Sometimes other people's economic realities can be quite illuminating
I live in a different economic reality." I sat up and listened when a member of an organisation I belong to made this comment.
We'd been discussing whether to send a delegate to the national conference in Wellington, which would cost $500.
When "Mike" (I've changed his name) made
this comment, I'd been dwelling on the $154-a-night hotel room.
Last time I'd visited the capital I'd paid just $69 at the smartly renovated and, frankly, very comfortable Comfort Hotel in Cuba St.
Mike's comment brought perspective to the debate.
Much as the organisation would like to send a delegate, it wasn't essential and the money may have been better spent on marketing and promotion.
It also reminded me of a discussion recently with a mortgage broker about newly immigrated Indian clients who really did live in a different economic reality and could easily pay a mortgage - even though their "numbers" didn't align with the bank's requirements.
I'm sometimes shocked at other people's economic realities. Many are in "la la land", says financial planner and author Lisa Dudson.
The "problem" was worse a few years back. Yet even now Dudson has people walk through her door who have no clue about their economic reality.
"I met on individual last week who thought his debt was $25,000, and when he added it up it was $47,000," says Dudson. '
'That is quite common."
The other disconnect with reality that Dudson sees regularly is the individual or couple at retirement, who have their houses paid off, and $100,000 in savings, but have no idea how much income their savings will produce.
"That is only going to give you $5000 a year."
People do have very different realities. Even neighbours in expensive suburbs. Some are living off family trusts while others need to budget down to the last cent.
From where I sit those who don't need to count their pennies often have virtually no understanding or empathy for those who have to budget to pay school fees, save for retirement, or put money aside for contingencies.
An example of that lack of understanding of people's economic realities arose in my backyard when one local resident whinged to me about another home owner doing renovations on weekends.
The complainant was somewhat put out by the DIY noise that was disturbing his peace.
Why couldn't the work be done from Monday to Friday in business hours by a builder, he seemed to be suggesting.
Not everyone's economic reality is that they can afford $200,000 renovations or even extend their mortgage by that much.
For my part I admire the neighbour that appears to work a 40-60 hour week in his day job and tops that off with weekend after weekend of DIY.
He's increasing the value of his property in a way that fits his economic reality, which I applaud.
I'm probably the most affected by proximity to this property and simply accept any occasional noise as part of life.
You don't, after all, live in a suburb like Devonport if you don't like living cheek by jowl with your neighbours and their noises. The guy's not exactly playing drums or practising his electric guitar in the garage.
I couldn't leave Mike's "different economic reality" comment alone. It stuck in my mind. So I phoned the fellow to find out more.
In part through choice Mike earns significantly less than many of those living around him.
Despite his meagre income, Mike owns a decent-sized residential property and is making inroads into the mortgage.
The house was a bit of a spur of the moment purchase.
He was renting the property and had fallen in love with the outlook over the harbour when at 7am one Saturday morning a real estate agent turned up on the back door step with potential buyers. It was the first he knew that the property was on the market, and he did something about it by promptly buying it.
The purchase changed his economic world, but also opened doors.
The house has two kitchens and he rents out the front half to tenants who more or less pay the mortgage, and lives in the back half with its million-dollar harbour views.
Ultimately he hopes to rent the property out for a few years and hit the road travelling. In the meantime his economic priority is paying the mortgage down. So much so he has even considered living in a caravan on the back lawn and getting tenants in the other half of the house to speed the process.
I have a mantra - "do I really need it" - which I often say to myself whether I'm spending, $3 or $300. Much as I can afford it this mantra stops me buying the flat-screen TV I'd love to own. At least until my existing one pops its clogs.
Mike, it turns out, has the equivalent. But in his case it's a "beer scale". "In a bar or a restaurant you can pay $7.50 for a beer, but on special at the supermarket you can get a whole six-pack for that."
He also keeps the relative importance of things he spends money on in perspective. "I have a scale of what's important to me and my [economic] priority at the moment is this house," he says.
He rarely buys anything new, preferring to use any extra money to knock the mortgage on the head. When he does need to buy something he applies the beer scale to the thinking process.
He keeps lists of things he would like to buy and waits for them to come up at a reasonable rate. Sometimes things drop off the radar and never get bought thanks to the delayed gratification.
And when it comes to beer, he will often have one before heading out, and will only every buy one at inflated bar prices. It is all that stuff that adds up.
Put some people in Mike's economic reality and they'd feel depressed. Not him. "I feel very privileged to live the lifestyle I do," he says. "Living frugally enables me to have a fun life."
Mike has several passions. One is windsurfing and he takes pride in the fact he can do it faster than the guys on really expensive boards - although his gear is still pretty valuable.
He can afford the equipment by "skimping on all the small stuff you don't really need".
He has all the gear he needs to enjoy his pastime - even though it may not be all he wants. The difference with Mike from many people is that he can draw a line between the two.
Most people reading this column will have a lot more to rub together than Mike and may be aghast at his reliance on the residential property market to fund his retirement.
The argument I hear often is that all of the Baby Boomers expecting to live off the value of their properties by downgrading when they retire are going to be sadly mistaken because too much property will be flooding on to the market for values to remain at the present level.
For some people this might be true. But I can't imagine Mike needing to stay in the four-bedroom/two-kitchen home he owns.
He could downgrade by a couple of hundred grand easily. I suspect he will have a very comfortable retirement on his terms and live pretty well on New Zealand Superannuation topped up by a few thousand or so a year from his modest property savings.
