This article was first published in the June 2024 issue of MTA’s Radiator Magazine.
The current economic conditions can be tough on your personal finances. But as Moneybox Lending Advisor Kirsty Williams explains, there are ways you can ease the stress – and even take advantage!
Despite the economy cooling, we’re still far from the Reserve Bank’s 2% inflation target. The cost of living in New Zealand remains high, with businesses facing elevated costs and high pricing intentions. Insurance premiums and interest rates are steep, and wage growth is slowing. At times like this, it’s natural to feel like you’re slipping behind with your finances. But with careful planning and commitment, it’s possible to stay on track and even get ahead!
Create a financial roadmap
Firstly, it’s important not to lose sight of your financial aspirations, such as retiring early to travel or helping your children buy their first home. Break these aspirations into small, manageable goals for the next 1-3 years, like paying off a chunk of your credit card. Recategorise and reprioritise your expenses, identifying necessary costs, areas to cut back, and what remains to save, spend, or invest. Setting short-term goals and revisiting your budget puts you back in the driver’s seat, giving you more clarity and control over your finances.
Pay off high-interest debt first
High-interest debt can be a major roadblock. Credit card balances that aren’t paid off in full each month accrue high interest, and the longer the debt lingers, the more it drains your finances. Prioritise paying off credit card debt and other high-interest loans like hire purchases and car payments to clear the road for future savings and investments.
Go electric for lower interest rates on car payments
Electric vehicles (EVs) offer low running costs, purchase subsidies, and strong resale value, but their initial cost can be high. Some banks provide EV loans with attractive rates, such as 1% for three years on purchases up to $80,000, which can be attached to your home loan. However, these low rates are limited to the specified term and may require a minimum equity. It’s best to consult a mortgage broker to explore the options.
Streamline your mortgage
Even a small difference in mortgage interest rates can lead to big savings over time. But advertised rates aren’t always the best available. If you’re approaching the end of a fixed-term loan and facing much higher interest rates, now is the perfect time to consult an independent broker to find the best rates and terms for you. You can also accelerate your journey to becoming mortgage-free by switching to fortnightly repayments instead of monthly. With 26 fortnightly payments in a year compared to 12 monthly, you effectively make an extra month’s worth of repayments each year.
Position yourself for long-term gains
If you’ve considered investing in property to reach your long-term financial goals, now could be an opportune time. Mortgage rates are high, but property prices are currently lower than in previous years. Additionally, as of 1 April 2024, investors can once again deduct mortgage interest from their rental income, and the bright-line rule for residential property shortens to two years from 1 July 2024. Snapping up an investment property at a lower price could provide secondary income and put you in the fast lane towards substantial gains when prices pick up again. But before putting the pedal to the metal, talk to a mortgage broker. They’ll be able to take a look into your finances and advise whether you can comfortably invest.
Review your house and contents cover
To avoid overpaying or being underinsured, keep your house and contents policies up to date. Insurers automatically adjust sums insured annually to keep pace with inflation, ensuring your coverage remains sufficient. However, during periods of high inflation, these adjustments can significantly bump up premiums. New Zealand’s susceptibility to natural disasters, which ranks among the highest globally, means Kiwi policyholders already face steep premiums. Reviewing your cover at renewal time is crucial to ensure you remain adequately protected without facing additional, unnecessary financial strain.
Talk to a financial advisor
Mortgage and insurance brokers offer personalised strategies to boost your financial progress. A good financial advisor will offer a broad perspective, helping you reassess your goals, identify any blind spots, and offer reassurance to keep you on track.