We are all susceptible to modern day marketing which encourages a “buy today and don’t worry about tomorrow” culture. When times are tough, we often cut our cloth to suit but as soon as things improve, we spend like there is no tomorrow. This results in many sectors of New Zealand society never moving ahead at all. The idea is to develop good long term financial habits so you still have time and money to enjoy the things you want to, but also wisely put money aside for that inevitable rainy day.
The team at Milestone has compiled this list of perspectives and suggestions to help New Zealanders develop a sustainable approach to their finances:
1. Frugality is not a bad word
There was a time when a person who was frugal was looked on with esteem rather than someone without the means to buy more. Nowadays, many seem to equate frugality with “being mean,” but that could not be further from the truth. Being frugal is simply getting the most out of what you have or purchase, and not purchasing things that you really don't need. The discipline of frugality was most noticeably exhibited in response to World War II, when many items were rationed. Many people continued to practice it even when times eventually got better, which helped them build wealth (for their baby boomer children to subsequently spend!). Learning to be frugal could help a lot of people who do not currently live within their means.
2. Use what you have
We now live in a consumer driven society where, if something breaks, you can go out and buy a new one. If something is not exactly right, you can go and buy something that is. However, it was not that long ago that, when something broke, you would first take a look to see if it could be fixed. If it could not be fixed, you would consider whether it could still be useful for something else before throwing it away. There is no reason to go out and spend money on something new, if you can get the same thing accomplished with the things that you already have.
3. Doing it yourself is the way to go
In a society where we now hire people to do many basic repairs and maintenance, it is important to remember that most repairs are not nearly as difficult as they may appear and that you can do some of it on your own with google, You-tube and patience.
4. Things have more than one use
Many people often make a purchase with a specific purpose in mind and use it exclusively for that intended purpose. However, most things can have multiple uses throughout their useful life. For example, a T-shirt can become a night shirt when the collar gets worn and is no longer suitable for wearing out, and then a painting shirt when it starts to get holes and eventually rags when the holes get too big.
5. Some debt is to be avoided
Rather than incurring high-interest credit card debt, consider making-do with what you already have. Alternatively you could save the required money or borrow it from a friend or family members.
6. Save for rainy days
As many people are now finding out for the first time, rainy days eventually come. Those who have lived through financially hard times are well aware of this, and will put money aside for those rainy days. This is commonly referred to as an “emergency fund” and something that comes in quite handy when your financial plans do not go exactly as you imagined they would.
7. Used can be just as good as new
This concept is not completely foreign to us today. It is common to buy a quality second-hand car. Just because an item has been pre-owned does not make it something to be dismissed as unworthy. This concept does not stop with cars and can be expanded to almost any other area where a second-hand market is available. It is amazing the bargains that can be found on TradeMe.
8. Functional trumps fashion
There was a time when a purchase was not based on aesthetics, but on what it could do. It was much more important to buy something that did what was needed to be done regardless of what it actually looked like. That expensive European watch may look great, but it does not tell time any better than a standard watch bought at a fraction of the price. Learning to buy for function rather than looks is a great way to save money.
9. Bargains are to be sought-after
When it is time to make a purchase, resist going out and getting it the very same day. Take the time to look for a bargain. Make sure you have done your research and wait until the price is right rather than pulling out a credit card and buying it when you may not yet have the money. Bargains take planning and time to find, but when they are found, you know you have got a great deal.
10. Homemade is good
In a society where so much is pre-made and sold for convenience, it may be hard to remember the last time you had a meal made from scratch. Meanwhile, cooking yourself is not only less expensive, but the meal is invariably a lot more delicious (once you have become adept in the kitchen!). Think of it this way; would you ever consider trading in a plate of your grandmother's homemade cookies for any store-bought brand?
While the way that older generations handled money may seem unsophisticated with all the financial tools that are available today, the basics of living within their means, saving for a rainy day, getting an education and investing in their future are values that a lot of people could financially benefit from. It is ironic that these values have been forgotten by the majority over relative good times, yet are exactly what are needed in response to any economic downturn. Please feel free to call us to discuss ways to improve your own financial situation and how to minimise the impact of the current and any future crisis on your portfolio.