Yvonne Walus shares bright ideas to help you get smarter about those pesky hidden costs. This article is part of our Tots To Teens and Simplicity partnership to help families tackle the increasing cost of living.
The shorts of this article:
- THINGS YOU DON’T USE… small changes for big gains
- INSURANCE is important, but you can save by…
- Clever tips to beat the BANKS AND FINANCIAL INSTITUTIONS
- Simple MORTGAGE advice that helps
- Understanding COMPOUND INTEREST “really” matters. We make it simple.
Read on to learn how…
In today’s world, your cost of living is more than food, shelter, clothes and transport. If you inspect your bank account, you’ll see heaps of other expenses like streaming services, household insurance, bank fees, gym memberships, and takeaways. Is there a way to save money on those?
1. THINGS YOU DON’T USE
Have an honest, detailed look at your monthly bank statements. Do you see any regular expenditure that you could perhaps go without?
- Could you cancel some of your entertainment subscriptions that felt so necessary during lockdowns: Sky TV, Lightbox, Netflix, Amazon Prime, Disney+, Neon, Apple TV+? Hot tip: TVNZ+ and ThreeNow are free, and many libraries offer free video streaming services.
- That gym membership that was a brilliant idea last year – how often do you actually use it? If you pay $20 a week, and you go twice a week, that’s $10 a visit. Are you getting value for money?
- Are you paying for any online space you don’t use? Ways of working change over time, and sometimes you continue to pay unnecessarily for old domain names, Dropbox, Creative Cloud, apps with monthly fees, etc.
- Do you subscribe to regular treats like chocolates, wine, cosmetics, nutrient shakes? Treats are important – but is the joy you get from some of them proportional to the price you’re paying?
PRO TIP: Add up all the money you’ve saved by giving up things you don’t need, and make a point of using this calculated amount to increase your family’s wealth: Pay your mortgage down faster, or deposit it into wealth-generating savings, such as your KiwiSaver account.
Insurance is important – don’t give it up – but can you get it cheaper? Some insurers have special deals to attract new customers, while others offer loyalty discounts. Assess several insurance policy quotes, though don’t necessarily go with the lowest price; compare the excess amount, perks, benefits and make a decision that suits your individual situation.
3. BANKS AND FINANCIAL INSTITUTIONS
Bank fees are one of the worst culprits when it comes to hidden costs, particularly unarranged overdraft fees and unpaid credit card interest.
- Check what account fees your bank and its competitors charge, and whether you qualify for a fees-free account.
- Always have enough money to cover direct debits to avoid overdrawing your account and having to pay penalties.
- Cut up your credit card and save the bank fees, as well as getting rid of the temptation to spend money you don’t have. Despite what people say, having a credit card doesn’t necessarily improve your credit rating in New Zealand.
- Make sure you understand the fees charged on your investments with any investment platform or manager. “Actively managed investments tend to command higher fees than index funds and passive investments, despite the fact that S&P Global’s SPIVA research¹ suggests less than 20% of active managers outperform their relative indexes over the long term” says Liv Lewis-Long, Head of Marketing at Simplicity.
- Check the annual fees your KiwiSaver provider charges. Simplicity’s co-founder and resident Personal Finance expert, Amanda Morrall, says it’s not a straightforward comparison, because fees depend on the balance and the type of fund you choose, but a fee difference of just 1%, while it sounds minor, can make a significant difference in the amount of fees (and the balance of your savings) over the long term.
Shop around for the best mortgage rate (some banks are happy to negotiate); you might also get access to better rates via a good mortgage broker. Within your limits, try to pay your mortgage off as fast as possible. If you pay fortnightly rather than monthly, keeping the payment amount half of your monthly one, you’ll effectively make an extra monthly payment each year, resulting in paying off your loan faster and saving on interest costs.
For example: If your home loan is $500,000 at 6.49% p/a for an initial term of 30 years, switching to fortnightly payments will save you over $146,000 in interest costs and you could pay off your mortgage five years and 10 months earlier.
¹ The SPIVA Institutional Scorecard Year-End 2021 showed underperformance rates of 83% of both large-cap institutional accounts and mutual fund managers compared to the S&P 500 after deducting fees, over the 10-year period ending Dec. 31, 2021. For the full report go to www.spglobal.com/spdji/en/spiva/article/institutional-spiva-scorecard
Simplicity is a low-fee, nonprofit KiwiSaver provider (owned by the Simplicity Foundation), committed to making everyday Kiwis richer and smarter with money.
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