Family saves itself from financial ruin

Brian and Rachelle Semmens took control of their finances. Photo / Michael Craig

Three years ago, 38-year-old Brian Semmens never thought about the future, living in apprehension of anything happening that might push his strained finances to breaking point.

But since radically transforming their finances, he and wife Rachelle have big plans for their family's prospects.

The Palmerston North family, with an income level well above average, lived in a cheap rental, had no assets and were deeply in debt. Their expenditure exceeded their earnings to the tune of $230 a week.

Now, after working with a financial adviser, they have bought a home with a substantial cash deposit, have savings left over, other assets and even their children's approach to money has changed.

In July 2006, there never seemed to be enough dollars coming in. As well as holding down a top job as a production manager for a factory owned by a multimillion-dollar company, Brian had taken a second job at night, stacking shelves to make ends meet.

Rachelle is an office administrator and juggles working part-time with caring for the couple's four children. Having finished repaying the student loan he'd taken out to fund the technology degree he gained through Massey University, Brian expected to start getting ahead - but it wasn't happening.

"We just thought, there must be another way," says Brian.

His sister referred the couple to local financial adviser Kathy Jarrett. Their combined income then was about $90,000, and they paid only $180 a week rent. Their rent has stayed the same for three years, while their combined income rose slightly to around $92,500 in 2007, and is now just under $97,000.

On the face of it the Semmens could have expected to be financially ahead of the average Kiwi household, whose annual income is just shy of $68,000, according to the Department of Statistics.

But when they first sought help from Jarrett, the couple owed a whopping $29,000 to Pacific Retail Finance - now GE Money - as well as thousands more to the Catholic Education Board, Farmers, The Warehouse and other credit card and overdraft facilities.

Rachelle estimates they were about $40,000 in the red.

The situation the Semmens were in is common. Jarrett says 49 per cent of Kiwis owe more than they own, and the latest figures from credit reporting agency Dunn and Bradstreet show almost half of working New Zealanders could only last up to a month on their savings if they lost their job.

Twenty-eight per cent anticipate a need to use credit to pay for things they otherwise couldn't afford during the September quarter this year. The figures come on the back of unemployment reaching 7 per cent by the end of the year.

Jarrett describes what her clients have achieved as "a complete reversal of their life options", and the Semmens are prepared to share their story to show other struggling families what they did to come out on top in a relatively short time.

They began by working out their total yearly expenditure and creating a budget, and a cash management system using multiple accounts to effectively ringfence their financial plan.

They have a main account into which their incomes are paid, and money is transferred by automatic payments from here to three other accounts - one for fixed expenses like regular bills, an account for discretionary expenditure on things like groceries, and a savings account that can't be easily accessed.

Working out a budget illuminated areas where they could trim costs through simple things like meal planning, Brian says. "When you get into a rut you tend to have a few more takeaways because it seems like the cheaper option; it's quick and easy. We were basically wasting a lot of money, so the Visa, the Farmers card, the Warehouse card - we got rid of all those things.

"Three years ago, anybody could just about have sold us anything," Brian admits.

Now, the couple refer to their budget and see what impact a purchase will have.

Brian says the lifestyle changes weren't hard because there were immediate benefits, such as having cash left over at the end of a month for the first time.

The family have all chipped in to making changes over time since they started on this path. When their first Christmas came, the children nominated just one present they wanted each. To save on fuel costs, Brian instigated a car pool to get to and from work.

A year after engaging Jarrett, the Semmens were not far from clearing all their debt and thought they'd made enough progress to apply for a mortgage to buy their own home. The house they wanted had a $350,000 price tag - around the peak of the property boom in July 2007.

At this point, the couple had saved only a $10,000 deposit, as they were still paying off debt. Their mortgage application was rejected - but ultimately this worked in their favour.

At the end of this month, the family move into a home they like much better than the one they lost out on a year ago - bought for $255,000, thanks to the market undergoing a price correction.

They were able to put down a $25,000 deposit and still have a savings buffer and money in their working accounts.

Now that the Semmens have saved nearly $100,000 of what they were originally prepared to stump up for their own home, they will also have much lower mortgage payments.

A year ago, interest rates were around 9.5 per cent, and the couple would have been looking at fortnightly mortgage payments of $1325. Rates have now fallen to more affordable levels, and the Semmens will pay $680 a fortnight - an annual saving of $16,770 compared with what they would have been paying for the higher-priced property had they jumped into the market earlier.

"It's been one hell of a journey," says Brian. But the family that was once drowning in $40,000 of debt now saves $1200 a month.

Cash savvy

Financial literacy educator Bill James says you don't need a high income to own a home - or to get financial advice. For $10 a month, you can get all the help you want from a local budget adviser.

He developed his financial literacy programme to help low-income earners get out of debt and into their own homes.

But as the tsunami of mortgagee sales sweeping South Auckland's poorer areas shows, many on low incomes need support to maintain good habits if they are to keep their new roofs overhead.

He urges them to get over the stigma of asking for financial advice.

The first step is to stop getting into debt. "If you do nothing else, eventually you will pay off debts and start having extra cash."

Next, build a cash reserve. James teaches a system in which income is paid into a savings account that isn't easily accessed, from which living expenses are withdrawn.

"It changes the way people think about money, so they take what they need, rather than spend everything that's left," James says.

He advises people to split the amount they withdraw into two parts, one for fixed costs such as rent and utilities, and the other for variable spending - food and petrol.