KEY POINTS:
Budgeting is back in vogue and spending volumes are shrinking as consumers tighten their belts in the wake of the credit squeeze.
Retail spending volumes shrank in the first quarter and ASB data shows spending on big-ticket and housing-related items was generally weak.
Takeaways are being shunned in
favour of cooking at home, says ASB chief economist Nick Tuffley, but this is only one of many ways people are cutting costs to stay out of debt.
"It's become tough out there for people," says Lisa Dudson, director of Acumen financial planning. She said this was prompting people to evaluate their life priorities.
Bruce Sheppard, chairman of the New Zealand Shareholders Association, says credit crunch or booming economy, the only sustainable way to live is to earn a dollar and spend less, putting the bit you save into a prudent investment, and avoid getting into debt at all costs.
"The first place you attack is your consumption expenditure and aim with dedication to only buy what you need, and from the things you need - buy well." says Sheppard.
Budgets are a "biggie" because "most people just don't get where they are", says Dudson. "In the environment we've had for the past few years, it's just been too easy to spend more than you earn."
Spending more than you earn entails eating up savings or enlarging your mortgage, says Dudson.
Implement measures so you can't do that any more. She recommends setting up your financial system so it's impossible to overspend through how you structure your bank accounts - pay yourself cash spending money and get rid of your credit cards or use a debit card.
Westpac's Craig Dowling says banks are aware of the dangers of credit-card misuse and are offering alternatives. The bank's biggest new marketing push in the past year has involved the Visa DebitPlus card, which functions like a credit card but without involving any indebtedness. Instead, it accesses funds in your nominated current account.
The marketing has positioned it as ideal for travel, and for those wanting to avoid debt. It has proved particularly popular with students and older customers as an alternative to a credit card, says Dowling.
Perhaps one reason many people are feeling the pinch at the moment is that they have lost some of basic skills, such as how to cook cheaper cuts of meat or make things themselves, suggests Raewyn Fox, the chief executive of the Federation of Family Budgeting Services.
"We've lost common sense and the ability to run a sustainable society," agrees Sheppard, describing the tightened credit environment as "a great wake-up call".
The first step, he says, is to do a budget, the second is to adhere to it, and thirdly, put the balance in a call account with the bank.
When the call account balance equals two to three months' income - a "safety net for a rainy day" - Sheppard says it's time to think about term deposits, unless you have debt.
In that case, work out which debts are costing you the most in interest and stream your available surplus to killing that debt as fast as possible, and next apply it to lower interest debt, such as your mortgage. This is more important than saving, says Sheppard, including with KiwiSaver.
If you're at the point where you're earning a dollar and spending a dollar, KiwiSaver is a luxury you can't afford, he says. If, however, you're over age 50, you should work out how to afford it, because the yield is "great". But if you're 18 and on the minimum wage, don't bother: "You have to wait too long to get your reward."
However Kevin Peacock, the manager of private financial services at Guardian Trust, says don't lose sight of the long term - even if you have debt, KiwiSaver should form a significant part of anyone's plan for retirement.
The Retirement Commissioner, Diana Crossan, says with the tax cuts delivered by last week's Budget, now is a good time to develop a small but regular savings habit, as this money will add up over time.
Don't flag saving for retirement just because finances are stretched, Dudson agrees, and nor should you dump your insurance policies. "This is the time people often use their insurance policies more because it's the time they get most stressed, and have consequent health issues."
Instead, Dudson advises making small changes to everyday spending habits. Fox says if you analyse what you're spending, problematic areas will be evident - such as buying work lunches daily.
Shop around for better value because there are lots of ways to save money - grow your own vegetables and make your own clothes or shop at op shops, says Dudson.
Her key message is to take your head out of the sand and acknowledge that little things, such as leaving all your appliances on standby, add up.
"Be a smart consumer - avoid expensive brands, cut coupons and look for specials, shop to a list and go to produce markets," she says.
Regularly review your bank and credit-card statements. Dudson refers to a client who discovered was paying for mortgage protection insurance despite having sold their house a year previously.
Focusing on your financial position can also present a timely opportunity to ensure your will is up to date and you have powers of attorney in place, Peacock says - and that any relationship property issues are thought through, particularly if you're looking to accumulate retirement savings.
HOW TO MAKE YOUR MONEY GO FURTHER
* Consider predictable emergencies, such as replacing whiteware, or car repairs, and build these into your budget using a contingency amount.
* Buying food in bulk isn't necessarily cheaper.
* For energy suppliers, check out website consumer.org.nz/ powerswitch to ensure you're on the best deal.
* Save on transport costs - rationalise car trips by planning for the minimum, car pool to work, consider trading down vehicles, or for couples, make do with one vehicle if you can.
* Ensure if you have a family you are receiving all your Government entitlements. If you have a spare bedroom, consider taking in a boarder or student to help make ends meet.
* Consider getting a second job, whether in weekend retail or evening hospitality - even babysitting services.
* Avoid rip-off debt consolidation schemes. Even switching to a low- interest credit card can just be placing a problem to the side.
* Ensure you check your credit records for any errors.
YOUR TIPS NEEDEDAre you a prudent investor? Got a great tip for cutting costs or an excellent idea for saving money? The Herald on Sunday wants to hear from you.
Email andrea.milner@ heraldonsunday.co.nz and please include your contact information.
