Shula Newland from Full Balance Financial Coaching explains.
An emergency savings fund can be a saviour when an unexpected expense hits, but the cost-of-living crisis and soaring interest rates have put this out of reach for some Kiwis. Carmen Hall spoke to successful savers in a range of situations across the country about how they do it, as well as personal finance and budget experts.
The cost-of-living crisis is hitting Kiwi families hard – with one budgeting service seeing an up to 90 per cent rise in people seeking help over the past year.
Experts say rising inflation and soaring interest rates are making it difficult to save and when hit with unexpected expenses many are forced to take on more debt.
A Centrix Credit Insights Report last month revealed consumer credit demand was up 5 per cent on last year.
It also revealed increases in people behind on credit payments (up 4000 to 427,000), credit arrears, and accounts reported to be in financial hardship from banks, non-lenders and others.
There were 18,600 mortgage accounts past due, up 23 per cent year-on-year, with many due to be repriced in the next 6-12 months, the report said.
Shirley McCombe, general manager at the Tauranga Budget Advisory Service, said developing savings or an emergency fund and eliminating debt were important to creating financial resiliency.
“It reduces stress and eliminates the need to borrow, which creates ongoing, additional pressures on tight budgets.
It was getting “tougher”, however, for clients struggling to put food on the table or trying to pay down high-interest debts “to find that small amount to put aside”.
“We always say to our clients that life can turn on a dime. If you are living week-to-week you are vulnerable, but sadly, many people have no choice.”
Tejal is retail worker who is doing a health psychology degree.
‘I’m a little obsessed’
Student Tejal, of Wellington, has $5000 in an emergency fund and savings.
The 22-year-old had been saving since she was 17.
“I’m a little obsessed … I have always grown up a little worried about money even though we were a middle-class family, we were lucky kids. I remember being aware of money and how much things cost from a young age.”
The retail worker said last week she saved $100, which went out before she paid anything else.
Casslyn Lee, an expectant mum from Auckland, planned to take a year off and her husband will become the main breadwinner.
She said having savings gave her “peace of mind”.
“I find stashing away my pay in a savings account definitely helped to avoid overspending.
She cooks, has cut down takeaways/eating out, and buys food on special or in season and clothes on sale.
Full Balance Financial Coaching founder Shula Newland said everyone had a different money personality and situation.
Hoarders loved the security of savings while spenders lived in the moment.
“We’re driven by what makes us feel good.”
An emergency fund was a few rungs up on her financial security ladder system.
“It’s all about changing habits. We have all sorts of people coming to us and can always get them a balanced budget, we can make it work. If people are drowning in debt the first rung on the ladder is keeping up with your bills and most people can do that unless they need to go bankrupt.”
To escape the debt cycle, people needed to create savings, Newland said.
Shona Dellow’s savings journey started when she earned 50c a week and another 50c for working on a Friday night at her parents’ fish and chip shop.
By 15, she had enough to buy a Mark 1 Cortina for $1500.
She said she saved something every week, even if it was only $5. Now 62, Dellow has been mortgage-free for six years, enjoys overseas holidays and is in a solid financial position despite the break-up of her first marriage in 1996 and raising four kids.
She acknowledged that before she retired she had a good income that enabled her to save and she supplemented that by growing her own produce.
The musician said never buy something unless you can afford it and avoid paying off items such as phones over time because of the hidden costs.
South Islander Silke, who did not want her last name used, said she previously had no idea what happened to her family’s money and spent too much on clothing, kids, petrol and eating out.
“We would buy things for home repairs just on the credit card rather than planning or saving up for it.”
That changed in 2019 when she took over running the budget.
She now had $1 million in savings, KiwiSaver and investments, which included their home with a $130,000 mortgage.
“We think about money regularly now but in a positive way as we can see we are going forward.”
She said her kids are on board with saving money and “don’t let us spend on frivolous things”, but the family were “all about experiences” such as holidays.
When saving goes wrong
Rotorua Budget Advisory Service manager Pakanui Tuhura said emergency savings should only be created from surplus money that would normally be spent on wants, not needs.
