KEY POINTS:
As the economy boomed and the good times rolled, spending money was easy and credit was there for the taking.
But financial advisers are dismayed at the number of New Zealanders who have been living beyond their means, forgetting the basics of money management and now paying the price.
Even the well-off have proved to be vulnerable as finance companies - the latest Hanover Finance - hit the skids, potentially taking large chunks of investors' cash with them.
And the younger you are, the more you're likely to struggle with the new need for frugality.
New Zealanders are wealthier on paper than ever before, but we also have more debt. Only the rise in property values has prevented us from collectively sinking into the red.
Statistics from the Reserve Bank paint a rosy enough picture of New Zealand households' total net wealth - it increased from $268 billion in 1997 to $614 billion last year.
But a closer look reveals most of that increase comes from the rise in property values, and that household debt nearly tripled to $170 billion. Of that, mortgage lending rose from $53 billion in June 1998 to $159 billion in May this year.
Furthermore, credit card debt rose 7.2 per cent to $5.1 billion at the end of June, with an average interest rate of 20.2 per cent.
The surprise drop in interest rates this week is the first sign that relief is on the way, but financial advisers say many of us will continue to find debt hard to keep up with.
Consistent economic growth over the past decade has meant people have "spent without thinking", said Lisa Dudson, financial adviser at Acumen and author of Winning the Money War.
Rampant consumerism and profit-hungry banks mean we're more likely to accept the unsolicited increase in our credit card limit, or to put a plasma television on hire purchase.
Ms Dudson said many people who once owed a few thousand dollars now owed tens of thousands. It was not just people on lower incomes feeling the pinch, but "right across the board".
The key advice in the present economic climate was to budget.
And she said she wasn't an advocate of debt consolidation loans "unless you're taking a very disciplined and planned approach" to paying it off.
"Essentially what you're doing is moving your debt sideways. A lot of people will consolidate their debt but then just rack it up on their credit card again. You've got to be very careful you're not just shifting the problem."
Jeff Matthews, senior adviser at Spicers Portfolio Management, said some had found there were difficult decisions to be made.
Take the example of a couple in their early 30s, earning $155,000 between them. They owe $360,000 on a $370,000 house, and $40,000 on other debts. They are struggling to pay the mortgage, leaving little room for bills.
The advice? "Sell the house. Save for the next three or four years and you'll have a $40,000 or $50,000 deposit" and probably a more realistically valued house.
People who had found themselves struggling under a mountain of debt had a basic choice; earn more or cut back on spending, Mr Matthews said.
"Give up the gym membership, the holiday to Fiji and your morning latte. Sell one of the cars and take public transport. Just do without."
People in their late 20s and early 30s had never lived through a downturn and were therefore more vulnerable. Those people were more likely to have bought a house with no money down, and while they probably had two good incomes, they were essentially broke, Mr Matthews said.
"A much greater number of people are living beyond their means. What's masked things in the past is rising house prices.
"People could live a lifestyle they weren't actually earning but they could tap into their increased net worth. Now the cost of debt has gone up, the cost of fuel and other living expenses has gone up.
"What looked to be pretty comfortable before is now uncomfortable."
GOLDEN RULES
* Always pay off the most expensive debt first. If that means consolidating, do it - but be careful you don't keep going with the strategy that got you into that position in the first place.
* Shop around. Seek out the best deals on debt consolidation and credit card balance transfers at lower interest rates. If you have plenty of equity you can consolidate debt into your mortgage at a much lower rate than your personal loan or credit card.
* There is no such thing as a free lunch. Banks are there to make money so always read the fine print and cut back on fees by choosing the account that suits the way you bank.
* If you're investing, diversify. That means a good mix of asset classes, in New Zealand and overseas, to spread the risk.
HOW TO BUDGET
Budgeting website www.whostolemymoney.com has one member who earns $260,000 after tax - proving you don't need to be a low earner to examine your finances.
Founder and chief executive Grace Xue said effective budgeting was becoming necessary for people of all ages and incomes, and the number of people seeking advice was on the increase.
She said the first thing to look at was what you earn in the hand, how much you spend and what you spend it on.
She said it was vital to understand your spending and identify necessary expenses and luxury items.
The second step is to plan. Decide on your goal and establish a spending plan that is achievable, sustainable, and tailored to your needs.
Finally, you need to track. Monitor your progress and if your situation changes, adjust the plan accordingly.
A tracking system might entail pen and paper, a spreadsheet or more automated systems.
How to spend less
1. Convenience costs!
Whether you're buying groceries at a convenience store or using an ATM machine that charges you extra fees, you're almost always paying more than if you had planned ahead.
2. Do your homework.
Especially when it comes to big-ticket items, you can save a lot of money if you know the costs involved and all your options before you buy.
3. Wants vs. needs.
Before you buy, ask yourself, "Do I really need this?" If the answer is yes, consider whether it falls within your budget and how it affects your goals.
Misconceptions
1. Budgeting is for low earners.
Good money management is essential for everyone, even if you earn $260,000.
2. More income = less money stress.
Without effective management, more income = more debt. Kiwis spend 1.5 times more than they earn, according to the Reserve Bank.
3. Budgeting is about buying cheap and eating cabbages.
It's about having a plan that works for you. Shop smart and changing small habits will make a difference. Example: buy a case of drinks from the supermarket and take one to work each day. Put the $30 a month you save into a savings account, and you'll have $1102.15 after five years, or $22,000 after 30 years.
4. Budgeting is hard and time consuming
True previously, but with online systems, effective budgeting is just a few clicks away. It can take less than two minutes to get to know your finances and keep on track.
