If you can stop spending small amounts it adds up over time. Photo / NZME
Financial adviser Lisa Dudson reckons being good with money is all about the little choices.
Rather than there being one big secret, Dudson - who has been a financial adviser for 25 years - says it is the decisions that people make and how they spend $20, $30 and $50 that add up over a lifetime.
“What happens for many of us is our habits make our decisions for us and we don’t have a lot of conscious thought that goes into it - we just go, ‘Oh, we are in a hurry, we have got to organise something for dinner’ - we whip around the supermarket, we buy a bunch of stuff without actually sitting there thinking, ‘Okay, do we need that? What have we got in the fridge?’”
Dudson said there was a lot you could do by paying attention.
“The small things absolutely add up.”
“A lot of people say it’s only $20, only $50 and it’s only this and that but it’s not only.”
Her latest book, Good with Money, focuses on the eight simple steps people can take to get out of debt, grow their savings and live their best life.
It comes at a time when people are battling record-high inflation and soaring debt costs, with mortgage rates rising at the fastest pace in history after being cut to record lows during the Covid pandemic.
“I think the timing is interesting, because boy oh boy, it’s tough out there. You go to the supermarket and it’s $12 for a pumpkin and $7 for an iceberg lettuce. And you just go, holy moly!”
She says the price of food is often a topic of conversation at the moment.
“I guess in a year or two we will come to terms with it, but at the moment we are still in the ‘gasp - did you see how much that was worth at the supermarket?’”
Despite the tough times and high prices of everything, Dudson says people can do a lot of things to cut back and save money or earn more.
What’s the best way to get out of debt and get back on your feet?
Dudson says the first step is not to put your head in the sand.
“You have got to get some courage and be brave and go ‘I need to deal with this’.
“Break it down into simple steps around ‘let’s just tackle one thing at a time’. And it might be as simple as what rubbish have we got around the house - extra clothes - stuff we don’t need that we can put on Trade Me. We did this exercise ourselves recently and made $1000.
“If you could put $1000 on your debt - what sort of difference would that make to you? And not only from the financial side but how would you feel if your debts went down $1000 just by having a tidy up around the house and putting some things on Trade Me?
“Again, it’s the small things.”
But she said the first step was getting your head in the right place.
“One of the challenges we all have is that as human beings we gravitate toward pleasure and away from pain. Is budgeting pleasurable? Well, there’s not many people out there that are going to go, ‘yeah’.”
She said often those who spent a lot of time putting data into a spreadsheet did not change their behaviour.
She said saving money was more about making proactive decisions like making a shopping list and not going to the supermarket when hungry.
“If you can find few ways to cut back $20, $30, $50, $100 here and there then that can all go to your debt.”
Dudson said there were two approaches to tackling debt; the avalanche approach or the snowball option.
“One is a bit more [a case of] start with the higher debt first and the other is start with the small amount first because then you have got three debts left rather than four.”
Dudson said people needed to realise they were not alone when it came to facing debt issues.
“A lot of people do get quite embarrassed about their financial position. But everyone has got challenges. Even wealthier people have got challenges because they have got three kids in private school and they feel like they have got to drive the BMW and so therefore they have got massive car payments.
“You might look there and think they don’t have issues, but you might be surprised.”
Dudson said a lot of people with large mortgages were now struggling because of the rapid rise in interest rates.
“In all the years I have been in this industry, the increase in mortgage payments now is more severe than I have ever seen. It’s a 300 per cent increase. We had 2 - 2.2 per cent interest rates now we are in the 7s.
“You are going to have a lot of middle-wealth people who are struggling because they are going to have pretty big mortgages.”
She said employers were also under pressure, with staff asking for substantial pay rises to keep up with the rate of inflation.
“It’s all very well asking for a pay rise but money doesn’t grow on trees.”
Dudson said employers were having to choose between making some staff redundant or putting their prices up for customers.
“If you are in debt, you have got to get committed to it. You have got to decide that enough is enough and go, ‘right, I am going to make a change on this’.
“What are the things I can do, it doesn’t matter how small it is, to actually move me forward? And I do think you have got to avoid the temptation - which is don’t go hang out in shopping malls when you’re bored.”
She said many changes were just simple things like making your lunch every day for work and limiting takeaways to once a week or less.
“It’s changing the behaviour because we live in a world of convenience. But unfortunately convenience costs.”
Dudson said coping with rising mortgage interest rates was about being proactive.
“I was talking to someone the other day, they have been struggling for a while with it, but they said they have only just cut their Sky bill. And I said: ‘Why didn’t you do that a year ago?’
“We all know that prices are going up, we all know that it’s got tough out there at the moment, we all know that interest rates, if they haven’t gone up for you they are going to go up for you - so don’t wait until it happens, start now going ‘what can we cut back?’”
She said people needed to remind themselves that cutbacks need not be forever.
“This is not forever in terms of it is going to be tough forever, and when I cut Sky this is not forever. When we cut takeaways - let’s just cut it for three months. Or let’s just try it for a month.”
Dudson said in her experience people did get smarter and leaner when they had to.
“The pressure of these crunch times makes you think differently and those new skills and habits that you create often lead to greater things down the track.
“One of the things I say to clients is when you are out buying something you pause; do I really want this, do I really need this, can I get better value somewhere else? And if you just pause you get into the habit of that.”
Dudson said some people had learned a lot from the past few years of being under lockdowns with Covid and how much they could save if they weren’t spending on going out to dinner and travel.
“And then other people have just gone totally head in the sand and gone out with the revenge spending.”
The book contains plenty of case studies from her clients who have learned from making changes to the way they spend.
She said many had changed their situation in just a short period of time after deciding they had had enough of their finances being out of control.
“And that is my experience of being in this industry a long time. Some people, I am shaking my head and thinking, ‘we had this conversation 10 years ago’, and others it’s like, ‘holy moly, look how much you have achieved in a short space of time’. And they have said, ‘yep, we just got to the point where it was too stressful and we decided we needed to make some changes otherwise it was going to be really tough for us down the track’.”
She said those who got their finances on track could pay off their mortgage faster, retire earlier and afford a holiday with their family.
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