77. Saving is the new shopping!
PODCAST TRANSCRIPT: Episode 77 - Dec 14, 2022
Rachel stumbled upon me via the Cooking The Books podcast I appeared on. If you want to go and take a listen yourself, the episode was called ‘How a NZ couple used sharemarket investments to become work optional in 11 years’. Now, Rachel is not her real name, and given Aotearoa has just two degrees of separation, she wanted to remain anonymous. So, I’ll be vague about the details of her work in healthcare and her location, but she was very open about sharing her story so far. When she told me that she had very recently moved from a super consumer to thinking instead that saving was the new shopping, I knew the story of this single, city-dwelling, dependent-free, self-employed 54-year-old was one worth sharing.
Covid was to be the tipping point for Rachel. Realising that when her income stream dried up, she was in trouble financially.
I hear from a lot of woman similar to Rachel those who had become stuck into the grooves of a life that they felt was always a little out of balance. So today I’m going to tell you how she managed to stop living pay cheque to pay cheque and managed to catch a break instead.
It’s fair to say that it's not the first time someone I have interviewed leads off by saying “if only I knew years ago how money works”, but sadly, like many others they are working it out at the midpoint of life.
But better late than never I say.
Rachel wanted to remain anonymous due to the sense of shame she feels about not knowing how money works and that is something I’m willing to help her overcome.
She grew up in regional New Zealand with two siblings and parents who worked together in a family business that they created. Because they put in a lot of hard days of work, Rachel said that while growing up, she didn’t really want for anything, but nor she said were they particularly spoilt, something I was soon to question her on. She was a good kid she said, she didn’t love school by any stretch but she did her best, just scraping through with average grades, not rocking the boat, and just getting on with it.
Her parent's big thing was travel, so when she was young it was not uncommon for her parents to leave the kids in the care of others and head overseas by themselves to see a bit of the world. They would come home laden with gifts and treasures they had bought on their travels, things that back in the 80s you would never ever find here in Aotearoa. Rachel managed to take her first overseas trip at the age of ten. That experience and hearing about her parent's travels ignited a love of travel that Rachel still has today.
In her final few years of school she got the chance to have a five-week overseas adventure in Asia as an exchange student, then a year later she was able to head to Europe for a second student exchange, this time for seven weeks. Although incredibly homesick, these were fantastic experiences to have so young.
When I asked about how these trips were funded she was not entirely sure, but does not recall ever having to save for them herself, nor does she recall conversations about money at home.
In fact she said, “you know what Ruth, I’ve never saved for anything”.
Which was not really a problem at that time, but it was the beginning of habit that up until recently has followed her throughout life.
Her only job at school was occasional leaflet drop work, which she hated because she found it low-paid, tedious and boring.
Nor did she get into sports either, which she now regrets because she thinks it would have taught her how to win, fail, be fit and be part of a team. Sadly her knowledge about sport was incorrect, she thought you had to already be good to be in a team, not join a team to improve your skills.
She now realises that from a personal development perspective, that would have been really useful and much like saving, these are all skills you can still learn as an adult.
She stopped school at the end of Year 12 and back then, in the 1980’s, living in regional NZ your options were sadly limited. A teacher, a secretary, or a bank teller were three work options that immediately came to her mind. There was absolutely no thought or talk of heading to university for any other type of study.
Rachel said that her confidence was not that great and that if you were to ask her how she saw herself, it was as a support person, never a leader. Her role she thought would best be played helping others achieve their goals, and looking back that is not a nice feeling. So, having considered such a sad selection of options, off she went to learn how to become a secretary.
Thank goodness times have changed for wahine in New Zealand is all I can say!
When she finished her study she was offered work with her parents, but she couldn’t think of anything worse that starting out on the bottom rung as the office junior in a family business. So she headed back to Asia, to escape in a way and begin to travel the world.
And who paid for this next adventure which lasted almost six months? The very parents she was trying to distance herself from. Because as she said earlier, she had never saved for anything in her life.
When she traveled in those early years, her parents tried to get her to stick to a budget, but in all honesty she didn’t understand what they meant. Because her parents liked to spend themselves, Rachel had never really seen “sticking to a budget” modelled at home. So somewhat unsurprisingly, during her trip she used up the money she had, and had to ask for more, which they then sent her.
