"High-interest debt brings risk, makes us spend more than we ever intended and stretches us financially to the brink.
"It can be crippling."
Tom Hartmann, personal finance lead, Commission for Financial Capability.
Money. It's the driving factor behind many life choices, but is it the be-all and end-all?
'Me and My Money' is a regular feature that investigates Kiwi attitudes towards money and what drives the choices they make.
The Commission for Financial Capability is behind Sorted - a website that provides tools and information to help Kiwis make good money decisions.
Personal finance lead Tom Hartmann spoke to Newshub about how COVID-19 is shaping money decisions, how he learnt to manage money in his younger days and the perils of high-interest debt.
He admits to spending money on sports kit - but that’s only after he's paid himself (and the bills) first!
1. Are you a saver or a spender?
Without a spending plan, I'd be buying all sorts of high-tech gadgets for myself and the kids (I coach baseball, for instance)!
But I'm also a saver...I simply love the idea of buying a bit of kit and using it for decades, then handing it down to the next generation. That way, I can funnel money towards the long-term too.
2. Share a personal or business goal for 2021
This year moneywise, my aim is to focus on the saving and investing that matters. Whether it’s reducing debt or investing more, whatever pushes the needle and gets us most ahead.
3. How has COVID-19 influenced your attitude towards money?
Once again, it really brought home how everything can change overnight and how we need the financial flexibility to stay agile and be ready for everything.
Safety nets, buffers and emergency funds help, as does our social 'wealth' - those valuable relationships that we count on when times get tough. We’re probably much more wealthy than we realise in this regard.
4. What has been your biggest financial lesson, success or failure?
Growing up, I found it relatively easy to make money.
From a young age, I started mowing lawns and house painting. I’d make a heap, spend a heap, rinse and repeat.
The concept of growing for the long term was like science fiction to me. Nowadays I make sure that as much as possible (hopefully more and more) is growing for the future, constantly in the background. I try to give my kids that experience too.
5. What’s the main benefit of writing and sticking to a budget?
Fundamentally, a budget is a plan for our spending.
It's a plan that keeps us focused and on track for what we’d like to achieve in life (and if we don’t have our own plans, someone else surely will). Just think of all those marketers out there!
Once we make the plan though, it’s worthless if we can’t track it. It has to be workable and it needs to work for us and our situation. The only way to tell is to follow the money closely.
6. Is there a common pitfall that stops people getting ahead?
High-interest debt comes to mind - especially the kind that could've been avoided.
Many times there are easier and better alternatives out there, such as no or low-interest loans.
Debt brings risk, makes us spend more than we ever intended and stretches us financially to the brink. It can be crippling.
This can be a disaster, especially when the unexpected happens. The remedy is to start with a safety net of $1000, then eventually build a more robust emergency fund, all of which strengthens our resilience.
7. Give an example of a recent purchase that you consider was great value for money?
My KiwiSaver fund.
Each of us needs to make an active choice of which fund to be in, make sure it’s the right type (defensive, conservative, balanced, growth or aggressive). We also need to carefully compare how much these cost and make a call on whether we’re getting value for money.
Since hundreds of dollars in fees are deducted behind the scenes (we don’t get a bill or invoice to pay), over the years they can make thousands of dollars difference to our results.
I've been pleased with mine: it’s not the overall cheapest out there, but it’s close. And the results have been top notch (after those fees have been deducted).
8. What was your last impulse or ‘fritter’ purchase and how did you feel about it afterwards?
Keeping with the baseball theme, I bought a machine that pitches golf wiffle balls for the kids (and me) to improve our hitting. Too much fun!
But surely, spending to shoot pieces of plastic through the air can’t be anything but an impulse buy, right?
At first I was worried it was a dud because it had a fault and didn’t work properly. But it has since turned out brilliantly - the kids love it. And our hitting has improved markedly.
9. Does having more money increase happiness?
Since money can bring more stress, not necessarily. More money, more problems!
But on the flipside, a lack of money has been shown to negatively impact our wellbeing.
In the end, money gives us options - choices that can lift our wellbeing and those around us.
But it’s up to us to make those choices happen.
10. The best money advice someone's ever given you?
It’s the same advice we pass along on sorted.org.nz: pay yourself first and make it as automatic as possible.
Each time money comes in, instead of paying all your bills and everyone else in your life before you squirrel some away, make sure you direct a part towards what you want to achieve in life. The larger that part is, the sooner you can reach your goals.
Without this, I would have a lot less saved and invested. If I'd waited to save only what was left over, there certainly wouldn’t have been much for the future.
The views expressed in this article are general and are not personal financial advice.