How to stay afloat in 2009

Sunday Star Times

If there's one time of year when the world's money writers fall over themselves to give advice, it's new year.

But among the overkill of earnest advice-giving are the basics for anyone who wants tips on how to thrive in 2009, or as seems more appropriate right now, remain solvent.

The Sunday Star-Times has scoured the world for the best financial advice and resolutions.

HOLD ON TO YOUR JOB

Few will end the year richer than they began it because a high proportion of household wealth depends on house prices, and 2009 won't be a vintage one on that front. Suddenly, the world has woken up to the truth: a family's income is in most cases its greatest asset. Protecting that is the number-one priority and will separate those who end the year in reasonable shape from those who suffer. Unemployment is expected to rise in '09 so here's some tips from bluechip American wealth magazine Forbes for keeping your job: (a) be good at it, (b) be seen to be good at it ("demonstrate your indispensability") and (c) don't be dubbed a complaining pain-in-the-arse or resister of change. Oh, and one final word: Be nice. SmartMoney.com quotes US headhunter Stephen Viscusi: "Human resources people will deny this, but nine times out of 10, they fire what I describe as HMEs: high-maintenance employees."

TRIM SPENDING

Dave Carpenter from America's Associated Press writes: "Exercise more, stop smoking, lose weight. All are excellent ideas for 2009 for those who need to prod themselves in those areas. But instead of making the traditional New Year effort to shed 15lbs, usually in vain, how about aiming to trim your spending by 15%?"

If one lesson from 2008 should have sunk in, it is this: We can no longer afford to keep spending the way we did, sometimes more than we earned. Find ways to save $20, $30, $40 each week. One way is to think about your worst habits (smoking, gambling, heavy drinking, over-eating, an uber-carnivorous diet, leaving appliances on all night, keeping up with fashion, driving like Scott Dixon, rolling over your mortgage without checking to see there aren't better rates to be had, paying the full retail price, buying lunches every day, etc), and cut them out, or tone them down. Replace the things you'd miss least, like second servings of icecream, or the eighth and ninth bottles of beer. Replacement helps ease the pain for example, replace smoking with getting fit.

INCREASE YOUR NON-WAGE INCOME

Cutting costs increases surplus income, so does increasing the income. Increasing income generally means some form of work (taking in a lodger, holding down a second job, making sure you're not putting up with low-interest accounts at the bank, selling unwanted items on TradeMe). It can involve growing fruit and veggies in the garden, urges NZ Gardener magazine.

FIND FREE MONEY

Kiwisaver provides free money, as does the use of petrol and shopping coupons, judicious use of rewards schemes and using credit card interest-free periods for all your spending.

SPEND LESS TIME WITH YOUR BIG-SPENDING MATES

It eases the pressure to spend to keep up with them, says Shannon Christman, of Savingadvice.com. Your frugal friends will provide much more help and support in dealing to debt, providing "insider" advice and tips on trimming consumption and socialising on the cheap. Oft-quoted American futurist Faith Popcorn has identified the rise of a frugality culture. This is not new to New Zealand. Our own simplesavings.co.nz is doing a roaring trade in thrift advice, and has seen the re-release of Frank Newman's Living off the Smell of an Oily Rag. There are heaps of free concerts, activities, beaches, parks, playgrounds, walkways ... Make use of them.

SPEND MORE TIME WITH THE FAMILY

Family, whanau. Call it what you will, but it can be a lifesaver. Let's face it, how many people's mums wouldn't step in with an emergency mortgage payment to keep the roof over a struggling family's heads, or pop round with casseroles to keep the grandkids fed in hard times? The answer, those whose kids have fallen out with them. Cherish loved ones. Divorce can be ruinous.

BUILD UP THAT EMERGENCY FUND

"Bolster that emergency cushion," Yahoo.com's US money team advises. "Even in flush times, financial advisers say consumers should have about six months' worth of expenses in their bank account to guard against job loss or other emergencies." Hang on! Didn't advisers always say three months? Yes, says Auckland financial planner Deborah Carlyon, but that was when getting a new job was easy. Six months is the new ideal. Don't get hung up on having that salted away by the end of January, but work in that direction.

Part of an emergency cushion can be debt facilities such as unused credit card limits. Taking a mortgage holiday (if you have enough equity) can help pay off other debts to help achieve this.

Remember, cash in KiwiSaver accounts can be accessed in times of crisis, so check details on your scheme. For some families, National's ReStart package provides the equivalent of a partial emergency fund, so it is worth checking out. For most families, windfalls should go towards the mortgage, though the key thing with the mortgage is being able to maintain repayments in tough times. Holding some cash in a high-interest account would be worth considering in order to keep the bank at bay in the event of a sudden drop in income.