When she took the trip after secretarial school, her parents gave her, now aged 18 her first credit card and she said, she was just out of control with it. There was no malicious spending, just a lot of it. During her travels, she discovered designer labels. The people she was mixing with were stylish and she wanted to fit in with them. It’s only now, with the benefit of hindsight that she realises she was so lonely while overseas, and mildly depressed. Travel always sounds exotic and exciting, but it can actually be quite hard work, particularly on your own, and shopping kept her company.
She kept swiping the credit card and it kept working and the idea of shopping for entertainment really took off. Because her parents always used to come home from overseas holidays loaded with stuff that you couldn’t get in New Zealand at that time, in many ways she travelled with the same purpose.
If you want something, just buy it.
When she returned to Aoteara at the age of 19 she made the choice to move to a new city and begin to stand on her own two feet.
Because of her secretarial course and her travels her skills were put to use doing office work in the travel industry.
From the outset, she was working out how LITTLE she needed to earn to get by. And the more we spoke the more this mindset of “how little do I need” instead of “how much can I get” kept coming up.
Even today, now that she is running her own small business she is still thinking how much she can charge for her services without offending people or losing customers. For years she never increased her hourly rate because she didn’t want to get pushback from customers. Instead of flipping the script and thinking how much money she needs to cover her outgoings, and live a fabulous life. Instead of thinking that maybe the expectations of her customers are out of whack with reality and that they should amend their own expectations. Perhaps her prices are not too high, given the mahi she puts in, perhaps they are living outside of their own means.
In her first job, which was in the late 80s she earned the grand sum of $13,000 per year.
Initially, she boarded with a crazy lady for $125 a week before going flatting, paying $80 plus food and shared costs. She said that she has always found it hard to make strong bonds with friends, but going flatting at least got her meeting people her own age who were not crazy like her previous landlady was. Money-wise, she had it all worked out, knowing how much to set aside and how much she could stash aside for future travel. So, for the first time, Rachel was actually saving money herself.
She said of the way she learns, if you give her the WHY, she can buy the story. So, because she knew she wanted to go and do an O.E. setting some money aside from each pay cheque made sense to her. She knew that in order to travel, she needed pūtea.
Despite making this small start on saving, she said she always felt really poor, and recalls always stressed about money. Handling it never came easily or naturally to her, given the minimal information she knew about how it worked, and there was never ever quite enough to go around, probably due in part because she earned so little, having set her sights on the minimum she needed, and her wants were always just that much greater.
But Rachel never shied away from working, and when she got going she actually took on a second job in the tourism industry, working weekends to bring in more income. Plus, she was never much into drinking or partying, so working into the evenings got her out of the house instead. Plus the money was good, back in those days you were paid double time because it was the weekend.
Finally, when she was 22 she, like many Kiwis left for Europe, staying away for three years. She had managed to save up some money, but once again her parents also gave her financial support to travel.
She picked up work when she needed to, either office work or childcare work. She even picked up work in the financial industry at one point before ultimately deciding that money was soulless and she much preferred to interact with people and make a difference in their lives.
She travelled around a fair bit, made some firm friends, learned another language and carefully allocated her income to her expenses. Even all these years later she could recall the price of her rent, public transport costs, food bills and what disposable income she had left over.
Whenever I hear from people who tell me they are “not good with money” rattling off financial numbers it always gives me huge heart because I’ve observed over time that they actually do have the potential to get their finances on track, they just haven’t been able to learn the “how” yet. They don’t know what to do with the financial information coming their way with each transaction. And when they do, they are off. The more I spoke with Rachel the more I could see the potential to work all this out.
She returned home at the age of 25 and then started a year-long course in the hospitality industry. By then the government had introduced student loans to pay for fees, so she went ahead and signed up. But she didn’t just use it to pay her fees, she used part of it to go on holiday as well.
