations fall into this category.
If the value of the property goes up by the cost of the renovations the homeowner is losing money because they must pay interest on the debt. "My advice is to get advice before doing renovations," says Trafford.
Financial planner Susanna Stuart of Stuart + Carlyon says budgeting mistakes aren't only made on big-ticket items such as renovations. She sees clients who can't make ends meet but they are going to the hairdresser every three weeks, need to buy top-brand makeup or their grocery bill is unusually high compared to other families.
"It's so hard for people to distinguish between what is a need and a want," says Stuart. "It is the whole thing of short-term gratification. There is no thought or planning for the future." Even if one partner realises the need for change, the other often doesn't have the same money personality.
The saying "the more you earn, the more you spend" is true, says Tierney. The family's income falls to $70,000 but they continue spending as if they have $100,000 coming in the door. "It can take a while for this to filter through if they have cash reserves, assets they can sell or a line of credit. Eventually, it will catch up on them," he says.
Another big difference between those on benefits and middle-income people is that the latter don't want to let anyone, including the budget adviser, know they are struggling.
"A beneficiary will have no problem telling us, and sometimes in a room full of people, exactly what they earn, what they spend each week and how much debt they are in," says Tierney. "They are pretty open and have little to hide.
"The middle-income earner will often portray to those around them that all is well and life is great and they are doing pretty well," says Tierney.
"People are quite happy to talk about their weekend adventures, how much they spent or how much they drank, but when it comes to showing our friends our credit card balance or a recent payslip, that is such a no go area. They won't say, "I can't afford to go out" to their friends. They put it on the credit card then find a way to pay for it later."
Although middle-income people might not need food parcels - although some do - not being able to keep up with the Joneses is hugely stressful for some people.
Sometimes the solutions for middle-income people proposed by budget advisers "aren't palatable", says Fox.
That could be downsizing from two cars to one or getting in a boarder. "Suddenly your kids need to share a bedroom and they don't like that."
Sometimes they give up and simply get another loan rather than address the problem, says Fox.
In these cases they may walk away, stick their head in the ground about the problem and get another loan or credit card, which will eventually come back to bite them.
