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Save it, spend it or shave it off is a fortnightly listener.co.nz finance column where Kiwis tell us about their relationships with money, and ask investor and entrepreneur Lisa Dudson for her advice on how they can make their money work better. This week, Eliza* wants advice on how to budget and save when she doesn’t have a regular or set income.
After 11 years in a very comfortable living/working situation, I have thrown myself into the world of a freelancer and it’s been a massive shock to the system.
My previous part-time gig included accommodation and I haven’t had to think about rent or bills or money at all for 11 years. This has resulted in me having no habits or particular behaviours around money, as it’s just something I haven’t needed to consider for the past decade.
The last 12 months have been a baptism of fire, as the cost of living is up while spending is down, so it’s certainly not the best time to go out on your own but hey-ho, here we are.
I don’t think I’m a bad spender, but I have very little understanding of exactly where my money’s going. Money goes on gigs/theatre and food at the market. And things like hot pools and yoga.
I’d like advice about how to best manage the boom-bust nature of my income. I get large lump sums and they currently just sit in my savings account, and I drip feed it to my daily account. I don’t budget. I still spend as if I have full financial security. And I’d like to know how to make my money work for me. People say that to me all the time as advice, but I really don’t know how to do that.
Lisa Dudson asks the questions:
Tell us about yourself: I’m 41, an actor-producer and there is no logic to when – or how much – I’m paid. Last financial year was great, coming in at $115k but the year before, it was half that. My business partner and I give ourselves a lump sum every now and again from the shared business account.
What’s your financial situation? I thiiiiink I’m doing okay? I own half a house on the outskirts of Auckland (CV: $680k) with my mum, that’s rented out. The rent covers my mortgage (not huge – I owe the bank $139k) and rates and insurance. At the moment, there’s a demand for what I do, so I’m getting a bit of work but there’s always the risk that it will tail off.
Where do you live – and how much do you pay to live there in rent/mortgage: I rent in Ohinehou/Lyttelton. The cottage is $500pw that I currently split with a housemate, so I pay $250pw + bills. Bills have been a shock to the system: gas $140 a month, power $350 a month (winter bills), split 50/50.
Student loan or other regular debt repayments: Nothing outside of my mortgage that the current tenants look after.
KiwiSaver contributions: Nil since leaving my part time job but there’s $14k in my bank’s KiwiSaver scheme.
Insurance: Pet insurance/house insurance/car insurance: $1172 per year.
Weekly food costs – groceries: This is a bit of a weakness for me. I love to spend money on good ingredients … no expense spared kinda vibe. I spend a good $80 a week at the market, with top up shops of about $30-$50 a week.
Weekly food costs – eating out, takeaways, alcohol: Not a huge one for eating out but can go through phases of socialness…I’d estimate about $50 a week.
Transport costs: About $100 a fortnight on fuel. I fly a bit for work but that comes out of the business account.
Entertainment – including streaming service subscriptions: $627 yearly on subscriptions (Spotify/Netflix), I go out to gigs and the theatre quite a bit…I’d say that works out about $1500 a year.
Health & wellbeing: Damn. Another thing I’m a sucker for. Can’t resist a good supplement or promise of being “healed” (ha-ha). So, I’d say somewhere between $2-$3k on therapy or other various modalities a year.
Clothing and personal grooming: Not a massive spender here but will do a bit of a shop for things when I get a bit of cash flurrying in…maybe $2k a year? If that?
So, how much stress does money and finance cause you? I feel completely clueless about money and about how to create security for myself in the lean times. I’d love to know how to make my money, make money. But not knowing when cash will be coming in next makes me want to keep it where I can reach it easily.
Your parents – good or bad financial role models? Good, I think. But maybe to the point of miserly? Money was always a point of stress growing up – they were a typical hard-working, young creative couple who worked super hard to get a house and keep it (in the 1980s). I think it created a bit of a kickback; I left home and almost immediately got myself into debt.
How old were you when you first started worrying about money? I left New Zealand when I was 19 and quite quickly discovered credit cards and overdrafts…things that my parents warned me against. I found myself in that hideous cycle of debt that took me ages to get out of and I have sworn never again. And I have been largely able to stay out of debt since; not having to pay rent for 11 years helped.
Are you a spender or a saver? I don’t think I’m either. Not a bad spender, not a conscious saver.
Do you have a weakness – the thing you can never walk away from without spending money on? Health supplements and online wellbeing courses, I’m such a sucker.
The advice – how to spend, save, and shave off:
When reading about your situation and challenges, the standout for me was creating far more awareness around your money. This awareness will bring focus to your money and give you the information to make better choices to help you feel more in control of your finances. Some ideas are:
· For one month, track every single dollar and cent that you spend. In a perfect world, doing this for three months would be ideal. It’s an incredibly useful exercise so stick with it if you can. I usually find that what people think they spend their money on and what they in fact do can be two quite different things, so creating this awareness is a very important first step.
· From this exercise you will get a good idea of how much income you need each month to live and pay your bills. Then you can compare it to your income and see what the gap is. You may find that you want to make some different decisions on where you spend your money.
· It’s never easy budgeting when you have a fluctuating income. Ideally, you want to ensure that your bills are less than what you earn in a bad year, rather than what they are in a good year.
· Alternatively, you could do a very conservative monthly average income over 2-3 years and budget on that amount. To make this work, you will need to keep some money in your business account to cover the shortfall in months when your income is lower.
· To make budgeting easier, try to pay yourself a regular monthly income. I think this is the best way to go if you can manage it. It does take a bit of planning.
· Make sure you are putting enough money aside to pay your tax and GST when it’s due. If you can work out a regular consistent monthly payment, then you can pay most of your tax via PAYE on a monthly basis which can be easier to manage than paying the larger lump sums via provisional and terminal payments. Discuss this with your accountant.
· Save towards having a personal emergency/rainy day account equivalent to three to six months of your expenditure. This will give you comfort in case something happens financially and ensure you don’t dip into your business account.
· It doesn’t appear that you have any personal insurances like life, income protection and health. I would recommend doing a review with an insurance adviser so you understand what risks you face, which you want to self-insure and which you want to take out insurance cover for. The key ones for you to consider will be the risk of loss of income and disability.
· Remember your KiwiSaver. Many self-employed people don’t contribute to KiwiSaver but it’s important to keep doing that, even if it’s the minimum of $87 a month to get the maximum government contribution of $521 a year. You might be surprised how much this grows over time.
· Develop some financial goals. Keep them simple to start as you want them to be achievable. It’s often not easy to stay on the path so having some goals will help you stay focused.
Lots of people feel that their lack of financial education holds them back. However, it’s often not as hard as you think. The strength in your financial plan is having awareness, creating good financial habits and having a gap between what you earn and what you spend.
Everything else is built on these strong foundations. When you have built up your emergency funds and have surplus funds, you can start making decisions about saving for the long term, paying down your mortgage faster, putting more into KiwiSaver or starting some investments. At that point, you may want to seek some professional advice.
*Name changed to protect identity.
