The New Frugality

Researchers claim children cost as much as a new BMW. Find out how to reduce the price tag to a more realistic small Toyota ... without impairing your lifestyle.

Living Better Than Ever in an Age of Less”, says money doesn’t equal financial freedom. “Part of accomplishing financial freedom is what I call the new frugality,” he explains. “This isn’t about deprivation. It’s about choice.”

His way is to keep track of every dollar you earn, plug the hidden leaks (such as credit card interest), spend less money on food, measure success in terms of happiness and see how much money you can save while boosting your quality of life.

Cumulative cost-cutters

If you stop ballet classes, you’ll save on the lessons as well as on transport, uniform, exam fees and the year-end show. (This is just an example. If your dream lifestyle includes ballet, keep it.)

Other snowballing savings include shopping for groceries online (save on fuel and impulse purchases), cheap-night DVD rental (save on fuel, baby sitter, movie tickets, popcorn), home-cooking (save the price of the meal today, the bigger size dress tomorrow and the heart operation in the future).

Beware of bargains

Price and quality often go hand in hand. Buying a $2 umbrella that breaks on day two is false economy. So is buying something you don’t need just because it’s cheap.

If the sale is out of your way, calculate the cost of transport. Also, a 10% sale sounds good, but not if you’re borrowing money at 15% to pay for it.

Buying in bulk only works if you use in bulk. Don’t buy a 5kg bag of salt just because it works out cheaper per teaspoon. Don’t buy a half a lamb if you have to run a second freezer to store it. Also, once you have your bulk bargain, don’t be tempted to use more of it than usual.

Worth cutting

It’s always worth wiping out money-drains like:
•    interest on debt
•    traffic fines
•    alcohol
•    cigarettes
•    soft drinks
•    bank fees (shop around for an account that suits your needs)
•    excessive luxuries, whatever that means in your household.

Worth keeping

Cutting some costs can lead to bigger expenses: think engine oil and what would happen if you skimped on it.

Buy milk not Coca Cola, even if milk’s more expensive. Supplement your beans-on-toast dinners with vegetables in season (carrots and pumpkins in winter, tomatoes and asparagus in summer) to make them more healthy.

Develop a re-use culture: pre-loved toys, hand-me down clothes, toy library, garage sales, local library. Think what else you can reuse: envelopes, tea bags, wrapping paper, regift unwanted presents. Make your own: baby toys from boxes, sponges and wooden spoons; jams from second-grade fruit; pasta, soup, gravy, muffins, homemade pizza.

Don’t cut:
•    insurance
•    car and house maintenance
•    swimming lessons

Utilities

Many companies have special offers to attract new customers, but don’t forget that a disconnection fee usually applies when you switch suppliers. Remember to add that to your calculations and make sure that the special price you’re getting is guaranteed for at least a year. Plus, shop around for the best deal on landline rental combined with broadband and mobile phone packages – there is a lot of competition out there now with new companies such as 2 Degrees offering some great deals.

Special needs families

Work and Income can help with: disability allowance, travel costs, special equipment and diet.

Single parent families

Many single parents assume they have to return to work, but before you do, consider the cost of childcare, transport, work clothes and tax.

Single fluctuating income

For a family on a single fluctuating income (e.g. freelance artists, contractors) who are eligible for Working for Families (family tax credit), it might be better to sign up for a lump sum payment. The downside is you only get it once a year, but it is better than having to pay them back, if you’ve received too much, when they assess your income at the end of the financial year.

Parent studying

Studying means single income but no free time. Consider time-efficient ways to boost your income: babysitting, lodgers, full boarders (serve what the family eats), nightshift customer support.

The last word

Says a mum who turned down a full-time TV contract: “Being a stay-at-home parent is the most rewarding, yet the most challenging, job. Sometimes you feel guilty you’re not earning. Some days feel like Groundhog Day. But celebrate the small things and live in the moment.”

Top tips from parents

  1. Listen to all the advice, but only take what works for you. A budget meal wastes money if nobody eats it.
  2. Skip your weekly shopping once in a while and use what’s in the pantry.
  3. Put $5 a week into a Christmas Club (The Warehouse, Mad Butcher, supermarkets, etc).
  4. Sophie Grey (destitute gourmet) has great meal ideas.
  5. Barter: e.g. a weekend at a friend’s bach for some babysitting; a decorated birthday cake for a hand-made dollhouse.
  6. If you need a financial manager, shop around. Some will charge a lot for off-the-rack advice that’s not streamlined to your needs.
  7. Don’t say you can’t afford something, say you’re choosing to spend money elsewhere.
  8. Value money, don’t worship it.

Experts say

BNZ has a “Get Money Wise” online and print brochure full of investment tips and financial goal setting. They also advise to think carefully before agreeing to be a guarantor for someone else’s loan as you will have to pay back the loan if they don’t keep up the payments.

ASB recommends reducing your debt before you open a savings account, advising that the cost is much greater than the benefit of the investment returns, especially after tax. Plus take a long-term view of your finances. KiwiSaver has great incentives to save/invest for a long-term goal.

National Bank advises that if you have loans from many sources you could be paying more interest and admin fees than you need to. Consolidate your debt into one loan with a set interest rate and due date. Shop around for a loan that won’t penalise you for paying off the debt faster.

To help you stick to the budget, have separate bank account suffixes for your expenses: one for automatic payments, one for fixed expenses (WOFs, haircuts, car registration), one for food and petrol. Your bank will advise you how to structure the accounts to avoid paying banking fees.

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