Plea for help over those impulse buys

Q. I'm 12 and I really need help to save. Can you please give me some tips because this is my problem: Whenever I'm given money, I usually spend it in one or two days on the thing/s that I want. So if I have $6.50 and I see a magazine that I want, I don't think about it and buy it.

And when I need the money for something else and I go save it in the bank, I feel really sad that I could have bought something with it and I didn't.

I know this happens to a lot of people, but I think I need help. Thanks a lot.

A. They say the first and biggest step in solving a problem is recognising it.

You, at 12, are wonderfully self-aware. Good on you. So what are your next steps?

* Set yourself goals. Find something you can't afford but would really like and save up for it. I'm sure you will be encouraged as you watch your money grow, with the help of interest payments.

* Make sure you are getting the highest possible interest and paying low or no fees.

The banks have a variety of accounts.

The BNZ, for instance, offers a no-fee account for under 19-year-olds that is designed for everyday banking. But interest rates are fairly low, at 1.5 to 2.5 per cent, depending on your balance.

If you're saving regularly and don't need frequent access to your money, you would do better in their Rapid Save account.

It pays at least 4 per cent as long as you make at least one deposit a month and the balance at the end of each month is higher than the month before. If your balance is more than $1000, the interest rate is higher.

It might be best for you and a parent to make an appointment with an adviser at your bank to work out what is best for you.

* If you're saving for a large item, you could get a term deposit. That ties up your money for a certain period - which might be a plus - and often pays higher interest than a savings account.

The BNZ will open a term deposit in a 13-year-old's own name, says spokesman Owen Gill. "If it's a 12-year-old, we will want to see Mum, Dad or a guardian's signing authority."

The minimum term deposit at the BNZ is $2000, but some other banks have a $1000 minimum. For current interest rates, see www.interest.co.nz

* You might find it easier to save if you don't get your sticky fingers on the money!

If you are getting pocket money or other regular pay, see if you can get it directly credited into your bank account.

What else? Maybe it would help to look back at some of your impulse purchases that you later regretted. Perhaps you could take a photo of a pile of them, and place the picture where you see it often.

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Q. I am 24 and my partner is 28. We earn a combined income of $80,000 and are repaying a mortgage of $250,000 on a house worth $295,000 over a 20-year period (the entire mortgage is fixed until the end of this year). We have no other debts and no other assets, apart from a cash reserve of $5000.

Eventually, we would like to travel/make extensions to our house. We are considering setting aside $1 for travel/house extensions for every $1 we repay toward our mortgage, in addition to our current repayments. Is this a wise move? Also, is our cash reserve sufficient? Our car may need replacing in the next few years.

A. Let's look first at repaying your mortgage faster than necessary.

Generally, it's a great idea, except that yours is a fixed-rate loan and there's usually a penalty if you repay it fast.

But wait - there's hope. In these days of rising interest rates, banks are often keen for people to quickly pay off fixed loans, as they can then lend out the money at a higher rate. So they waive the penalty. Ask your lender.

If they won't oblige, ask them to help you to work out whether it would be better for you to put the money aside in a term deposit until your fixed period ends and then use it for repayments, rather than pay the penalty.

What about saving for travel and extensions? If you expect to spend that money within the next few years, it's best to save it in term deposits or high-quality bonds. With investments such as shares or property, there's a chance you will lose money.

The trouble is that good fixed interest investments will earn you less interest, after tax, than the interest you are paying on your mortgage.

You're better off, therefore, putting all your savings into mortgage repayments.

There's one way, though, that you can do both at once. When your fixed term ends, switch some of your mortgage into a revolving credit account.

You put all your income, savings and cash reserve into the account, and that money is credited against your mortgage. With a lower mortgage balance, you pay less interest.

So, in effect, your savings and cash reserve earn whatever the mortgage interest rate is.

Revolving credit accounts are not for everyone, as they make it easy to borrow extra money. But you two sound disciplined enough to handle that.

Finally, how big should your cash reserve be?

As long as you don't go over your upper limit, you can borrow as much as you need in a crisis.

Still, it's a good idea to allocate a growing portion of your savings, within the account, for car replacement. It's much better to buy a car with cash than a loan.

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Q. This is not a question but a bit of free advice for the inexperienced home buyer worried about leaky houses.

If you are looking to purchase a home with exterior plaster walls there is a simple check. Have a look at the bottom of the exterior wall where it meets the ground floor foundation wall. At this point, the wall will recess inwards about 20mm to 25mm and if you run your fingers underneath you will be able to feel the gap.

If you have a mirror, check to see if the gap is clear of plaster. This means any water caught behind the wall can escape. If there is no gap, then proceed with caution.

I wouldn't like to see anybody relying on the presence of a clear gap as a sign that everything is okay. But it makes sense as a good first check.