Growing numbers of New Zealanders are living pay day-to-pay day and are just one mishap away from financial turmoil.
Bank of New Zealand’s latest Financial Futures Research found only 59% of people had enough money to cover unexpected bills, compared with 70% in February.
One in five New Zealanders have no money at all set aside for emergencies and nearly half have less than $1,000 in their rainy day account, so would struggle if they got toothache and suddenly found they needed a root canal or if their washing machine broke.
One in two Kiwis say they are keen to save more next year and one in three plan to start a rainy day savings fund in the new year. If they’re looking for inspiration, there is one group in particular they can turn to: the over 65s.
Donna Nicolof, BNZ Head of Wealth and Private Bank, says: “It’s reassuring to see that 85% of retirees have money saved for emergencies or unexpected expenses. Compare that with their grandchildren and we found only 56% of 18 to 24-year-olds have a rainy day account.
“Most retirees will have had their share of unplanned bills and unforeseen setbacks during their lives and know how stressful it can be if you aren’t prepared.
“There is so much we can learn from them in terms of budgeting and saving because they have been through good times and bad. Having an emergency fund can provide peace of mind and help people make better decisions when life doesn’t go according to plan.
“All it takes is for your car to fail its WoF and you need a new set of tyres and people without anything set aside can find themselves racking up debt quickly, often on their credit cards. For many, it can take a long time to pay it all off and get themselves back on track because of the higher interest rates that credit cards carry.”
It takes a few simple steps to get an emergency fund started, beginning with knowing where your money is going each month.
“A simple budget will help you see what you are spending and where you can cut back and start to save,” Donna says.
It’s about different choices. “You want to have some money set aside to enable you to make good choices – it means you are able to leave a job where you are unhappy or a bad relationship. You don’t want to feel stuck or trapped.”
It’s smart to pay off any high interest debt first, though fewer than half (48%) in the survey do, then set some goals for saving. As little as $10 savings a week will build up over time and, thanks to the power of compounding interest, will grow to provide a buffer for emergencies.
Saving the equivalent of two bought lunches would give $20 a week. Add in 2% interest, compounded over 20 years, and it amounts to $35,700 – enough to cover a substantial emergency.
“The one thing you can be sure of is that life hardly ever goes to plan. You might have worked out exactly where your money is going each week and feel in control, then your shower springs a leak and the plumber has to be called. You can’t predict these things, but you can be prepared,” Donna says.
“Our research showed that 45% of people want to save more next year and it helps to have a plan for what you are going to do, otherwise it’s like a road trip without GPS: you can end up going nowhere fast.”
Once people have an emergency fund in place they can set their sights on saving for the things they really want, whether that’s upgrading their homes (62%) or travelling the world (48%).