Tips for healthy finances after lockdowns
COVID-19 related lockdowns have had wildly different impacts on people’s financial security. At one end are people on full salaries who couldn’t spend as much as usual, so their savings got an expected boost. At the other end are people who have lost jobs or businesses, so their savings are gone and debts may have increased. Look through our ABCs list below for suggestions to get your finances in the best shape possible after lockdowns.
A. Trim unnecessary expenses to free up surplus income
No one wants to look back through bank statements and spending but it’s the quickest way to identify unnecessary spending and free up surplus income. Your bank may have tools to help with this, otherwise we suggest printing out the past 3 months statement. Then sit down and highlight expenses that you don’t need any more in pink (e.g. insurance on the car you sold), and optional expenses you could trim in orange (e.g. Netflix or Spotify). From here it’s easy to decide which expenses to stop to free up cash.
B. “Domino” any short-term, expensive debt
It’s hard to make financial headway while struggling with high interest repayments on credit cards, personal loans or other expensive debt. Starting with the highest interest debt first, contact the lender about early repayment options/costs then use any surplus income on paying it down as fast as you can. A garage sale can help get you started and clear up clutter at the same time. Each debt you repay frees up money to line up then “domino” the next one until they’re gone.
C. Ensure you have emergency savings
Having between 1-3 months of “emergency savings” for unexpected expenses really helps to reduce financial stress. It means you will have the money if the washing machine, your car, or a tooth breaks unexpectedly. We recommend setting up regular weekly transfers until you hit your savings target. It also helps if you can’t access this savings account from your debit card, so you won’t get tempted to raid it at the next online sale or trip to the mall!
D. Consider increasing your KiwiSaver contributions
If you’ve ticked the box on the ABCs above, then you are ready for investment to grow your financial strength. Increasing your KiwiSaver contributions is a great option for money that you want to invest for a 1st home deposit or for your retirement income. If you are an employee, just email payroll with your preferred KiwiSaver contribution %. If you are self-employed, you need to set up manual contributions from online banking.
E. Investment outside of KiwiSaver
If you want to retain the flexibility of accessing your investment funds, then investing in managed funds outside of KiwiSaver may be a great option. KiwiSaver providers like Booster and Generate have investment funds outside of KiwiSaver that almost identical to their KiwiSaver funds. In the past we’ve helped refer clients to these providers for investment advice but in early 2022 we plan to offer clients an Investment Advice service for managed funds. Watch this space!