HELPING YOU BECOME FINANCIALLY RESILIENT

Just like body and mind, financial health can come down to building habits… making choices… and taking those small everyday wins. Which is why supporting your financial wellbeing is a vital part of our mission to leave every union member better off in life - not just at work.

Our financial lives can be full of ups, and downs. Which is why developing and maintaining financial resilience is a vital foundation of long-term financial wellbeing.

Financial resilience is not about being immune to financial difficulties but rather being prepared by having the resources, strategies, and mindset to navigate and bounce back from adverse financial situations.

So, we have created a simple 6 step guide to help you think about what you need to do improve your financial resilience. 

 

Start budgeting

A Budget, is essential for managing your finances effectively.  By understanding where your money goes and how savings and debt affect your financial resilience you can take control over your financial position. 

List your sources of income and your monthly expenses. Prioritize essential expenses such as rent or mortgage, utilities, groceries, and insurance. Make some choices about non-essential spending, and allocate a portion of your income to savings and clearing your debt.

Here's our basic step-by-step guide to  creating a budget and maintain the discipline to stick with it:

Step 1: Set Clear Financial Goals

Before creating a budget, define your financial goals. These could include paying off debt, saving for a vacation, building an emergency fund, or investing for the future. Having clear objectives will motivate you to stick to your budget.

Step 2: Calculate Your Income

Determine your total monthly income, including your salary, wages, freelance income, and any other sources of income. Make sure you consider after-tax income (net income) for an accurate budget.

Step 3: List Your Expenses

Create a comprehensive list of all your expenses. Categorize them into fixed expenses (e.g., rent or mortgage, utilities, insurance) and variable expenses (e.g., groceries, dining out, entertainment, clothing). Don't forget to account for irregular expenses like quarterly bills or annual subscriptions.

Step 4: Set Spending Limits

Assign specific limits to each expense category. Be realistic and prioritize essentials like housing, utilities, groceries, and transportation. Allocate a portion of your income to savings and debt repayment.

Step 5: Track Your Spending

Monitor your spending over a month. Keep receipts, use a budgeting app, or track expenses manually in a notebook. This step will help you understand where your money is going and identify areas where you can cut back.

Step 6: Adjust Your Budget

Review your spending and compare it to your budget. If you find that you're consistently overspending in certain categories, consider adjusting your budget by either increasing your budgeted amount for that category or finding ways to reduce spending elsewhere.

Step 7: Build an Emergency Fund

Include an allocation in your budget for an emergency fund. Having a financial safety net can help you handle unexpected expenses without derailing your budget.  

Step 8: Pay Off Debt

If you have high-interest debt, allocate extra funds in your budget to pay it off more quickly. Reducing debt can free up money for savings and investments in the future.

Step 9: Automate Savings

Automate your savings and bill payments whenever possible. Set up automatic transfers to your savings and investment accounts and schedule recurring payments for bills to ensure they are paid on time.

Step 10: Stay Disciplined

Sticking to your budget requires discipline and self-control. Avoid impulsive purchases, and remind yourself of your financial goals. Enlist support from a trusted friend or family member who can hold you accountable.

Step 11: Review Regularly

Regularly review and adjust your budget, especially if there are significant changes in your income, expenses, or financial goals. Periodic reassessment will help you stay on track.

Step 12: Celebrate Your Progress

Celebrate your achievements along the way. As you reach milestones and meet financial goals, take a moment to reward yourself. Positive reinforcement can help maintain your motivation.

Creating and sticking to a budget is a gradual process, and it may take time to find the right balance. However, with determination and consistent effort, you can gain better control over your finances and work toward your financial aspirations.

 

Build an emergency fund

One of the cornerstones of being financial resilient is having an emergency fund.

In the absence of savings, most Kiwis often resort to borrowing at high interest rates to promptly cover unforeseen expenses, thereby impacting their long-term financial stability.

Building an emergency savings fund, ideally up to three months' worth of living expenses in a high-yield savings account or a term deposit will serve as a financial safety net in case of unexpected financial setbacks like medical emergencies, big car repairs, or job loss.

