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From frittering to flying high

March 8, 2016

A year ago, high-earning Auckland couple Stephanie and Rod* faced financial reality: despite salary increases and having no dependents, they were going nowhere. In fact, they were going backwards, says Hannah McQueen, the financial personal trainer who has helped transform them into smart money managers. Now, they are ready to pay off the mortgage on their Waterview home in half the original time and plan to buy an investment property this year.

Stephanie is the human resources manager for a global brand company and Rod is a sales consultant. Their combined income beats that of the average Kiwi household's, which is just shy of $80,000, according to the Department of Statistics.

"When I started working with them, they described themselves as shoppers and were both spending more than they earned," says McQueen, founding director of financial consultancy enableMe. She says the trap many fall into is the higher their income, the more permission they give themselves to not think about their spending, rather than being smart with money.

Aside from mortgage payments, Stephanie and Rod were frittering money on food and wine, clothes and overseas holidays, saving very little. "We had no understanding of where we were spending," says Stephanie. "We didn't think we needed to micromanage our finances because we were earning good incomes. But in reality we were out of control. While we were not getting into serious debt, we were not getting anywhere."

It was a weight on their shoulders, but the thought of developing a budget was worse. "We thought it would mean massive lifestyle changes and having to go without." With no financial goals, they didn't know what had to change until they got advice.

McQueen set the couple a goal of getting their mortgage repaid in nine years instead of 15, factoring in holidays, renovations, car replacements and other expenses. A year later, Stephanie and Rod are on track to repay their mortgage in just over eight years, saving $115,000 in interest.

They started by recording how much they spent each month. "I was spending far more than I thought," Stephanie says. "I was actually spending a fortune on clothes and hadn't really been conscious of it." The couple's budget still allows quite an impressive sum for new clothing as part of a detailed spending plan that includes $300 a week for groceries, $150 a month for dining out (excluding alcohol), $500 a year for books and magazines and $30 a week for pet costs. Stephanie says she realises "not buying a coffee each day can save $25 a week, which could amount to thousands of dollars going into your mortgage over a few years".

When the couple bought their home in 2001, she says, they "just followed the bank's advice in terms of our mortgage, without thinking about how we might structure it to minimise interest". By working out the total cost of their lifestyle at the start of each year, the couple can calculate how much extra they are able to pay off their mortgage. If they stick to their budget, at the end of each year, a large chunk of the mortgage is paid off.

"We haven't had to give up that much and now we're thinking we can push ourselves a lot harder. We could be squeezing the budget more."

Surnames withheld by request for security.

Secrets to success

A driver of financial success is "our emotional behaviour around money", says financial personal trainer Hannah McQueen (right). Empowering people by giving them a sense of control over their spending while being able to retain their lifestyle is fundamental.

"Most people can't stick to a budget over a prolonged timeframe, so it is critical to ensure they can still live the life they want. Everyone knows how to budget - it's a science. The art is in addressing the obstacles."

Other common obstacles to getting ahead include lack of planning and motivation, differing values between spouses around money and poor financial literacy.

Article by Andrea Milner from the Herald on Sunday

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