Pay yourself first! The general rule is 10% of everything that comes into your bank account should be saved. There are lots of ways to do this without thinking. Enrolling in KiwiSaver is the best. The benefit to employees is that their employer also makes a contribution so it’s free money. Select the type of fund that best suits your time to retirement. The general rule is the closer you are to 65, the more conservative the investment fund. The minimum payment should be enough to obtain a dollar for dollar contribution from your employer. If you are debt free, increase the contribution to the maximum.

Get out of debt quickly! Set debt repayments at the maximum you can afford. Reducing mortgage interest is the best tax-free and risk-free investment you can make. Even fixed rate mortgages usually allow some increase in repayments without incurring break fees.

Lyn from Hamilton has a mortgage tip – she recommends making mortgage repayments every four weeks instead of every calendar month. This increases the annual repayments from 12 to 13 a year, dramatically cutting both the term of the mortgage and the total repaid over the term of the loan.

Buy nothing! We have previously written about having a buy nothing year. The essence of the story is that you buy nothing but the bare essentials (like ice cream and potato crisps – just kidding!) for a whole year, and put away the savings into debt repayment. The essentials include food, mortgage payments, power, telephone and the internet, life insurance, basic toiletries, and washing powder. Going out to the movies is off-limits, as is going to the pub, buying takeaways, restaurant meals, new clothes, holidays, gym memberships, lollies or choc’ bars. It sounds like hardship, but to many frugal folk it means there is more time for family, hobbies, gardening, or doing good in the community. It’s a great way to kick-start some serious saving or revive the financial health of those who are heavily indebted. For those who think a year is too much like hardship, then try it for a month, then two, and so on.

Don’t gamble! Did you know that the average payout on a $1 investment in Lotto is 53 cents! Not only is that not smart, it’s downright dumb when the spending is by those who can least afford it.

Needs before wants! Happily Retired from Rotorua writes, “Don’t buy it if you haven’t got the money saved. Then ask yourself if it is a want or a need? If a purchase can be delayed, then keep an eye out for sales – you may pick it up at a bargain price by waiting.”

Who’s the money waster? All of your best frugal efforts may come to nothing if your other half in the household is a spender. If that’s the case, then you may need to take control of their finances to save the household’s finances! One reader says they did this by setting up a bank account and transferring across a weekly allowance.

A reader from Oamaru writes, “When my hubby and I were on a tight budget, we came up with the idea that we would not spend over a certain amount without receiving the other person’s approval first. We usually gave permission when asked by the other, but it gave us time to think if we really needed the item before getting it…a sanity check. We saved a lot of money in this way.”

Pay bills on time! Don’t get behind on your power and telephone to avoid disconnection and re-connection charges, and if there’s a discount for early repayment then take advantage of it.

Cash not credit! Avoid all consumer debt. If you don’t have the cash, you can’t buy it.

If you really want to accumulate significant wealth, there are actually three areas to focus on: making money (getting a good job, work more than one job or start a business), saving it (putting savings ahead of spending), and investing wisely (like buying bricks and mortar rather than Lotto tickets).

We think expressing home ownership in terms of coffees is a bit silly and misses the point. The issue is really pretty simple. Having enough money to afford a house is all about saving. A fraction of every dollar that passes through your pocket or purse needs to be saved – it’s as simple as that. It’s that fraction which, with the power of compounding, will grow into a significant sum, and it’s surprising how quickly.

How big that fraction should be will depend on lots of things: like how quickly you want to accumulate savings, how much you need or want to save, your income, and how much you are prepared to not spend today. Once you have figured out what percentage of your income you want to save, then all you need to do is set up an automatic payment from your wages/salary or from your bank account into a savings account. It’s the simplest plan in the world.

Here’s a tale of two families, the Spenders and the Savers. The Spender household has an annual income significantly more than $100,000. After 20 years of work they have a large mortgage, very little equity in their home, and not much in the way of savings. The Saver household has only about half the income of the Spenders, but they have just paid off their mortgage and can now look forward to another 20 years of accelerated savings.

Quite simply, the Savers have out-saved the Spenders, despite having only half the income. The funny thing is the Savers still enjoy a cup of coffee every day and an annual holiday with the kids. It’s just that they know a dollar saved is a dollar they will not have to find in the future.

Warehouse Visa has no cost & earns ‘Purple’ dollars to spend.

- Warehouse Visa has no cost & earns “Purple” dollars to spend.

Unfortunately not all people are in control of their finances, which makes them vulnerable to lenders of last resort. Falling into that category, are what are known as ‘payday’ loans. These are short-term unsecured loans of small amounts intended to get the borrower through to the next payday. They generally have a maximum term of a month or two.

Every lender has different terms, but they all have one thing in common – outrageously high-interest rates – more than 300% per annum is not unusual!

Here are some interesting facts about the payday loan industry – as told to us by someone on the ‘inside’.

Their average short-term loan amount is around $300. The average repayment term is just less than one month, and the average interest and charges revenue earned in that month is $100. So if we assume the $300 is lent 12 times during the year, the lender will make about $1,000, which is a return of 333% on their money. From what we have seen there’s nothing illegal about what these lenders do. They don’t even lurk in the shadows as consumer protection laws require them to be upfront and open about the terms.

About a third of their income comes from administration fees, the rest from interest charged. Most of this lending (85%) is done online, and it’s not unusual for one lender to be operating under a number of brands each with their own website.

Our insider said they have two types of customers: Blue collar families needing to pay unexpected expenses such as large phone bills, power bills, medical costs, travel expenses, etc; and white collar, high income, big spending families, with no savings, and big debts.