Here some ideas to help you build an emergency fund:

• Set a Clear Goal: Determine how much money you want to save in your emergency fund. A common recommendation is to save three to six months' worth of living expenses, but the actual amount should be based on your individual circumstances and financial goals.
• Open a Separate Savings Account: To prevent you from easily dipping into your emergency fund for non-emergencies, open a separate savings account specifically designated for this purpose. Choose an account that offers a competitive interest rate, which can help your fund grow over time.
• Create a Budget: Analyze your monthly income and expenses. Identify areas where you can cut back or reduce spending. Allocate a portion of your income to regularly contribute to your emergency fund. Treat this contribution as a non-negotiable expense.
• Start Small: If you can't save a large sum right away, start small but be consistent. Even saving a small percentage of your income each month will add up over time. The key is to establish a savings habit.
• Automate Your Savings: Set up an automatic transfer from your checking account to your emergency fund savings account. This "pay yourself first" approach ensures that you save money before you have a chance to spend it.
• Windfalls and Bonuses: Whenever you receive unexpected windfalls, such as tax refunds, work bonuses, or monetary gifts, consider allocating a portion of these funds to your emergency fund. This can help you reach your goal more quickly.
• Prioritize High-Interest Debt: If you have high-interest debt (like credit card debt), consider paying it down while simultaneously building your emergency fund. Once your high-interest debt is under control, you can allocate more funds to your emergency savings.
• Refrain from Using the Fund for Non-Emergencies: It's important to use your emergency fund only for genuine emergencies. Avoid dipping into it for regular expenses or discretionary spending. Having a clear definition of what constitutes an emergency will help you preserve your fund.
• Track Your Progress: Regularly monitor your emergency fund's growth and adjust your contributions if necessary. As your financial situation improves, consider increasing your emergency fund goal to provide even more security.
• Be Patient and Persistent: Building an emergency fund takes time and discipline. Don't get discouraged if you can't save the desired amount immediately. The important thing is to start and continue building your fund consistently.

Financial emergencies can happen to anyone, and having an emergency fund in place can provide peace of mind and financial stability during difficult times. Building this fund is an important step in achieving financial resilience.

 

Reduce your debt

High-interest debt can erode your financial resilience.

Reducing your personal debt can be daunting and it's easier said than done. Make a plan of which debts you want to pay off first

Here are some ideas to help you tackle and reduce your debt:

Create a Debt Repayment Plan: Start by listing all your debts, including the type of debt (credit cards, personal loans, student loans, etc.), the outstanding balance, the interest rate, and the minimum monthly payment. Having a clear overview will help you prioritize your debts.

Set Clear Goals: Establish specific and achievable debt reduction goals. Decide how much you want to pay off and by when. This will keep you focused and motivated.

Prioritize High-Interest Debt: High-interest debt, such as credit card debt, can be particularly burdensome. Focus on paying down the debt with the highest interest rate first while continuing to make minimum payments on other debts. This strategy, known as the "debt avalanche" method, saves you money on interest over time.

Create a Budget: Develop a detailed budget that outlines your income and expenses. Allocate a portion of your income to debt repayment, and cut back on non-essential spending to free up more money for paying down debt.

Increase Your Income: Look for opportunities to increase your income, such as taking on a part-time job, freelancing, or selling items you no longer need. The additional income can accelerate your debt repayment.

Negotiate Lower Interest Rates: Contact your creditors and ask if they can reduce the interest rates on your loans or credit cards. A lower interest rate means more of your payments go toward the principal balance.
Consolidate or Refinance Debt: If you have multiple high-interest loans or credit cards, consider consolidating them into a single, lower-interest loan. Refinancing or consolidating your debt can make it more manageable and cost-effective.

Use the snowball method: An alternative strategy to consider is the "debt snowball" method. With this approach, you focus on paying off the smallest debt first, regardless of interest rates. Once the smallest debt is paid off, you roll that payment into the next smallest debt, creating a snowball effect.

Avoid Taking on New Debt: While paying down existing debt, resist the temptation to take on new debt. Avoid using your credit cards for unnecessary expenses, and refrain from applying for new loans.

