It’s been a hectic weekend! It kicked off with a blast early Friday morning when we learnt that we were featured in the lead story on www.stuff.co.nz with an article called, ‘Why are the Rich Running Out of Money.’
Also known as Rich but Broke.
Brenda Ward the editor from JUNO Investing magazine interviewed us (ok, only Lynda Moore) at the beginning of the year for their magazine. So it was total shock to find us as the lead story on stuff.co.nz.
But there was more to come!
Already busy with the flood of emails and phone calls, late morning Mark Wilson (from Radio Live) contacted us. They read the article and wondered whether Lynda would fancy having a chat with Ali Mau that afternoon. So we did, but more on that later.
This is the article Brenda Ward wrote:
An alarming number of people earning $100,000-plus are spending more than they earn or living from pay-cheque to pay-cheque.
Financial experts around the country are reporting remarkably similar stories about people you would think were rich, who can’t make ends meet.
Among the experts are Lynda Moore, of Money Mentalist in Auckland, who says she frequently finds couples spending all they earn, especially business owners.
Wellington financial adviser John Killick of FoxPlan says he has spoken to couples where both partners are earning more than $100,000, but who are finding there is no money left at the end of the month.
The New Zealand Sovereign Wellbeing Index reported in late 2015 that 7.7 per cent of Kiwis earning more than $100,000 were finding it ‘difficult’ to live on their present income and 1.5 per cent of them were finding it ‘very difficult’.
The trend is of concern to financial experts and their comments are mirroring Nielsen research in the United States.
The latest US figures show that one out of every four families making US$150,000 (NZ$205,000) or more each year falls into this cycle.
In the US, they are calling it ‘lifestyle creep’. Moore calls it ‘the hedonic treadmill’: “Basically, the more we earn, the more we spend”.
Moore says people think their happiness will increase with more earnings, and it may for a time, but it then levels off. “Spending the extra money doesn’t add to our happiness.”
She says people today are becoming disconnected from their spending and failing to put money aside. Business owners are particularly prone to this phenomenon.
“With Xero, some business owners have the perception they don’t have to talk to their accountants any more,” she says.
So, the self-employed do their own paperwork in the cloud and no longer have their accountant’s advice on saving for tax.
“Take the example of business owners, who love life, and have a couple of children.
“The business is growing, revenue has more than doubled, more money is coming into the bank account, so they think, we must be doing everything right. So, they spend everything.”
Then they face a ‘double-whammy’, Moore says.
They had a great year but they did not pay enough tax on that income – and then they also get hit with a big provisional tax bill they were not expecting.
Moore says much of the extra money high-earners are spending is going on “bits and pieces” – tropical holidays, the occasional weekend away, taking the kids and their friends to the movies, Netflix and Sky subscriptions.
“You’ve got to look at the choices you’re making around lifestyle things,” she says.
“If you’re eating takeaways, is it because you don’t have time, or you can’t be bothered?”
How to get a handle on spending
Moore says to start by looking at the automatic payments that come out of your bank account for some extra funds. Did you trial Netflix and never cancel the subscription? Do you have a gym membership you never use?
Then look at the choices you’re making. If you’re buying takeaways, is it because you’re busy, or is it that you just can’t be bothered cooking?
If you’re a ‘details person’, do the numbers and work out where your money is going. If you’re not, divide the money up into ‘buckets’, where one bucket equals one bank account.
If you use all the money in your ‘spending’ bucket, then you have to accept there’s nothing left. This can be an incredibly powerful tool for changing your perception of spending, says Moore.
If your ends really aren’t meeting, then how are you going to create extra money? Can you do overtime, work two jobs, build your business?
Brenda Ward is the editor of JUNO Investing magazine. This is the link to the actual article. The comments on the post make interesting reading by themselves.
Okay, I can guess what some of you are saying, ” what, you can’t make ends meet on that salary!!??”
But here’s the thing: this phenomenon is not restricted to just the ‘Rich but Broke’ group. It is happening to a good deal of us regardless of our income and throughout our society.
The prime reason for this is that we are human, we have emotions and when it comes to money (or spending), for some of us emotions sometimes get in the way.
If money was just about maths, life would be simple. But it’s not, because we attach emotions to money.”
If you would like to know more about anything that you have read or just have a chat, we would love to hear from you, contact us here.