As interest rates and inflation rise in the coming year, many Kiwi families will stumble into short-term debt as they struggle to cope with financial stress. The time to look at your unnecessary expenses is now, says financial planner Liz Koh.
Liz Koh Photo: CapturedByFridayPhotography2021-38
Liz Koh is a financial planner specialising in retirement planning. This discussion is of a general nature and does not constitute financial advice.
Looking ahead, and no matter how engaged we are, we're all going to be affected by 2 things in the economic landscape - inflation and rising interest rates, Koh tells Kathryn Ryan.
The best strategy? Budgeting.
With the rising costs of oil, food and home maintenance, almost everyone - particularly people on fixed and low incomes will struggle - will need to look at their budget, Koh says.
"Now is the time to pull those budgets out of the bottom drawer, dust them off and have a good look at them. We've still got a bit of time up our sleeves. We're just in the first stages of this new cycle.'
To start out on a budget, she recommends putting your spending into three categories:
1 - Expenses you can't control - rent, mortgage payments, insurance
2 - Discretionary or 'fun' expenses - eating out, entertainment, clothes, gifts
3 - Necessary expenses which you have control over (mostly food)
"Divvy up your budget in that way and set a limit for what you're going to spend in each area."
Koh recommends people look at Number 2 first - the non-essential - and try and squeeze some savings out of there.
Then look at Number 3 and particularly your food expenses.
"We know that people can save maybe $100 a week by being more careful about what they spend on food."
Rising interest rates will affect not only people who have mortgages, Koh says.
Landlords will want to pass on the increased borrowing costs in rent.
If your mortgage is coming to the end of a fixed term this year, shop around for the best interest rate before it ends.
You can lock in a new mortgage either 30 or 60 days before a fixed-term loan matures, depending on your bank, Koh says.
For people on fixed or low incomes, it may be necessary to investigate part-time job, reduced contributions to KiwiSaver or even a KiwiSaver contribution holiday, she says.
"Do your homework and be prepared for what's coming ahead because it's going to get worse rather than better."
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