She was not entirely sure how much she ended up borrowing but she does remember starting to make payments towards it before, a few years later, her parents stepped in and paid it off for her. I was curious about how this went down, because by then she was late 20’s and earning, so why did they do this? She has no recollection of conversations around this debt, just that they realised that this student loan debt was no good. At the time she had loans they incurred interest and if I recall the rate, it was about 7% - 8%, so that might have been a motivating factor perhaps.
After she finished her study Rachel, now 26, spent the next 18 months working in hospitality. She was living rent-free with family, earning about $300 a week and with no WHY, no reason to save, she just set about spending all of the money that she earned.
In one of those “I wish I knew then what I know now moments” she said that when she has heard people say over the years that you should pay yourself first, she completely misunderstood that concept. She wanted to clarify it here.
She took “paying yourself first” to mean that you pay your bills, your rent, your power, your food etc. And if you have all that covered, you can spend the rest.
She now understands that “paying yourself first” is actually referring to putting money aside for long-term savings and investments. In today's terms, it would refer to putting a portion of every single pay cheque into your KiwiSaver. Or into an investment account that will grow over time until one day you can live off the income it generates.
But, because she was unaware of this, she just kept spending and because she never ever felt in control or at peace with her money, there was never enough. Money was always tight. Year after year. And if she ran out, her parents would step in, meaning that there was never the need to change.
She moved regions again, to be closer to friends who were returning from their own O.E.s working in hospitality again, earning about $24,000 a year, then with a promotion up to $27,000 in the late 1990s.
That increase in pay also increased her loneliness, lack of confidence and depression because she began working shift work with an ever-changing schedule from days to nights and back again. One day, to give herself a break she paid for a massage and she said she went in crying and came out feeling $1,000,000. The therapist spoke to her, counselled her in a way and a lightbulb went off in her mind. Could the massive area of health and wellness be a direction to head in herself? How could she make others feel good as this person had done for her?
This turned out to be a pivotal moment in her life.
She quit her hospo job with its horrible hours and returned to office work, earning $10,000 more with all care and no responsibilities. She started to study a natural medicine course at night school, which all up, took four years of part-time study.
For the first time, she said that she found something that she really wanted. She realised that she loves helping people and being of service to others and this new direction would enable her to do that, whilst being paid a good income.
Two years into her study she was able to begin the transition from her day job to her new career and from that day to this, she has been self-employed.
In the early 2000s and in her early 30s, again her parents stepped in to help her financially by paying her $250 weekly rent on a premises she could work and live from. One that she shared with another person so they could split costs and support each other in their respective occupations.
We reflected on this a little and she said that she used to be envious of people in relationships who had the support, both financial and emotional of each other. In the absence of a significant other, you could say that her parents did that for her. She was grateful that they believed in her and it was amazing to have that support.
Gradually she built up her customer base and grew her income and she continued to train and upskill too. She had found her niche at last and her super friendly nature came to life. And I have to say that as our kōrero progressed you could feel her confidence and energy increase as she talked about the work she does now.
But she did say that there were certainly times when it began to feel awkward with her parents, they felt like her bankers and not her parents and there were times where she dreaded having to speak with them about money.
If I’m being completely honest, by the age of 30 I expect my daughter to stand on her own two feet financially, I know I was. So, I had to ask, given they kept propping her up, did they try to teach her about how to handle her own money and run a business, seeing as they were successful business owners themselves?
They did try to teach her, absolutely, but it was in one ear and out the other. She was working really hard, her parents could see that, she was not being lazy, but her mindset about money was not right.
Everything she earned, she still just spent.
Over time, the relationship soured between the person she shared a premises with. Rachel said her parents could see that she was really putting in the mahi to grow her business so they said
‘why don’t we go looking for a house for you so you can get into your own place’.
They found a home she could both live and work from and her parents bought it in the early 2000s for $220,000. They took on the debt to buy it and she paid them rent, buying the house back off them one payment at a time. If they were to die, the house was to go to her in their will.
Now, Rachel had no savings at all. She very much lived paycheque to paycheque, so how did she suddenly have the money to pay rent to her parents, given that up until now they were paying her rent for her?
Once again, going back to her minimum requirements to keep her life running, she worked out exactly how much pūtea she would require to meet her minimum expenses. She advertised more and upped her customer base and she made it happen.
