Oily rag: Pennies can look after you

By Frank, Muriel Newman

This week we are looking at frugal money management.

K. Silvester from Morrinsville has a simple tip for those finding it hard to save money. "Try this to end up with $1368 in one year. Week one save $1, week 2 save $2, week 3 save $3 and so on until week 52 you will save $52 and have a grand total of $1368. Here's another hint - all it takes to save $1000 is 1000 $1 coins or 500 $2 coins." There is also a tip for Lotto ticket buyers: "Better $10 in your savings container than $10 lost."

Shirl from Napier has a great tip on how to make the most of low interest rates. "Keep repaying the same amount you were paying before the interest rates dropped. This way you will be paying the difference straight off your principle loan amount. You can save thousands of dollars in interest in the long run."

Interest rates will not remain this low indefinitely and borrowers should work on the "what-if" scenario. What if your mortgage interest rate were to double? How would you cope? It's reason enough to plough as much of your oily rag savings (including interest cost savings) into debt reduction so when interest rate hikes do bite, it won't be so serious.

Erina from Christchurch says, "I keep two coin jars. The first is one which all the family knows about and contributes to. The second jar is more secret and contains mainly $2 coins. This is my Christmas fund. There is already about $100 in this jar. We are a small family and we have a simple, humble Christmas but I do send quite a few cards, so this money will come in handy. By Christmas, there could well be $250 in this special fund."

Tracy has a system for budgeting. "I calculate ALL bills for the year (including car warrants, registration, insurance, rates, power, phone, etc). I then divide the full yearly amount by 52 weeks, and deposit that amount into a bills account. I have all automatic payments and direct debits set up to come out of that bills account, so we always have the money to pay the bills and we know they will be paid on time."

Pay off "dumb debt" first. Credit card debt is dumb debt. According to a survey last year, New Zealanders have $5.25 billion in credit card debt, only one third of which is paid on the due date. The other two thirds ($3.5 billion) costs an average interest rate of 18 per cent or about $630 million a year. That's just madness.

Once that dumb debt is repaid, work on other very dumb debts like hire purchase payments. Unfortunately, these lenders don't easily let go. They may want to have their pound of flesh, even if you pay their debt off early. We know of one couple paying 24.5 per cent interest on their car loan.

The number of businesses that buy assets on HP is staggering and it is no wonder they get into financial strife. The other major sin most businesses commit is having Big Fat Lazy Costs. These contribute nothing to the success of the business. The business would be far better off without them so the saving can go straight to the bottom line, where it really matters.

Have you got any Big Fat Lazy Costs sitting on your couch at home?

Are there costs that actually contribute little or no benefit to the household? If so, cut them and use that money where it will make a difference - like debt repayment!

Frank and Muriel Newman are the authors of Living Off the Smell of an Oily Rag in NZ. Readers can submit their oily rag tips online at www.oilyrag.co.nz.

- Hamilton News

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