With increased talk of a recession making the rounds there’s no better time to start getting your finances in order and making plans for the future.
In the first quarter to March 2022, our GDP fell by 0.2% and another fall in the June quarter would technically bump NZ into a recession.
The best way to understand and deal with what will be a tough period for many is to start thinking of it as more of an economic slump. It won’t last forever but you will need to have a plan in place to keep your finances steady during this time. Here are some ways you can prepare yourself:
Do a stocktake of your spending
Become more aware of what happens to your money. When everything is going well it’s easy to ignore bad spending habits. When things get tighter our issues with debt, a lack of savings, and other factors are more exposed.
Have a look at your bank statements to see where your money goes. What are you spending it on? Could you spend less and save more? Use a budgeting tool like the ones available on the Sorted site to help you take control of your spending. While the stress of a difficult economic time can be taxing, the increased personal awareness of your finances can be an unexpected boon.
Start a savings plan
Every Kiwi should have an emergency fund. Research shows that people have an increased sense of general wellbeing if they have at least $1,000 set aside in case of unforeseen costs. While the rising cost of living is making saving much harder, the good news is any amount you can save each week is better than not saving at all. Once you have a savings habit in place you can always build on the amount you are saving down the track.
Check your KiwiSaver is invested in the right fund for your situation
You may have noticed that when markets change, your KiwiSaver balance can often follow suit. This is because the money you put into your KiwiSaver account is an investment rather than a simple savings account. When you join KiwiSaver you are asked to choose an investment fund type – Growth and Aggressive funds can offer higher rewards over time but have a higher risk factor. On the other hand, Balanced and Conservative funds can have lower risks, but usually offer lower returns. The best fund for you is based on your personal circumstances; age, when you want to withdraw your money (for retirement or first home), your attitude to risk and the type of lifestyle you want to enjoy come retirement. If you need help choosing an investment fund our team can help.
Stay calm
Once you’ve made your budget and your savings and KiwiSaver plans you should stick to them. Recessions are usually short-lived and any fear-based decisions aren’t usually based on a rational assessment of the situation.
Switching your KiwiSaver investment funds during times of market downturns can be tempting but this often delivers worse results in the long-term. It’s almost impossible to time the markets, if you switch funds you risk locking in losses and might miss the rebound once the market has recovered. Market ups and downs are a normal part of investing and history tells us the markets will eventually recover. The best approach is to focus on the long-term strategy of your KiwiSaver investment and reap the potential rewards of being patient.
Work on yourself
Financial survival isn’t the only focus during a recession. You should also make sure to work on yourself and your skills, looking to the end of the downturn and beyond.
Remember to keep up with your professional and personal development and seek out ways to boost your own qualifications. Regardless of a recession’s outcome life will go on and you should be in the best position to take advantage of opportunities.
Get advice
Talk of a recession can be unnerving but if you make appropriate plans and are confident enough to stick to them, you can survive and thrive. If you’d like to check your financial plans are on track, call our team on 0800 438 238 or email letstalk@advicefirst.co.nz.