Seek Professional Help: If your debt situation is overwhelming, consider consulting a financial counselor or debt management agency. They can provide guidance and negotiate with creditors on your behalf.

Stay Committed: Reducing debt takes time and discipline. Stay committed to your debt repayment plan, even when it feels challenging. Celebrate your milestones along the way to stay motivated.

Build an Emergency Fund: Having an emergency fund can prevent you from adding to your debt when unexpected expenses arise. Prioritize building an emergency fund alongside your debt repayment efforts.

Reducing debt effectively requires dedication and a well-structured plan. It's important to address your debt systematically and make sustainable changes to your financial habits.

By following these strategies, you can work towards achieving a debt-free and financially secure future.

Start retirement planning

The earlier you start to plan your retirement, the better.  As life expectancy continues to rise, planning for a secure and comfortable retirement becomes increasingly vital.

Retirement is full of uncertainties:

• when will I retire?
• how long will I live for?
• do I have enough money to live well in retirement?

So a successful retirement requires careful planning and thoughtful considerations sooner rather than later.  And so we have partnered with Enrich Retirement and Lifetime Retirement Income to provide you with their guide Buckets of Money for Retirement

 

 

Protect you and your assets

Protecting your assets can involve a combination of financial planning, legal measures, and risk management strategies. Here are some ways to help you safeguard your assets effectively:

Create an Estate Plan:

Establish a will,  it helps us provide for family members if you die, and state how you want to distribute what you own.  Wills also let us specify who we would like to look after our kids, or to leave special gifts and meaningful things to people or organisations we choose. Dying without a will can cause a lot of unnecessary stress and cost for the people you leave behind.

Create an An enduring power of attorney (EPA)  it's a legal document giving someone the power to act for you. There are two types: one for money and property, one for personal care and welfare.

Get the right type of personal Insurances:

Personal and life insurance options generally fall into several categories:

1. Life Insurance: This provides a lump-sum payment to beneficiaries upon the death of the insured person. It can help cover funeral costs, outstanding debts, and provide financial support for dependents. There are several types of life insurance in New Zealand, including term life insurance, whole life insurance, and endowment policies.
2. Health Insurance: Health insurance covers medical expenses such as hospital stays, surgeries, specialist consultations, and prescription medications. It can offer faster access to healthcare services and allow individuals to choose their preferred doctors or hospitals. Health insurance in New Zealand can be purchased privately or obtained through employer-sponsored schemes.
3. Income Protection Insurance: This type of insurance provides a replacement income if the insured person becomes unable to work due to illness or injury. It typically pays out a portion of the individual's regular income until they can return to work or reach retirement age.
4. Trauma Insurance: Trauma insurance, also known as critical illness insurance, pays a lump sum if the insured person is diagnosed with a specified critical illness or injury. These may include conditions such as cancer, heart attack, stroke, or major organ transplant.
5. Total and Permanent Disability (TPD) Insurance: TPD insurance pays a lump sum if the insured person becomes totally and permanently disabled and is unable to work again. The definition of disability can vary between insurance policies, so it's important to understand the terms and conditions.
6. Mortgage Protection Insurance: This type of insurance helps cover mortgage repayments in case the insured person becomes unable to work due to illness, injury, or unemployment. It ensures that the mortgage is paid off or covered for a specified period, providing peace of mind to homeowners and their families.

It's important for you to assess your financial needs and risks to determine which types of insurance are most suitable for their circumstances.

Talking with a financial advisor or insurance expert can help in making informed decisions.

Get the right type of general Insurance:

Maintain insurance coverage for your assets, such as home insurance, car insurance, and contents insurance is important too. It will protect you in the event of damage, theft, or liability claims.

Regularly Review and Update Your Wills and insurances:

Life circumstances change, and it's essential to keep your estate plan and insurance policies up to date.  Review and update them to always reflect your current circumstances. 

Sometimes all of this can be a complex process that should be tailored to your individual circumstances.  So consulting with professionals to create and review your plans  is really important

Talk to experts

We have partnered with experts across estate planning, insurance and retirement planning to help you become more financially resilient:

1. Monument Insurance
2. Tower
3. Public Trust
4. Enrich Retirement
5. Lifetime Income retirement