Initially, her parents paid the rates and insurance until she was in a position to take over those payments herself. She kept upping her income until she met the minimum requirements.
The first time she laid eyes on her new home she said “this is the place” and having her own whare to live in gave her a strong feeling of security and she remains in the same house today.
I was not surprised by the next turn of events and I’m sure you won’t be either.
In the early 2010s, now aged in her 40’s and ten years after being in the home, it was time to renovate.
Why now?
Depression has come and gone for Rachel and in her early 40s it came down upon her again. In her 40s, unmarried, and without kids she was feeling the burden of society telling her what she didn’t have. The grass is always greener on the other side right? To lift herself up, she wanted what the others had, and because she couldn’t get that, she wanted to at least have nice things around her to lift her up and increase her energy levels again.
She knew she could work her way out of this low state if she had something to look forward to.
So, she did a renovation on her place of sanctuary, her home.
The home was still in her parents name and she was still paying them rent so they could pay the mortgage and they supported her plan to renovate by borrowing $100,000 more from the bank.
Finally, in 2017 she took ownership of the property and the title was transferred into her name and she went to a bank and secured a mortgage, also in her own name. She didn’t have to buy it at market rate and capital gains were not taken into account, it was just a transfer of the title and of the debt still owning. They did this because no one was getting any younger and there was the concern of her parents passing away and the ownership of the house being called into question.
With even more renovations taken into account she took on a mortgage of $350,000. She owes more than what they originally bought the house for, not an uncommon scenario, but the total value of the house has gone up over time.
From there she said she drifted along in life.
At the age of 50, an older friend introduced her to the book The Barefoot Investor.
She said she was scared to read it, but she did, and she loved it.
Why would she be scared to read a book on money?
It was because she said that she knew a dose of reality, and potentially shame were coming her way. She knew she was off kilter and she felt shame because she knew she was moving through her life without looking for alternatives. She likes being coached and has regularly reached out for counselling and help from external sources in all areas and she didn’t trust herself to find the information she needed to learn about finances herself.
Reading the book was taking a step in that direction. But it was not yet enough to make her change anything about the fact she was living paycheque to paycheque. Like a frog in slowly warming water, she was not yet feeling the heat.
Until Covid hit in 2020. And the heat went up a notch or two.
She had zero in savings and credit card debt of $10,000 spread over two cards, plus a $1,000 overdraft she had maxed out because the bank had offered it, and she accepted. She was so used to living in debt that if she saw $100 of available credit, she would be ‘oh great, I’ve got some money, time to spend’.
The thing was that she didn’t even need those cards in the first place, but they were offered, she took it, and then it got out of control. Which is music to the ears of the credit card industry. They make no money from people who pay their cards off in full every month, but don’t you worry that this is an ineffective business model because they make plenty out of people just like Rachel.
Of course she would TRY to pay it down, but good intentions are absolutely rubbish at handling credit card debt. It is far easier to make the monthly payments and ignore the interest you incur.
Due to Covid and her customers being unable to see her she was worried about cash flow and decided to opt for a mortgage holiday, where the bank let her stop payments for a period of time, meaning that those monthly payments ceased, but the mortgage would increase over time due to interest still being charged. That does not sound like much of a holiday to me.
The government stepped in and paid businesses a Covid subsidy and it was a complete lifesaver for her business as it pretty much exactly covered her outgoings. As chance would have it she had a friend staying during that time, they lived rent free, but purchased the groceries for both of them. Having good company during lockdown was a huge benefit.
So, it was a struggle and it took a bit of juggling, but with the government stepping in to help, instead of her parents, she once again got by. Even then though, it was not yet enough to make her think “I am sailing far too close the financial edge right now”. She was operating her private and business life just as she always had, with zero margin for error, with no ability to fight her own financial fires, always relying on others.
After seven weeks off, the day that Covid restrictions lifted, she was ready to start doing work, and her customers came rushing back.
But her dog chose that time to get seriously ill. The bill was $3,000. That was ALL the money she had left to her name. All of it, it was money left over from the government loan and little bits saved from the business supplement they gave her to keep her business afloat.
