Spend money to save money

In times of financial uncertainty, we are all guilty of making false economies or putting off spending on what we see as non-priority.

We are not the only ones - companies and governments do it. But there is a danger these short-term decisions will cost us more in the long term.

The Wikipedia website defines false economy as: something that is against normal economy and decreases productivity and progress.

Common false economies can range from putting off going to the dentist for another year, to ignoring the notice from your automotive service provider to bring the car in for a check-up.
Every day we make decisions about spending - often short-term ones which will cost us dearly later on.

"Insurance is a key cost which is often shelved when times get tougher," says Lisa Dudson of Acumen Financial Planning. "You find that people always think they will be healthy and the next thing is something happens."

Ian Wallace from Wallace Insurance Brokers says that while a lot of people think life insurance is the only cover you need, he rates income insurance and trauma protection as more important.

"Income insurance is probably the most important product you could have. People tend to pay for tangible items like a car or a house but not for things they can't see," he says.

His catchphrase is, "If they say they can't afford it, that is the very reason they can't afford not to have it."

House maintenance is another casualty of common penny-pinching.

Andy Dye, former television handyman and now a real estate agent for Barfoot & Thompson in Mission Bay, lists guttering, leaking roofs and painting the external walls of houses as jobs people put off for financial reasons.

Landlords tend to leave their investment properties for too long, thinking the tenants will just wreck the place if you make it too nice, says Dye. "People are more relaxed about out-of-sight, out-of-mind until they get the phone call from the tenant."

Looking after your health is another thing people put off, thinking they can't afford the doctor's or dentist's bills. But having regular mammograms once you hit 40 and getting moles checked for skin cancer are hardly optional things.

As one Auckland GP says in frustration: "People seem to think of going to the doctor as optional while going to the hairdresser isn't."

Susanna Stuart, financial adviser at Stuart + Carlyon, says that while she goes to the dentist every year and never has any trouble, her husband goes less regularly and inevitably needs a lot of work done when he does go.

"I never have any fillings. I get my teeth checked every year. It depends on how badly you want to keep your teeth," she says.

Car maintenance is another famously overlooked area when cutting back. Automobile Association technical advice manager Jack Biddle warns that failing to look after your car can lead to trouble.

Delaying recommended servicing can be risky, he says. "For example if your car is due for a cam belt replacement or brake pads need replacing, these items are a must. People have to try to budget for these."

Getting your car serviced can be "stretched out" but in consultation with your regular service provider, says Biddle.

"If you do that, you need to take responsibility for checking the oil and water levels, tyre pressure - things that all tend to be done at the service," he says.

Of course you can't afford to pay for everything you should be doing to keep your house and your health from falling apart.

Financial planners suggest prioritising all the expenses you expect to have over a year.

Stuart says a system of rotation is one way to get all the main expenses ticked during the year.

Says Dudson: "I have always taught goal-setting and short-term goals rather than longer-term ones. Think about all the things you want to do and start small.

"Go step by step. It is about creating a structure in life. If you create systems then it happens."

- HERALD ON SUNDAY