CALCULATE YOUR NET WORTH

This has been a staple of money writers the world over, year in, year out. The gloriously-named Chuck Jaffe of the Fox News business team recommends: "Make one of your goals a target for your net worth 12 months from now, and make sure you have a plan in place to achieve it; then, set a bull's-eye for your net worth 10 or 20 years from now, and make a plan for achieving that goal too. If you can achieve the former, you will be on pace for the latter, and will come out of 2009 more confident in your ability to escape tough markets with reasonable results." The idea is that once you have your net worth calculated (basically value of assets minus debt) you can then keep track of your efforts to improve it over the year, and subsequent years. That may be a bit depressing for people this year as homes continue to slide in value. A different take would be to calculate your overall debt level in isolation, stop guessing at the value of your home, and set a plan to reduce the debt quickly. The US Motley Fool money website advises "snowballing" debt reduction payments the more you have paid off, the more free income you have to increase the rate at which you pay off remaining debt.

BUILD AN INVESTMENT PORTFOLIO

Or don't ditch the one you have. Here's the quandary. Your funds and stocks have plunged in value. Do you keep faith with the old "buy and hold" mantra (those who invested eight years or so ago haven't seen decent returns yet), or ditch it and head for high-quality fixed interest? History suggests that today will be seen as a share-buying opportunity in the long term, but experts warn not to bank on a big rally in shares in the next year. Those with longer to go before they need the money should think carefully about gritting their teeth and toughing it out. The downside risk (the risk of a share losing substantially more value) has certainly lessened. Those with a year or two to retirement have a harder decision.

Taking advice would be wise, though it is fair to say the country's advisers have rather suffered a fall in reputation. If you already have an adviser it would be wise to get a second opinion, especially from one of the big broking firms.

Certainly, those drip-feeding money into the markets through the likes of KiwiSaver would be unwise to suddenly try to fund their whole retirement using a cash fund, or waiting until markets have recovered to start buying shares again. Those that have direct share-holdings will be seeing what appear to be bargains, and many who can will be buying. The yields on some of the better-quality shares make them look like an alternative to floating-rate bank accounts and shorter term deposits for those able to take a little capital risk.

TAX REFUND

These are a big focus in the US and Australia where creakingly complex and inefficient tax systems generate tax refunds for people each year, so there's a lot of talk about how to spend it. It's not been part of our money vocabulary, but it should be. Many families here are surprised how inefficient our tax system is. There are plenty of tax refund services (google "tax refunds" and compare the costs) which will take the work out of seeing if there's cash owed to you that can be used to reduce debt, or build that emergency fund.

UNDERSTAND THE SAFETY NET

Benefits are no longer just for the poor, and redundancy isn't what it used to be. Under Labour, benefits went mainstream, and under National, support after redundancy was introduced. There is a range of benefits, but for the ordinary worker the basic one is unemployment benefit, which is heavily circumscribed if the claimant's partner is in work. Now there are also Working for Families tax credits and ReStart redundancy support. What these two new benefits mean is this: the loss of income for a family losing a gross salary of $72,000 isn't what it used to be. First of all, if there are kids and the other partner works, there are generous tax credits under Working for Families which will reduce the loss of income suffered. Secondly, provided there's been no huge redundancy payout ($25,000 is considered huge), National's ReStart programme kicks in. In redundancy a sole breadwinner for a family with two kids, earning a net $1189.24 a week (including Working for Families tax credits) will see their income drop by just $411.05. That support continues for 16 weeks, unless work is found sooner.

INSURANCE

It is to cover catastrophes, says TripleJump's Cecilia Farrow, not minor inconveniences. Do not cancel policies to cut household expenses before seeing if there are ways to pay lower premiums. It is a gamble, but most people could extend the excesses on their house and contents, or wait period on their income protection policies and save a bundle, though both will require building up emergency savings. Most people can also make lifestyle changes to cut costs. Quitting smoking, for example, can halve life insurance premiums. Dropping to a sensible body mass index (BMI) score will also have a dramatic effect. Investigate redundancy insurance such as credit card insurance, Westpac's new bill-pay insurance and mortgage insurance.

NEXT CHRISTMAS

The infrequently-quoted Daily Ardmoreite newspaper has already served up this advice to readers: "It's never too early to start thinking about next year, especially when it comes to paying for holiday gifts," and goes on to recommend local Christmas club accounts.

The more frequently-quoted Times of the UK concludes that as Christmas now appears to last 12 months with a brief hiatus for Easter egg consumption, people might as well join them. "You could waste energy fantasising about beating such people to a pulpy mass, but why bother? Probably best just to accept that Christmas now lasts for the best part of 12 months," writes the paper's anonymous Bargainhunter.

Many Kiwi families had a less spendthrift Christmas last year and it will not have been much less enjoyable. Planning is the key, but avoid hamper schemes if you can saving your own money will always be a better option.  

And last but not least ...

IF CRISIS IS IN SIGHT, DON'T STICK YOUR HEAD IN THE SAND

Don't put on a brave face.

Make sure family and friends are in the know, or how will they support you? Talk to the bank and your lenders (under law they have to fairly consider an emergency payment plan, providing you haven't missed a payment). Only you will know when the writing's on the wall and it's time to sell your second car, cancel Sky TV, and sack the gardener.