This is called spending, or lifestyle, creep. You start your working life at a salary of, say, $40,000. Every time you get an increase your spending creeps up to match. Lifestyle-creep is insidious. As our income rises or costs decrease, former luxuries become necessities. Or we give ourselves treats, which soon become the norm. It might be the new car every year, the trip to Fiji or more smaller things such as pre-packaged or gourmet food.
After all, you deserve all those little extras you buy, don't you? Eating out is one of the big lifestyle-creep categories. The most extreme example of lifestyle-creep is the lottery winner who is bankrupt five years after the win. To creep-proof your budget, go back and study your spending from a few years back.
If you still have bank statements, analyse the numbers and see how your behaviour has changed. It is possible to wind back to simpler (and possibly happier) times.
Putting off saving.
Maybe you're too young, or you think you'll start next year, or when you get the next pay rise, when you get married, or when the student loan is paid off. Living for today has to end somewhere if you actually want to build up some, or more, savings. "Many people are in their-40s or -50s without any money put aside for retirement," says Dennis Kenna, mortgage adviser at Cave Financial.
"NZ Super will not maintain your standard of living." What's more, you're missing out on employer and Government contributions month in and month out, along with the benefit of compounding interest, if you haven't joined KiwiSaver. The way to start saving is to set up automatic deductions, which is why KiwiSaver, paying more than the minimum on your mortgage, or simply starting an automatic payment to a savings account makes sense. Set a savings challenge for the year to make sure you actually do it.
Failing to track your money.
Do you know how much you spent last month? If you don't budget you will never stick to a certain spending limit. What's more, if you don't limit certain categories and track your spending in those areas you'll eat up whatever income comes in.
Falling foul of upgrade disease.
Are you hoping to upgrade your iPhone, your car, your kitchen, or even your entire house? Upgrading the house is probably the worst affliction of upgraditis. Many Kiwis are already living in more house than they can or should afford, but are unhappy with what they have and want to upgrade. That's both renters and home owners.
Believing that the house you live in is an investment.
People have too much of their wealth in their home and not enough in investments, says Liz Koh, financial adviser at Moneymax. "For example, it generally makes better sense to have two $1 million properties, one of which is rented, than one $2 million property," says Koh. "You need to get the right balance between lifestyle assets - home, car, boat and bach at the beach - and investment assets." These aren't "investments" because they don't provide passive income.
Looking at life with a cup half empty.
You complain that others have it easy, or that they earn more than you, or have nicer things. Buddha allegedly said: "Our life is a creation of the mind." When you've got a cup half empty you're a pessimist. Pessimists don't try because it's not worth it. Where the pessimist sees a no-hope situation, the optimist sees an opportunity. People with a cup half empty put a different filter on life. In her Headshrinker's Guide to The Galaxy column, psychologist Jennifer Kunst writes that therapy to help shift your perspective can really pay off.
Thinking it's someone else's fault.
Another candidate for a trip to the shrink is blaming others. "My boss doesn't pay me enough", "the Government doesn't back the workers", "my husband spends too much". As the pit bull of personal finance Larry Winget once wrote: "The list of reasons for not doing very well in your life is actually a very short list. It should contain only your name."
Believing you need everything you buy.
I sound like a broken record on this topic. The failure to understand needs versus wants is probably the worst financial affliction suffered by 21st-century humans in wealthy countries such as ours. Yes, wealthy.
If you know that you cloak wants as needs, or swear black and blue that you don't, then you need to Google "needs versus wants". Koh says many Kiwis believe that happiness comes from having "stuff", whereas research shows it comes from relationships with friends and family, good health, having a purpose in life and having interesting experiences. Getting rid of stuff makes me feel better than buying more. But some of that is a stage of life thing.
Putting it on the mortgage.
Mortgage debt is good debt if it's aimed at building up capital in your home. However, Kiwis seem to have strayed from the traditional notion of repaying the mortgage. Instead, whether it's the car, the bathroom/kitchen/extension, the new carpet, or just paying off the credit card, that portion of the mortgage and the interest payments become consumer debt.
Classifying supermarket spending as essential.
Take a look at the next person's shopping when you're at the supermarket. Chances are that hardly anything on the conveyor belt is essential. I've just come across a book called Rich Habits. It had some sensible advice about the food bill.
Author Thomas Corley has rules of thumb for how much we should be spending on certain budget categories. When it comes to food, it's 15 per cent of your net income.
Interestingly, he says prepared food should be part of your entertainment budget.
He also says we shouldn't spend more than 25 per cent of net income on housing costs including insurance and maintenance, 10 per cent on gifts, 5 per cent on holidays, 5 per cent on car expenses including loan interest payments and 5 per cent on clothing.
Only making minimum mortgage repayments.
Overpaying the mortgage makes huge financial sense.
Even if it's hard to do every month, there are windfalls such as bonuses, tax refunds, Trade Me sales and so on that could be directed into the mortgage.
"An overpayment of $250 per month on a $400,000 loan over 30 years will save you $116,000 in interest payments based on a conservative interest rate of 6 per cent," says Kenna.
"You will also build equity sooner and have more options in life - [for example] an investment property purchase or starting a business."
Not changing.
According to psychcentral.com's Marie Hartwell-Walker, we need to identify the underlying cause of bad habits, deal with the real problem, write it down, get yourself a buddy and remember that it takes at least three months to substitute good behaviour for bad behaviour - and even then there will be slip-ups.