Not to keep her dog alive.
She knew she couldn’t spend that money on the dog. She couldn’t risk that money because what if the shit hit the fan. Honestly, I was listening to this thinking it hit the fan long ago but she was only now just waking up to that realisation.
Instead, once again, someone else stepped in, this time a friend, to pay the vet bill for her dog. Rachel would pay her friend back as soon as she was able.
Finally, this was the beginning of her wake-up call. And it’s not the first time I’ve heard a beloved pet being the straw that broke the camel's back.
Realising that she could not afford to treat her dog hit her exactly where it needed to.
Finally, she thought “I can’t continue this way!. What kind of person am I? I can’t even afford to care for my pet. I’m living hand to mouth and its extremely stressful.”?
She faced the very real prospect that she would have to euthanise her pet, all because she didn’t take good care of her finances. It was finally a massive wake-up call.
She knew someone in her neighborhood who knew a thing or two about money and had offered to chat in the past. Rachel knocked on their door and said that she wanted to begin to sort her financial life out. They sat with Rachel and went through her situation. Her mortgage was up for renewal in eight months, in 2021, and they worked the math through with her, telling her that with her income, which is very variable but about $100,000 a year gross, she could pay her mortgage off in seven years.
This was a WHOLE new level of thinking, but finally, she was ready to hear a different story. She had always thought that she was always going to have debt and that one day it would just miraculously disappear, perhaps wiped away via family inheritance, which is never a guarantee. But seeing some data to show how she could get herself out of debt helped her begin to turn a corner with how she thought about money.
That neighbour had always been there by the way, but the difference was that, finally she was ready to listen. Rachel is like many people I meet in passing, financially mismanaging their lives, but seeing no issues with it. Until one day they do. So, if you are listening to this and are nearing your tipping point, have a think about who you already know who is possibly waiting for you to ask for help.
She had a couple of conversations with her neighbour and although eye-opening to the possibilities of what she could achieve on her own financially, her mindset was still not yet ready to fully commit to change. But she did start to make progress.
As it turned out, once the lockdown lifted, business started to boom and money once again started flowing in. She started channelling that income towards her first credit card. She put her final $3,000 of Covid money towards those debts too.
Now she became more tuned into money and she started to notice things. She realised that she was getting poorer, while others were getting richer and that was yet another wake-up call.
Customers were telling her that they saved up a lot of money during Covid, whereas she was just scraping by. Why was that? Listening to them talk, she felt that she was being punished for being poor. That it was someone else's fault. She had worked out for example, that if you paid your insurance bill annually, you would get a discount, but how was someone like her ever going to do that. It didn’t seem fair, but her lack of awareness about budgeting kept her thinking “poor old me”.
But her mind was ticking over.
But she kept making small tweaks to the way she handled her money. She was she said moving from a fixed to a growth mindset.
In a calculated move she took the interest-free government loan of about $12,000, enabling her to fully pay off her second credit card debt, plus the $1,000 overdraft. Although it was debt, just cheaper debt, that money came at exactly the right time she said.
And that loan must be paid back by March 2024.
She also made a startling discovery that she was being charged fees and about 20% interest on her overdraft. And she had never before noticed.
She said to me, Ruth, honestly, I was just so fecking clueless. Which is such a treatable condition in my opinion.
She took a look at the insurance she was paying. She was paying about $8,000 a year for a income and mortgage protection product. In 2021 she went looking for guidance on this too only to come up against “I’m sorry, I’m not licenced to give financial advice so I can’t tell you”. Something that while she understands it, is unbelievably frustrating. Finally a friend who is an ex-insurance person, said to her, Rachel, your premiums are only going to go higher each year as you get older.
The friend said that typically you can buy a product that will give you a two-year period of cover. And typically the health issue you have is resolved within that period of two years. You will either get better, die, or reorganise your life within those two years and adjust to your new normal. There is also a lot of government support available if you know where to look. So, she changed her cover down to that two-year period, paying $3,000 annually instead of eight. She was so relieved to hear this new information and couldn’t believe no one else had told her.
