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Wednesday, December 1, 2021

“You Don’t Have to Own a Home to be Financially Successful” – How to Make the Most of Your Money, Even if You Don’t Have Much of It

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She’s one of the nation’s top money experts and has been trusted by thousands to answer their financial questions from basic saving through to complicated investing. Author of A Richer You: How to Make the Most of Your Money and personal finance journalist Mary Holm answers some everyday money questions, and tries to help Capsule’s most financially illiterate member (Kelly) understand some basics.

Capsule: Hi Mary! I love the title of your book, How to Make the Most of Your Money – but it does lead me to my first question. What if you don’t have any?

Mary [Laughs] Go out and get some? No, look it’s very interesting to see all the different definitions of how much is enough money. Almost everybody has some kind of income. Some people say they can’t do it and run up huge debt, but others do manage.

What do you think with this latest trend of especially young people getting into things such as Sharsies and Hatch?

Yeah, the young ones are showing up their parents by getting into the share market. I think it’s great, it’s grown a hell of a lot. There are a few worries with it, like when you’re putting a lot of money into a single share.

You’re taking a risk that you don’t get rewarded for – if you’re taking a risk by not diversifying, the way the market works, that risk isn’t rewarded. I’d hope that first-time investors, if you’re doing it qith quite a bit of money, spread it over even 10 or 20 shares, or go into a share fund.

So diversification is key?

Yes, definitely!

Ok let’s talk about the big one – property. A lot of people reading this will be thinking that a deposit is out of the question – we’re working on it, but it takes a hell of a lot of time! But, we still want to be good with our money in the meantime. What’s your advice?

What I’d say to people trying to get into the housing market is that you don’t actually have to ever own a home to do quite well financially. Look at countries like Germany and Switzerland, I understand the majority never own a home. They key thing is that you’ve got to save pretty hard, because you don’t want to hit retirement without a home and without much in the way of savings – you’re going to have to cover your accommodation for the rest of your life!

But I tell people, hey, look, don’t feel like you have to get into the housing market right now. If you can really get into saving pretty seriously, at some point in your life, you probably will – and if you never do, that’s ok too. New Zealand has our very specific attitude to housing. Do you have a house?

God no, I’m a journalist!

[Laughs] And look, that’s fine, you know, you can just wait until this stupid housing market settles down. It’s just mad right now. I don’t believe that things won’t change and that prices will stay where they are. Incomes will catch up and prices will go down – I’m not saying when, because you can never forecast it.

You can’t forecast, but at some point, sanity has to prevail. We’re the least affordable in the Western world, and that kind of thing can’t continue. So, don’t despair! Try and save five to 10% of your income if you can, and just gradually increase the income you’re saving. Or, funnel away $20 more a week, then $30… and that’s so powerful – the difference that can make over the years is incredible.

Mary Holm (image/ maryholm.com)

If you’re more of a spender instead of a saver (ahem) and you’re trying your best with an Excel spreadsheet and you’re trying to be serious about saving, what’s the best thing to remember?

I mean, Excel budgeting isn’t for everyone – that sort of system seems to suit people who are quite careful with their money anyway! It’s not realistic to ask someone who really enjoys spending to keep track of every dollar spent. It’s not going to happen.

I think it’s thinking aabout the purchases you make – say you’re buying some clothes or a new car or something, of course it’s going to make you happy on the day and for the next little while. But, in the end, it doesn’t really lift your total happiness. It’s an endorphin thing – a temporary high.

So, you have to think about the value in your life, and what’s more valuable to you?

Yes, that’s a good way of putting it. Think about what makes you happy – truly happy.

When it comes to the old ‘rainy day fund’, is there a magic number that we should be aiming for?

That’s another thing that’s come out of Covid, the rainy day fund. Some people say it needs to be three months income, but I think that’s awfully high – most people would look at that and think, ‘yeah right’. Of course it all depends so much on people’s different circumstances, and if you’ve got a mortgage or not.

And old and young need to think about a rainy day fund – lots of people haven’t and they’ve also got big credit card debt. I hate seeing people credit card debt, interest rates are usually so high that they can end up paying two or three times as much as they borrowed. I really, really urge people to please pay down that credit card debt. And perhaps people can set up a goal to gradually build up the repayments with every month. It really does help make it work.

Yeah credit cards are interesting, I don’t have one because I can’t trust myself after a few rosés and online shopping. But a lot of my friends are paying off big debts from their 20s, or else they’re using them to pay off their household expenses and paying the debt straight back, just to get Airpoints or other kinds of rewards – is it worth having a credit card to just kind of play the system like that?

I’ve certainly got one – they give you a bit of flexibility, if there is a crisis, it gives you a month or more to find that money. But I do know a lot of people that don’t have one. I mean, putting the things on the card and then paying it off used to make much more sense than it does now, with interest rates being so low. I mean when I was your age interest rates were in the teens, so you could be making 15% on your money just by having it sit in the bank. So, that was a fun sort of game to play. Credit cards only work if you’re in the position to pay them off in full, and if you’re not, just don’t have one. I applaud what you’re doing, they’re horrible things if they go wrong.

A Richer You: How to Make the Most of Your Money, Mary Holm, HarperCollins from $12.99

Bestselling author and New Zealand’s most trusted financial expert on how to make your money work in the real world.

Sometimes the best path to a richer you is to learn from the mistakes and triumphs of others. This book features 184 of those situations, to help make your financial journey smoother and all the more rewarding. Mary Holm is a popular finance columnist and best-selling author.  Her latest book, Rich Enough was a #1 bestseller and still sells strongly two years after its initial release.  Mary was awarded the ONZM for services to financial literary education in 2020. She lives in Auckland.

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