Editorial: Why there has never been a better time to check your finances

The proportion of Kiwis who are sinking a bit or badly is the highest it has been since February last year. Photo / NZME

EDITORIAL:

The rising cost of living means Kiwis are feeling under the pump more than ever when it comes to their finances.

Latest research from Te Ara Ahunga Ora Retirement Commission shows the proportion of people who say they are either sinking a bit or sinking badly is now the highest it has been at 17 per cent since it began surveying the public in February last year.

Inflation is running at 7.3 per cent - its highest level in 32 years. While petrol prices have come back a way in the last month, food prices are still high despite promises by the major supermarket chains to keep a lid on them.

Unless workers are getting a substantial pay rise they will be going backwards in terms of their spending power.

That's why this year's Money Week is a pertinent reminder that now is a good time to run the ruler over the budget and look for ways to trim back.

That could range from shopping around for a better deal on power, phone and internet to undertaking a spending diary to see where the money is going.

When it comes to the control of finances, the research also found several common factors.

Those included the ability to save - even small amounts, cut back when necessary and take out insurance to cover the worst situations.

Experts say it drills down to spending less than what you earn to be able to put some money aside for an emergency.

Relying on debt every time the car breaks down, the fridge stops working or in the event of a break-in can lead to a cycle of debt.

That debt often comes with high interest rates which can soak up a large chunk of disposable income. With interest rates on the rise that cycle will only get more expensive.

Mortgage borrowers are facing rises too which will likely place stress on those who have bought at the peak and borrowed to the maximum.

With house prices falling sharply, some face going into negative equity where the amount of a loan is higher than the value of the property.

Already mortgagee sales have begun to tick up, rising from just six in the first quarter of this year to 21 in the three months to June 30.

That's a long way off the peak after the global financial crisis with 777 mortgagee sales in the third quarter of 2009 but is a stark reminder of what can go wrong.

Some canny borrowers kept their repayments the same when rates fell to record lows and will be able to take the rises in their stride but, for less fortunate others, it will be painful.

Major bank ASB noted this week that borrowers were coping with higher rates so far but it has begun taking a provision as a precaution.

Knowing where your money is going and having some put aside in case things go wrong are key to surviving when times get tough.