Plus she also had life insurance which was sold to her when she was in her early 30s. Which you could argue is completely unnecessary for someone who had no dependents. BUT it did have a small amount of trauma cover attached to it which made her hold onto it.
But the new and improved Rachel did her research. And man did it feel good to take charge.
She went over what her bills would be if she couldn’t work, thus needing trauma cover. She thought about her options for making income:
Such as getting flatmates
Being a homestay for international students
Moving out and renting out her house
Or even selling her home
She realises she would likely be entitled to some form of benefit that could top up her living expenses
But she wondered what could she sell for the cash
She also went to the doctor and got a good health check-up, looking for imminent threats.
In July 2022 she got her annual life insurance bill. She had been paying $1,800 a year but it was increasing to $2,500. This was a gift she said, a shot in the arm. “HELLO, I’m done”. She has no dependents, there is equity in her house. If she is dead, her mortgage debt is more than covered.
And looking back and realising she had been paying the premiums for 15 years on that insurance in particular has really ticked her off.
Because she likes to outsource for knowledge, because particularly in regards to money she didn’t believe in her ability to work it out herself, she went to a company called EnableMe in early 2021, somehow finding the $3,000 to pay them for their knowledge. Which ultimately underwhelmed her and in hindsight she said had she just listened to my podcasts for free instead, she could have learned a lot more. She calls my podcast “data with a story” and she kept hearing the same patterns repeated over and over by my various guests. It was hearing the stories of others that prompted change.
The pieces of the puzzle started to lock together.
With her mortgage holiday, she probably only needed it for two months but she took an extra two months so she could for the first time in her life get ahead of the curve and set some money aside. She wanted to plan forwards for once, instead of focussing on expenses that had already happened.
She paid off lots of smaller bills and then immediately created, for the very first time, a sinking fund to save up for a future insurance bill. She was determined that the next time it was due for payment, she would have saved up the annual payment and therefore secure herself a decent discount. Having that on auto-pilot means that this future bill is, wait for it, no longer a threat or a problem.
Each of these small moves started to take the pressure off.
Budgeting for the first time was HARD, it felt like a confrontational annual review, embarrassing. But it was good to do because up until then she had no idea how much she spent. In 2021 she signed up to the budgeting app PocketSmith and spent 2021 categorising and watching where her money come from and went to. She didn’t find the process easy and I really commend her with going outside of her comfort zone and trying. Because here is the thing, you could outsource a budget to someone else, but it will never mean as much to you unless you have struggled through creating it yourself.
Now into her second year she is using this data to work out where she can tweak and change her spending. It also shows her that her income is very variable from month to month, and there are many expenses to come off that amount. Keeping an eye on what her minimum income is likely to be will help keep her in check in lean months and let her have a bit more freedom in those bigger earning months.
One of the easiest ways to get out of debt faster is to increase your income and Rachel is focussing on doing that. Some chance conversations with some customers led her to having her business recognised by health insurance provider, Southern Cross. She quickly completed the paperwork and course work needed to fulfill their criteria and this has been huge for bringing people to her door who would not have done so before.
On the advice of knowledgeable friends who were predicting that interest rates were going to rise. She ended her mortgage term three months early and moved from a 2.29% interest rate up to 4.49%, fixing through to 2025. She currently owes $337,000 and is making $1940 monthly payments. Paying off her mortgage is now a high priority for her, and what you pay attention to tends to get done in my experience.
And she is rightly pleased with herself for starting to take some strategic moves for once.
The energy levels of Rachel continued to slowly rise throughout our kōrero as we moved away from what she had done in the past and instead focussed on what she is doing today, and what she has planned for her future. For the first time she was feeling in control of her finances and she didn’t want to waste the money that was starting to accumulate in her bank account, so kept searching for more information so she could keep learning, which is how she found me.
As of November 2022, she is now super excited about her future. Not just excited, but SUPER excited.
She’s still got some cleaning up to do, but she is starting to implement some good money habits now.
In an effort to address he problem of never being able to take a break from work, Bella from episode 61 implanted an idea in her mind that is going to revolutionise the way she works. She really felt that this wise 28-year-old was living a life in balance. During 21 years of working taking a holiday or god forbid getting sick were major concerns for Rachel. When the customers stopped walking in the door, the money stopped too.