While this all sounds innocuous enough, the simple reality is that the borrowers are desperate, and have not been able to source money from elsewhere because of a bad credit record, maxed out credit cards, and the like.

Many of the lenders say their loans are a way for borrowers to “take control of their finances”. But borrowing money at +300% interest rates is NOT taking control of your finances! It’s actually digging a bigger hole and creating financial poverty.

Living off the smell of an oily rag is how people can take control of their finances.

Here are some money lessons to keep in mind.

• Seek budgeting advice if your finances are chaotic.

• Always have a nest-egg of savings available to meet unexpected costs.

• Don’t get a bad credit record – it will reduce your chances of obtaining credit from conventional lenders.

• A reader from Oamaru writes, “When my hubby and I were on a tight budget, we came up with the idea that we would not spend over $29 without receiving the other person’s approval first. We usually gave permission when asked by the other, but it gave us time to think if we really needed the item before getting it…a sanity check. We saved a lot of money in this way.”

• Pay bills on time and if there is a discount for early repayment then take advantage of it. Don’t get behind on your power and telephone to avoid disconnection and re-connection charges.

• Make every dollar stretch as far as possible to extract its maximum value. Examples include buying a near new second hand vehicle instead of a new one, saving on vehicle running costs by buying a small car instead of a gas guzzler, buying an energy efficient appliance, buying house branded groceries instead of branded products, having lemon flavoured water available for the kids instead of buying fizzy drinks, taking a cut lunch to work instead of spending up large on donuts at a lunch bar.

• Repay debt as quickly as you can, and repay as much as you can. Here are some ways to get on the debt repayments accelerator:

• Use windfall gains to make lump sum repayments (e.g. an inheritance, the sale of a second vehicle, an unused boat or caravan, etc).

• Have a coin tin. If you are collecting coins at a rate of $20 a month, use this to increase the repayments.

• Hold an annual garage sale. Use the proceeds for a lump sum mortgage repayment.

• Take on a second job or a money-making venture and use all of the extra income for debt repayment – call it your “debt free job”.

• Negotiate a lower interest rate and use the interest savings to increase the capital repayments.

The story went something like this. The Londoner saved NZ$39,000 in 12 months by buying nothing but the bare essentials.  In 2013 she and her husband took on a hefty mortgage. Money was tight so she reviewed their spending and was shocked to see how much they had frittered away on things like café meals and other incidentals.

She was inspired by the ‘Buy Nothing Day’ (BND) protest against consumerism, and decided to make it a year rather than a day. (As a matter of interest, the BND idea started in Canada in 1992 and has now spread worldwide, including to New Zealand.)

Like most people, she had never kept tabs on where their money was going: “A full year of no spending seemed the only way of resetting my relationship with money completely.”

The essentials included: food, mortgage payments, power, telephone and the internet, life insurance, charity donations, basic toiletries (toothpaste, deodorant, soap and shampoo), and washing powder.

There was no budget for luxuries, nothing for transport (it was London so they cycled everywhere), no going out to the movies, no nights in the pub, no takeaways or restaurant meals, no new clothes, no holidays, no gym memberships, no lollies and choc’ bars, not even potato chips!

She said the first couple of months were the hardest but, “After a year of no spending I realised that I valued financial security over material possessions: I don’t want to be forced to stay on the treadmill of work just to pay off a home loan for the next two decades or accumulate more stuff”.

The money saved was used to reduce the mortgage.

The key points are:

• Though frugality she gained a new lease of life – which we would described as a sense of empowerment that comes from being in control of your finances.
• If you want to change wasteful spending habits you need to take decisive action. Half measures will not work.
• A heck of a lot of what people spend goes on stuff that makes absolutely no lasting difference to our wellbeing. Many purchases are simply a matter of habit – or the result of being influenced by what others do, or want us to do (like spend money on their stuff).

We like the idea of ‘Buy Nothing Day’. Our criticism is that it is intended as a protest action, when its real benefit is delivering a message that people waste a lot of money on stuff they don’t really need. Going without for one day is a shallow sort of protest given anyway, given the person is accepting consumerism for the other 364 days of the year, and nor will one day change bad spending habits. A year sounds about right, but a lifetime of frugality is even better.

For those who love a challenge, a ‘Buy Nothing Year’ may be for you!

And finally, for those lucky oil raggers who are at the beach catching fresh fishing, here are a couple of quick and easy recipes sent in by BJ of Northland.

Marinated fish salad (raw fish). “Mix together 1 kg of fish fillets cut into bite-sized pieces, 1 cup white vinegar, 2 cups water, 7 heaped teaspoons sugar, 1 teaspoon salt, 1 cup fresh lemon juice, and 1 finely sliced onion. Refrigerate for at least 12 hours before serving with salad greens and fresh bread rolls.”

Or try this quick cheese-topped fish dish. “Place 450g of fresh fish fillets in a buttered dish and grill for a couple of minutes. In a saucepan melt 1 tablespoon butter, add 2 tablespoons grated onion, and cook for a few minutes, then add 2 tablespoons grated cheese. Mix into a paste and spread over the uncooked side of fish. Place under a grill until brown.

According to media reports Kiwis are losing up to $10 million a year because gift cards have expired. So it’s good to hear that Countdown, Kathmandu and Noel Leeming are going to scrap expiry dates entirely. We think all companies should do likewise, including Palmers. If there is an expiry, we think there is a legal case for it to be six years, which is the timeframe referred to in the Limitations Act 2010. No doubt there will be much more on this matter in the future. Some firms say they have been honouring expired cards anyway. Unfortunately that was not the case for the oily rag reader from Whangarei.

If you have had a good or bad gift card experience, let us know and we will share it around the oily rag community.