Diana Clement is a freelance journalist who has written a column for the Herald since 2004. Before that, she was personal finance editor for the Sunday Business (now The Business) newspaper in London.
When it comes to getting ahead with your finances, is it better to earn more or spend less? My answer to that is: why do just one?
Back in the 2000s and 2010s, the message not to eat and drink in cafes was big in financial education circles. Theidea was that you could save $5 or $10 a day by making your own lunch or coffee at home or work, and that would add up over time. It’s not a message people want to hear now.
The reaction when the latte question arose on a colleague’s X (formerly Twitter) feed was “hands off my latte”. People are sick of hearing they can’t have their pleasures. The argument was that it is way more important to concentrate on earning more and live life. I’m a great fan of focusing on pay rises.
Even so, I sit in the “and/and” camp. If you want to improve your financial circumstances, it’s a matter of making a variety of changes within your abilities and financial situation.
The phrase “and/and” has come to mind a lot this year, thanks to an article I wrote for the Listener about building waste, which makes up more than 50 per cent of what goes into our landfills. When I asked one of the experts what the point of banning plastic bags in retail was, when they’re dwarfed by building waste, the answer was that the climate threat had progressed to the point where it was an “and/and”.
Back to personal finance, and the answer to a better financial situation is ‘and/and/and’. It’s a matter of doing a bit of everything. Earning more, spending less, budgeting, paying down debt and investing small sums regularly and so on.
Improving your financial circumstances is a matter of making a variety of changes within your abilities and financial situation. Photo / Getty Images
How much emphasis you place on each “and” depends on your own personal situation.
Simply spending less isn’t going to get a lot of people over the line when it comes to buying a house. But some will need to curtail spending to get there.
While mulling the X post over, I was chatting with a 29-year-old who grew up in a rented property and is firmly focused on becoming the first member of his family to buy a home. He wouldn’t even consider buying coffees or lunches, or a whole bunch of other “stuff”. His spending conundrum for the week had been forcing himself to buy a $3 tube of toothpaste, despite not wanting to part with the money.
Working in an industry where a pay rise isn’t likely currently, he makes extra money with a hairdressing side hustle, which he does over weekends and even at the beach while on holiday.
For mere mortals who do like to spend, the essential tool for “and/and” is a budget. It allows you to prioritise your spending however you choose. If you’d rather not live without lattes, holidays, new phones, mag wheels or whatever, it’s fine within a budget.
Personally, I’d forgo the wine before the coffee, and consider toothpaste essential, although baking soda is cheaper. But we’re all different.
Spending cuts should be made from the unsatisfying spending first. Once you have your must-haves prioritised, take any other non-essentials and make a list in order of least satisfying to most satisfying, to see where cuts can be made.
Asking for a pay rise or swapping jobs or careers to earn more are very good ideas indeed, though some people get those pay rises more easily than others. If there’s a deficit for basic living costs such as rent/mortgage, food, transport and other essential costs, then any pay rise is going to make a huge difference.
Beyond that, it’s worth remembering that there’s a nasty little truism in personal finance. Pay rises are nearly always followed by lifestyle inflation, which is why even some people earning well over the median wage can end up in debt. If that’s you, then you’ll need to combine the pay rise with a few more “and/ands”.
Investing is also part of the “and/and”. Even if there is only small change to do it with at the beginning, it’s worth getting started. The education value of KiwiSaver or a few share investments is huge. Successful investing varies hugely for different folks, and other investments such as property, crypto, or running your own business work for some.
