Get Sorted: Growing your financial 'apple tree'

Sustainability isn't just about our ecosystem - it's how we sort our finances too. Photo / 123RF

COMMENT: Here in fantastically beautiful Godzone, it's easy to get fired up about sustainability and safeguarding resources for future generations. It's all about making changes in a balanced, harmonious way, so that we can meet our needs and aspirations both now and down the line.

But when it comes to our personal finances, what is sustainable? What isn't? How do we keep growing and getting ahead?

In putting together our Sorted in Schools programme, a number of themes have come through to make for inspiring lessons. One of these is sustainability.

A sustainable rule of thumb

For example, a simple rule of thumb for money is "Spend less than you earn" (some prefer "Earn more than you spend"). That's sustainable. Doing so means we'll have savings that will grow for our future. As our nest egg compounds over time it supports our wealth and wellbeing.

We can of course spend more than we earn for a while, by using debt. Yet doing so for too long gets us nowhere financially.

If you think about the experience of borrowing money, you get into a hole then dig yourself out, go into a hole then dig yourself out. Over time, you enjoy what you buy, but beyond that there's not much to show from the money spent. No growth.

Debt may even put us in a downward spiral that for some ends in bankruptcy – crash landing their money lives. It's unsustainable over time.

More sustainable money behaviour

Why all the focus on growth, on getting ahead financially? It's because our needs, and our aspirations, increase over time. When I think of students coming through their education, they are more or less dependent on parents, but their needs and goals will only increase. And meeting those will take money.

Just earning more or saving more in itself is not sustainable, since you can easily spend all you earn or just save for the short term. If you think about the experience of earning or saving, we could build it up and spend it down, build it up and spend it down. When we're done, we may have nothing to show for it – no growth there, either.

Which is why KiwiSaver and investing beyond KiwiSaver are so key – these are vehicles for growing financially over time. Education and building a business are certainly others. Who knows how many there are, actually.

This is also where the right insurances contribute to long-term sustainability. There's no point growing our money if it's all going to get wiped out when the unexpected arrives. Safety nets and insurance help us stay on track (or get back on it as quickly as possible) while we're growing for the future sustainably.

It's about growing the tree, not just the apples

If you think of personal finance as an apple tree, too much of our focus typically revolves around the apples. We weigh the best rewards credit cards, chart the highest-interest savings accounts, examine the lowest-fee funds. We pick shares and track their ups and downs.

Yet when you get down to why all this is important, it's really about growing the entire tree. It's about sustainability. My hope is that through Sorted in Schools we'll teach kids how to grow that tree for their future, and for Godzone's.

- Get Sorted is written by Sorted's resident blogger, Tom Hartmann (@TomHartmannNZ). Check out the guides and tools from Sorted – brought to you by the Commission for Financial Capability – at sorted.org.nz.