The Herald's Cooking the Books personal finance podcast has gone daily in lockdown, to help you get the tips you need to weather the financial storm. Hosted by Frances Cook, with a new money expert featured on each episode.
The rainy day has arrived. Now is the time when a savings account can help you ride out the turbulence and give you peace of mind.
The problem is that as New Zealanders we're among the worst in the world for saving our money.
Figures from the Reserve Bank show that in 2019, New Zealanders as a group saved -0.3 per cent. As in, overall, we didn't save anything. In fact, most of us have been living beyond our means and using debt to fund it.
To put it another way, figures from finder.com show 58 per cent of us have less than $500 in savings.
So if this is you, then you're absolutely not alone. Hindsight is 20/20, but there's no point berating ourselves for what we should or shouldn't have done in the past.
What's more important is taking control of the things we can, today. And happily, there are lots of options for getting yourself more financially secure so you can survive what life throws at you.
For the latest Cooking the Books podcast I talked to Hannah McQueen from EnableMe.
She laid out five steps to stabilise your finances, starting now.
Step One: don't panic
Keeping a clear head will help you make smarter decisions. While you might feel like the sky is falling, there are always options.
"The thing that creates peace of mind is knowing with certainty that you have a plan, knowing the degree of tolerance you plan has, and for the plan to be dynamic. As the assumptions change, your plan should change," McQueen said.
"If you can do that, you feel in control. You're dealing with what you know to be true now, what you think could happen, and what else could happen."
Step Two: work out your bare minimum expenses
In an ideal world, you would have three months of savings put aside to pay your minimum expenses, most likely made up of your mortgage or rent, utilities like your power bill, food, transport, and insurance.
So now is the time to go through your bank statement, and see how much those categories cost you each month. How far away are you from being able to pay them for three months?
"You need to be able to survive for three months, with certainty," McQueen said.
"For a lot of people, this is going to be the first round of probably five or six rounds of intense stress, as we get through the next 18 months."
Step Three: start saving what you can, now
The one good thing about lockdown is you're probably saving money. There's no petrol bill, no cafes, and certainly no shopping. So take everything you're saving and start putting it into a savings account now.
"If you have a mortgage, say in Auckland, that will take up 40 to 50 per cent of your income. Then you might have 15 per cent on basic living costs, like food," McQueen said.
"So, of what you normally spend, you really can only spend about 60 per cent of that right now. That's comforting because most people could allow their income to drop, and still be able to cover those core outgoings."
Step Four: once lockdown ends, keep saving
The economy is likely to stay rocky for a while, so keep your money on lockdown even once you're allowed out of the house. You could even boost your savings further by making use of your new freedom, and selling anything you're not using.
"For our clients, we've asked them to stay on their Covid-19 lockdown budget for four weeks, post-lockdown," McQueen said.
"We want to replenish those reserves as quickly as we can."
Step Five: have a plan for different stages of crisis hitting
Could you pay your bills if your pay went to 80 per cent? What about 50 per cent? Or even 30? What if you lost your job?
While this might sound scary, people crave certainty. So taking an honest look at how long you could survive at each stage will actually be reassuring. You'll know what you're dealing with, which will help you do what you need to.
"The problem is a lot of people are eroding their options inadvertently, or not using this runway to get ready for what will come," McQueen said.
"Most people have just defaulted to going on a mortgage holiday, which freaks me out. In your life you probably get one gesture from the bank, of 'here let me help you out'. You don't use that gesture up until you need to play that card."
Listen to the full interview on the Cooking the Books podcast. You can find new episodes on Herald Premium, or subscribe on iHeartRadio or wherever you get your podcasts. The next episode will cover whether you should still be putting money into your KiwiSaver.