Not so anymore. She has set up a sinking fund within her business accounts where she is building up to having two weeks of sick leave and four weeks of holiday leave available to her. She is putting $200 a week into that fund to build it up fast. With that already growing nicely she can now plan to take a well-deserved break from work and still get paid. When she takes a day or a week off, she will simply ‘pay’ herself from that account and the money keeps flowing through her systems.
For the woman who never understood the concept of paying yourself first, this is what it looks like in practice and I’m delighted for her.
As a matter of top priority she is also building up an emergency fund in a separate bank account and when I asked her the question of “what would you do if you suddenly received $10,000”, well every cent of it would go into this account, giving her the means to bravely fight her own financial fires for the first time in her life.
Once she has that cash buffer in place, she is going after that government loan, interest-free or not, throwing as much spare cash at it as she can find. Because once she has all of these other debts paid off she will free up monthly payments because, then it’s the big one that is in her sights, focussing on completely paying off her own mortgage.
And where, I hear you ask, is all this money coming from. Well, when saving is the new shopping, all that pūtea that was converted into consumer items is now being put against debt and against emergency funds. Plus, she has increased her customer base, bringing in more income. Plus, as I said, now that she no longer has to make payments to a range of other debts, she gets to direct that money to her mortgage instead.
I had to know, for a woman who used to spend until the credit card said ‘declined’ what are her three main financial habits now?
Tracking the inflow and outflow of her pūtea with PocketSmith. In the first year it was more of an observation exercise, it was just data that was starting to build up a picture. In the second year she can compete with herself and now when she spends money, it is guilt-free because she made a conscious decision to do it
Rachel likes to pay her bills as soon as they come in. Including her mortgage, in fact she gets the correct payment amount sitting off to one side quite early in the month, ready to make the payment. She likes to look at her total spend for a year, for example her power bill, because then she can compare it to her annual income and it put it in context. Which is why she realised how much she used to spend on insurance was getting out of hand, and decided to change it.
She checks her bank accounts everyday, checking that customers are paying on time and that her outgoings are all sorted.
And what might her money elevator pitch be, a sentence that would sum up her approach to money?
I’m no longer a super consumer. Saving is the new shopping and it is empowering to be 100% in charge of her own finances.
Embracing the concept that Scott Pape advocates of using buckets to manage money has really given her clarity in how she handles her money now. She said that it feels so good to see account balances grow where they should, such as setting money aside for upcoming tax payments, and debt shrinking where it should.
KiwiSaver is something else that has long been neglected and this is now being rectified, in her words, like her butt is on fire. Her current balance is far too low for a woman of her age with no others savings, just $3,000 that she has in an ASB Growth fund. If left unattended, her lack of retirement savings would morph into a crisis one day. But, at the age of 54, she has plenty of time to rectify this. She said she has now set up a weekly $50 automatic payment from her bank account to her KiwiSaver account. She is getting that habit started, $50 a week is still not enough, but the Sorted KiwiSaver calculator estimates that even this amount should get her having close to $100,000 in her KiwiSaver at 65. Small amounts compound over time, so, the more you can add, the better. This would give her $90 per week, running out at the age of 90.
You might be wondering how paying into her KiwiSaver was overlooked. Because she is self-employed it was up to her to make payments and she clearly never thought it a priority to do so. Even without an employer adding contributions, it is my view that KiwSaver is absolutely worth joining for the annual government top-up of $521 and decades of compounding returns. But it is so much more than that, for people who have paid into KiwiSaver, it’s going to be a godsend when they turn 65 because it will provide them with extra income each week over and above the government superannuation, which I am constantly hearing that for most, is simply not enough.
Towards the end of our chat we got around to talking about cars, and I’m pleased I did. She considers them her greatest financial flop, out of the many she could have chosen from she said! She had always driven older European cars, that were either cheap to buy, or remarkably, were given to her. Which I immediately saw as a curse, not a blessing. It pays not to be fooled by the badge on the bonnet. Those cars have cost her a fortune over the years because they often break down in unexpected and very expensive ways. There is no doubt that in New Zealand they cost a lot to fix.
