Savvy money management in 2023

What’s a plan without a (clear) goal? Just a map: it can tell you where everything is, but not where you’re going. And now is probably not the time to navigate by ear… 

 

For 2023, take the time to understand where you’re at right now in your financial life, where you’d like to get, and importantly, when you would like to get there. Especially when things are constantly shifting, using your goals as signposts can help you ensure that your plans don’t veer off-track. Just make sure that your goals are clear and measurable. Rather than saying, “I want to save more money”, turn that into a measurable goal like “I want to put aside $1,000 this month.” And once you know what your goal is, you can work out how to achieve it – for example, by setting limits on unnecessary spending.  

 

Not quite sure how to start? Check out our article on The secret sauce to successful goal-setting, with lots of practical tips on how to understand your goal-setting personality and keep the momentum going.

According to Centrix(1), the rising cost of living means many Kiwis are turning to debt to support their spending: personal loans are on the rise (up 18% year-on-year in September 2022) and overall consumer credit demand is back to pre-pandemic levels.  

 

If you have a high level of debt, can you make repaying it a priority in 2023? Debt exposure can affect your financial flexibility and resilience. Not only it reduces your disposable income, but the longer your debt lingers, the higher interest costs you’ll be paying overall.  

 

So, find a debt repayment strategy that aligns with your needs, goals and style. Here are two examples: 

• Snowball strategy: Start paying off the smallest debt first before moving on to larger ones; this may motivate you and help you gather momentum. 
• Avalanche strategy: By paying debt down from the highest interest rate to the lowest interest rate, you can save a lot in interest payments; but this strategy also requires a bit more self-motivation, because it takes longer to pay down large debts. 

Is the idea of saving money overwhelming? Technology can be your best friend.  

For example, you can add a sub-account in your internet banking for a specific goal, like an emergency fund or a trip overseas. Then, all you need to do is set up an automated transfer from your main bank account: if you put aside $50 a week for a year, you’ll have $2,600 in your sub-account without even noticing it. 

It can be easy to underestimate how costly monthly subscriptions can be. A US survey conducted by C+R Research(2) found that, while on average consumers estimated their monthly spend on subscriptions to be $86, their actual average spend was $219. 

 

Whether you’re using a money management app like PocketSmith or Mint, or good ol’ pen and paper, doing a quarterly subscription audit is a good idea. It may help you easily identify services that you no longer use and can be cancelled.  
 

Retiring means different things to different people, but at the end of the day, it comes down to the same thing: no longer needing to work to sustain your lifestyle. So, how much do you need to save to get there? 

 

In our article How much do I need to save for retirement?, we pulled together some key tools, tips and insights to help you calculate your own magic number. In short, it’s a good idea to replace between 70% and 100% of your current income. You can use our kōura digital advice tool to calculate what you’re on track to get from your KiwiSaver plan, with or without NZ Super on top.  

 

Knowing your numbers will give you a clear goal to aim for, so that you’re saving with purpose. 

Unlike many people think, a 3% or 4% KiwiSaver contribution rate is unlikely to give you enough. But don’t take our word for it: with our kōura digital advice tool you can easily view how much you’re on track to save at this rate, including the percentage of your current income that you could replace. And by selecting a different contribution rate in the calculator, you can quickly see the difference that it can make.  

 

For more on this, check out our article Do I need to increase my contribution rate?, with plenty of practical examples and graphs.  

Diversification is not just another buzzword. It’s a key way to reduce the risk level across your investment portfolio while also maximising returns. And while it’s always critical to investing, having a diversified portfolio becomes all-the-more important in times of market uncertainty.  

 

Why? Because you can’t ‘hide’ from market volatility: timing the market almost never works. But if you diversify your investment strategy across companies and regions, the growth of certain assets will help offset the decline in others. Like to learn more? Don’t miss our recent article Why diversification is so important right now.  

1. Check-in on your emotions 

Often, our relationship with money is an emotional one. A lot of it stems from what we learned directly and indirectly from our childhood, like our parents’ habits and their values. Aversion to money loss, for example, can be one of the most deeply ingrained biases of all, and unfortunately, it can limit people’s investment decisions.  

In our article Breaking the cycle of emotional investing, we looked at how behavioural biases can get in the way of your investment goals. But that’s true for all aspects of your financial life, including your spending. Checking in on your emotions can help you reframe your money mindset in a way that serves you and your goals. 

The more you learn about all-things financial, the more your mind opens and thinks outside the box. Building your financial knowledge can lead to better financial decisions, and better financial decisions can lead to more choices in life. 

Money can be a bit of a taboo topic for Kiwis. Whether that’s because we’re a humble bunch and don’t like to show off, or it’s causing us stress and we just want to avoid a difficult conversation – many don’t like to talk about money.  

Lastly, don’t underestimate the power of quality advice, especially in this ever-changing environment.  

As we explained in our article Why asking makes good sense, the more you ask, the more you learn. Knowledge is the seed to most change and transformation, and that’s what professional financial advisers do: they share their knowledge so that you can draw some actionable takeaways. Really, no question is too big or too small: will 2023 be the year you finally ask yours?