How to make ‘cents’ of your money

David Boyle is head of sales and marketing at Mint Asset Management.

OPINION: My mum had a truckload of favourite proverbs and was never shy to share them with me. In fact, for as long as I could remember, she dished out these little ditties, pretty much up until the last weekend I spent with her before she passed away.

So, you can imagine many stuck with me and I’ve often caught myself quoting them to family and friends, almost without realising.

There was one that I didn’t really understand as a young kid: “If you look after the pennies the pounds will look after themselves.”

To be honest, I didn’t take too much notice when I was eight or nine, I mean what were pounds and pennies anyway? Well, I kind of knew because I grew up watching Coronation Street, but really couldn’t fathom what on earth they had to do with me.

But, over the years that I’ve spent in financial services, it is probably the saying I use the most, because it captures so many skills that can really help your overall financial wellbeing. Given we are smack bang in the middle of “Money Month”, which is being coordinated by the Retirement Commission, I thought it might help to build on some of those elements, and also give a plug to the great mahi that is being done by the Retirement Commission and others around the country to help Kiwis tame their finances.

This year’s theme is “Pause. Get sorted” and, as the title suggests, the objective is to take some time this month to look at what you are doing with your money. The topics range from KiwiSaver to debt management, from insurance to retirement planning and everything in between. It’s a great initiative and one that has been going many years.

To help your cause, there are more than 40 face-to-face seminars and webinars around the country, including one that I am doing with a financial adviser, which is about making cents of your money. Like many of the presentations, we want to provide practical, easy-to-understand ideas to help you gain control of your finances, without all the jargon.

There are no silver bullets when it comes to managing money and, for many of us during these tough economic times, the challenge seems even greater to make that dollar stretch further. You may have what seems like a good household income, but I bet you might, like me, walk by the red peppers in the supermarket at $4.99 each. I mean really!

Mum always had a shopping list and stuck to it when she went to the supermarket. That said, she loved a bargain, so if one of her staples, like baked beans, was on special she would buy more than usual, reaping the rewards of one of the most basic principles in economics: supply and demand. Buying seasonal vegetables was the norm in her day, and a far cheaper option than the habit now of buying your favourites all year round.

At home we had a change jar in the kitchen and when it was full, mum would take it to the bank and deposit it into the family savings account. She showed me over the year just what it added up to and, for a kid, it was a big number. I had always thought loose change was supposed to be spent on lollies, but seeing it grow so much, just by putting a little away regularly, really stuck with me. Hence why I changed the original proverb just a little to “if you look after the cents the dollars will look after themselves”.

It also meant that, over time, those small savings were boosted by another excellent wonder and that is compound interest. Interest earning interest is incredibly powerful and, over a long time, can make a world of difference to your investment outcome.

Thinking of that jar analogy, here are three great jars to get you started:

The Rainy Day Jar

This is only to be reached for in emergencies. It’s a tough jar to open and saving around three months’ wages (over time) is a good rule of thumb. Start by aiming to tuck away the equivalent of one pay day and see how you go.

The key is to get this started as quickly as you can, automate the deposits on your pay day and then pop it right at the back of the finance cupboard shelf until you need it for life’s unexpected financial bumps.

The Living Your Life Jar

This is really a box that holds a number of jars with different labels and will help with your short and medium-term goals. Some will be fun jars with labels like holidays, first car or electric vehicle. Others might be saving for a deposit on your first house, putting money away for your children’s education, or paying off your debt earlier. Some of those jars will need bubble wrap, otherwise known as insurance, to make sure the things you have bought are protected, including your good self.

Your Future Self Jar

Yep, when you stop work this jar will have all the magic ingredients that, when opened, will give you options to enjoy the good life. You’ll need to save a little every payday, mix it with the power of time and compounding returns, and spread it over different investment markets. For many of us, the big contributor to this jar will be KiwiSaver. But it’s not a set and forget jar, it needs to be checked if your circumstances or priorities change. If the jar isn’t fit for purpose, get some advice to make sure it is.

So, while it’s not spring-cleaning season just yet, Money Month is not a bad time to dust off a few of those old jars and see what little changes you can make now to positively impact your financial outcomes tomorrow.

Maybe Billy Ocean said it best with another proverb: “When the going gets tough, the tough get going!” Happy Money Month.