Media Release 23 May 2008

Now is the right time to get Sorted

Budget week is a good time for New Zealanders to consider their own personal finances.

“While some people say they will have to spend any extra on the increasing costs of power, petrol and food bills, for others it will mean more disposable income.

“Regardless of which category people are in, now is the right time to take a look at your finances.” said Retirement Commissioner Diana Crossan.

Ms Crossan said there are five very simple things to consider:

• Understand what your financial position is – how much you own and how much you owe

• Create a budget

• Borrow only what you really need

• Pay off debt

• Consider a savings goal.

“No matter what your financial position, our aim is to see everybody manage their money well, said Ms Crossan.

“In this economic climate it makes sense to learn how to manage personal and household incomes. Sorted’s easy-to-understand information can help anyone get a better handle on their own financial situation.”

The Retirement Commission’s website sorted.org.nz is a trusted source of independent, authoritative financial information. Alternatively, people can call freephone 0800 SORT MONEY (767866) to talk to a trained budget adviser.

What you could do with an extra $16 a week:

Pay off your credit card

Paying an extra $16 a week above the minimum repayment onto your credit card will wipe out a $2,000 debt in 18 months. More importantly, you will stop paying interest at 21% per annum sooner. (21% is the current average credit card interest rate.)

Pay off your mortgage faster

An extra $16 a week onto an average 25 year mortgage of $250,000, where the interest rate is 9.25%, will save you $36,000 in interest and shorten your mortgage by 2 years and 9 months.

Save it

Putting away $16 a week will quickly create a nice nest egg. A savings account, with compounding interest at 2.5% (after tax and above inflation), will give you $840 after one year, $2,500 after three years and $4,400 after five years.

KiwiSaver – is it right for you?

If you put $20 per week into a KiwiSaver account (or $1,040 per year) the government will give you another $1,040 each year, plus $1,000 to kick off your retirement savings (plus $40 per year as a fee subsidy).

• A 30 year old could save over $117,000 by 65 years of age at this rate. If you’re employed, earning $45,000 per year, you’d have to contribute more than $20 each week (minimum 4% is $35 per week) but your employer will have to put in money also meaning you could save over $285,000 by 65 years of age.

Spend it right away

$16 will help towards the grocery bill or other regular household expenses …

See attached ‘Ten steps to getting Sorted’.

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MANAGE YOUR MONEY – TEN TIPS FROM
sorted.org.nz


• Know your net worth (the difference between what you own and what you owe) and set goals to increase it.

• Draw up a budget and stick to it. You should spend less than you earn, so cut costs and/or find ways to increase your income, rather than borrowing to pay bills or to pay for consumer items.

• Borrow only what you need, and know the true cost of your debts e.g. interest payments can greatly increase the total cost of a purchase.

• Pay off debt - your high interest debts first, like credit cards and hire purchase. Repay your mortgage as fast as you can, and you'll end up paying thousands of dollars less overall.

• Save for an emergency fund or 'cash cushion' of 2-3 month’s income (this is worth doing even if you're paying off a mortgage, but not if you've got high interest debt). This will help cover you if the car breaks down, or you lose your job.

• Once you've paid off your high interest debts, start regular saving for the short term (a deposit, a holiday, a lump sum to invest).

• Protect your assets – buy the right amount of insurance, make a will, and see if a trust is right for you.

• Make a financial plan for retirement – if you have access to a workplace savings scheme consider it seriously (even if you still have debt), especially if your employer will make a contribution too.

• Consider investing to make your money work for you - it isn't just for rich people!

• Teach your kids about money – the earlier they learn, the better they will be at making their own financial decisions.

ENDS

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