Let's talk about safety nets. That's savings to tide you over a rainy day, or in this case a pandemic. Covid-19 left too many Kiwis unable to cope financially and it has been heart-wrenching hearing the financial disaster stories and seeing the queues at food banks. Never let this happen to you again.
As we slowly return to normality it's time to start thinking about "next time". Financial shocks can strike at any time.
I had the pleasure last week of meeting self-employed makeup and hair artist Darren Meredith, who not so long ago lived pay-cheque to pay-cheque; spending everything he earned. Crashing an uninsured car taught Meredith that he needed to reorient his financial life. It set him on the path of saving an emergency fund that has seen him right through lockdown. It was a heart-warming conversation.
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It would have been a rare small-business owner or self-employed person who imagined a year ago that the government would have stopped their business in its tracks for four weeks of level 4 lockdown. But Meredith was prepared.
The standard rule of thumb is that everyone should have three months of living costs set aside for the day that you find you can't work because of pandemic, unemployment, illness, accident or even taking time off to parent or look after your parents.
This is one of those "just do it" times. Start building up $5 a week if that's all you can afford. It's a matter of looking for what you can do, not what you can't. Maybe have your treat once a week not twice, or once a fortnight. My weekly bottle of wine and two coffees costs $25 to $30.
Spend mindfully. You still want to support local business, but cut out shopping online from overseas, for example. If you can cut out or cut down a bad habit, put half of that money into your savings account.
If you don't know where to start, live like you did in lockdown. Over lockdown many of us spent less on food, petrol and stuff we don't need. The lack of takeaways and restaurant options in lockdown saved many families' budgets. Or take the Back to the Future approach and live more like you did as a student.
You may need to game yourself in some way to start and to keep going. Try living one raise behind. Or tip your savings 10 per cent every time you buy a treat. If you're having a "shall I shan't I" moment about whether to buy something and you choose not to, shunt that money into savings instantly. Start a "change jar" or the virtual equivalent where amounts that don't add are moved over into savings, manually or automatically. When you finish paying something off such as a hire purchase or car loan, keep contributing the same amount of money into your emergency fund.
Insurance does make sense, but should be as well as instead of savings. Income protection policies always have exclusions such as working a certain number of hours a week or not covering probationary periods when you move to new jobs. Most likely more exclusions for pandemics will appear in future.
Just this weekend I was talking to a friend who has gone from full-time employment to part-time contracting and didn't realise she needed to check if she was still covered. Many policies don't cover part-timers. What's more many income protection policies only cover for illness or accident, not redundancy. Money in the bank is generally a safer bet if you can build it up over time.
Finally, never waste a good crisis. We've all had time to think and many of us have changed behaviour – in my case upping my exercise routine considerably. Hopefully, Covid will be that wakeup call for a generation of Kiwis to start saving and take control.