“Sacrificing basic needs to create an emergency saving fund is counterproductive and will eventually create that emergency you are saving for.”
Between the cost-of-living crisis and efforts to increase attendance at appointments, client numbers were up 80-90 per cent in the 12 months to June compared with the previous year.
Tuhura said most clients did not have savings because their money went to daily living costs or debt repayments. The few who could save tended not to do it in a “controlled” way, but the service could help with that.
‘I’ll never forget the low point of my financial life’
Emma Healey and her son Dylan.
Emma Healey, ofChristchurch, started her personal finance blog and online money magazine Mums Money New Zealand to get financial freedom.
“I’ll never forget the low point of my financial life. Sitting in my accountant’s office as he told me just how much I owed in tax.”
She said she had been doing contract work but did not put anything away for end-of-year taxes.
She took on extra jobs to clear that and convinced her husband to save with her. Now Healey has an everyday budget that includes savings for emergencies, and a survival budget.
Healey said saving $1000 was achievable by putting away $2 to $10 a week for a few years.
Janet McDonald is on a supported living benefit.
Janet McDonald, of Timaru, puts $10 a week from her supported living benefit into an emergency fund and has saved $300, which she hoped to use to buy whiteware.
She is on dialysis and waiting for a transplant so “I try to live within my means”.
In her view, single people on a benefit had it tough because they had to pay the same bills as couples or families.
“I am just speechless with how little help a single person gets.”
‘Self-insure against risk’
Retirement Commission lead Tom Hartmann says $1000 is a “starter” emergency fund and helpful for smaller unexpected bills such as trips to the vet or dentist.
A fully fledged emergency fund was more like three to six months’ of expenses if the aim was to cover the risk of redundancy.
”Essentially what an emergency fund does is allow you to self-insure against risk, instead of transferring that risk to a company through insurance. So, if you work backward from the risk you are carrying, you can work out how much of an emergency fund to have.”
A survey of 947 people in the third quarter of this year found 68 per cent had at least $1000 saved, while 31 per cent did not and 2 per cent did not know.
Fifteen per cent had no savings at all and 11 per cent had $100,000 or more.
ANZ said just over half of customers had at least $1000 in their account and 21.5 per cent were active savers. Having a “savings buffer” could create a sense of control when an unexpected expense hit.
Kiwibank said more customers were investing in fixed-term deposits, which could offer higher interest rates than savings accounts.
Westpac said some of its customers were doing the same if they did not need to access the money in the short term.
Stats NZ estimated household savings rose in the June quarter, as did disposable incomes — and spending.
‘Savings allow me to do things’
Tam Hallett lives on Stewart Island/Rakiura.
Tam Hallett lives on Stewart Island/Rakiura and had a weekly automatic payment of $100 going into a savings account. Her carer benefit for looking after her 88-year-old mum was $450 per week.
“The last year has financially been difficult but the savings allow me to do things like that.”
She put $15 into an account for her dog instead of pet insurance, baked bread, made yoghurt, made most food from scratch and used the op shop.
Some pensioners ‘really struggling’
Age Concern Rotorua manager Rory O’Rourke said not all members had savings and emergency funds.
“It depends on how good you are saving when you’re younger so you’ve got to really look to the future.”
Retirees who did not own a home were vulnerable as market rent could cost their entire pension.
“We are finding those that are really struggling don’t come out a lot. They generally stay at home and they become very lonely. Loneliness is probably one of the biggest killers of older people in New Zealand and it’s an unrecognisable disease.”
It took Denise and Vinnie Anglesey, of Wellington, seven years to pay off all their debt, including the mortgage, using the FIRE method: Financial Freedom, Retire Early.
They now had a $25,000 emergency fund and more than $200,000 in investments.
“It took a huge shift in lifestyle but we still lived well.”
“I realise that inflation has gotten in the way a bit but to do this is still possible. It’s never too late to start”.
The couple run the Project Frugal Facebook page and are also on YouTube and Instagram.
Carmen Hall is a news director for the Bay of Plenty Times and Rotorua Daily Post, covering business and general news. She has been a Voyager Media Awards winner and a journalist for 25 years.