So, in another big change, she sold her European car at a massive loss. She spent $8,000 on repairs, selling it a year later for just $9,000. In hindsight, she said she should have sold it without fixing it, or just sold it to a scrap dealer. She now drives a car that regularly comes up on my podcasts, a 15-year-old Mazda. She paid $7,500 cash for it and couldn’t be happier. And you guessed it, she’s setting money aside for annual car costs like servicing, WOF, registration and repairs.
The thing she considers her triumph is possibly not surprising, it’s her home, which she has now been in for 21 years. Its value is somewhere around $900,000 but she never once mentioned equity during our kōrero. The reason she mentions her home as a win is because it is a good property for her as it allows her to work from home and she feels amazing living in it, she is content and is not looking to move anytime soon, because this house is a home to her and she plans to be there for another 20 years.
Which is why it is more important than ever that she needs money saved and invested somewhere outside of the property she owns.
Over many years Rachel has attended therapy sessions to help her with her bouts of depression and loneliness that come upon her, despite often being surrounded by people. As she reflected back she couldn’t help but wonder that if she had known more about how money could or should work for her at a personal level, she couldn’t have avoided some of this internal struggle she has. Because having no sense of control over money, which really does touch on all parts of our daily life, and no one to talk to about the rights and wrongs of handling it really does impact how we feel about ourselves and respond to the world around us.
Money knowledge is so lacking she said and for too long not knowing how it worked has put limitations on her, where she always thought of the minimum she needed to charge or earn to get by. She manifested her own boundaries was the phrase she used and she is now resetting those boundaries.
Rachel said she is a big fan of ‘talk therapy’ and talk we certainly did! And from the beginning of our chat to the end her vibe completely changed from feeling low to feeling accomplished and optimistic about her future. Thanks Rachel for your time and I sincerely hope that you no longer feel shame about talking about money. You really have no need to, just accept that the past happened, learn from it and move on. Sharing your story, even anonymously, is helping others and just like you took nuggets of wisdom from all of my podcasts that you binge-listened to, others are taking lessons from yours.
It never ceases to amaze me how freeing people find it to just talk about their personal financial situation. We should all do it a lot more in my opinion. There is no judgement, just open conversations, fresh ideas and suggestions to look into. Oh, and applause! Changing the habits of a lifetime is no mean feat and should be recognised I think.
Rachel was fortunate enough to receive financial support many times throughout her 54 years, by a family who clearly cherished her, but without learning the skills to make better use of the money she was given and the money she earned, she was basically living week to week. Always waiting for the next paycheque to pay for things she has already done. It’s impossible to plan a bright future when you are stuck in that cycle.
She has also spent a lot of time outsourcing her concerns for others to give an opinion on and she realises that now is the time to back herself and consolidate everything she has learned from others, and by herself over the past 2.5 years. And to just get on and do it already.
She has made incremental changes over this time and these new good financial habits will just begin to build on themselves. But I’ve observed that when people finally have a wake-up call and really actually face the facts of their financial situation it can feel crushingly overwhelming.
Particularly if depression is already on your radar. But I also know that it's not until you reach that point that it gives you a kick up the butt to change. Coming up with a plan that you have devised yourself, that you then start to tick goals off of is a powerful motivator to keep on going. And it’s a great way to stay optimistic and positive too, which despite the lows, is actually her more natural state she said.
And it’s extraordinary how fast you can completely change your situation for the better. In the case of Rachel, she’s putting systems in place to solve her own money problems. For a woman who was honest enough to say that she has never saved for anything, she has come a very long way. As she cleans up the missteps of the past, new money is flowing into her wallet, but this time, it is going to be given purpose. And money that has a job assigned to it grows so much faster.
Also, when you begin to shift your mindset from the minimum you need to survive, to what is the maximum amount you are worthy to receive, money also starts to flow.
So, when Rachel told me that she has gone from a super consumer to, saving is the new shopping, I believed her because I can see by her actions that she is walking the talk.
She is so excited about her future and is curious to know how fast she can turn her financial ship around and I really hope she stays in touch and gives me life updates throughout the journey.
