Quite a long time ago, one of our old advisers, who was getting near 80 at the time, decided to pack it in and spend his days in his garden instead. It wasn’t because he was feeling too old or past it, he said, that was far from the reason. The reason he was leaving, he insisted, was that we had largely ceased to be a budgeting service, but had increasingly become a debt management service. When he had started budgeting, way way back then, the majority of his clients received enough income to be able to meet their day to day living costs, once they had acquired the necessary budgeting skills. Now it was all different, and he didn’t like it, and his heart wasn’t in it anymore
How a mole hill becomes a mountain
I’m not going to debate the merits of his reasoning, but one of the big problems for so many clients today certainly is debt, and very often the debt is compounded monstrously not only by interest and penalty charges, but by people, desperate people, taking out loans that they also can’t afford to repay, to pay those unpaid bills. They don’t seem to be able to grasp the fact that if they don’t even have enough to pay their bills, how can they ever repay a cash loan, mostly at savage and extortionate interest rates? They’ll cut back on food, that’s what they’ll do, and rely on food banks, miss the rent and the power bills. The cash loan companies and the debt collectors feed off each other. Too many clients just make it worse and worse for themselves, as penalties and interest charges slowly transform a mole hill into a mountain.
Our magic wand is broken
So many people, so much debt, so many debt collection agencies. It’s enough to make you sob into your Weetbix. There are so many people come in, and they say they just want to clear their debts. That’s understandable. Trouble is, half of them don’t even know how much debt they have, they have moved around too much, kept running to stay ahead of it all. Now they’re tired of running, they want us to find out their debts for them first, and then they want us to wave a magic wand and make it all go away. That it might take effort and commitment from them is a hard message to hear.
Shopping bags and tax refunds
I had one woman who came in, and when I asked her about her debt , she said she didn’t really know, but she did have a lot of letters at home, all of them unopened of course. Human nature, hide from the horrid stuff, or try to run away. I made her bring them all in, in shopping bags, tipped them on to the desk, and started opening them while she shrank back in fear on the other side as though a snake or poisonous spider might crawl out and strike at her. It was the IRD letter that frightened her most, because she had no idea of what demand or threat it contained, but it turned out though that it was a tax refund cheque for her, which could have stayed in the drawer for ever. It all quite made her day, her situation wasn’t nearly as bad as she feared, almost manageable in fact, and she also found some extra spending money.
Calm minds make good choices
People panic when they’re stressed out, they do really crazy stuff, and we have to try to stop them doing it. That fence at the top of the cliff we talk about so much. People have to take responsibility for their lives but you can’t make anyone see sense or logic when they’re in the middle of a panic attack. You’re got to get them calm first, concentrate their minds, and help them work it out themselves, and then we’re half way home.
- Always open mail, and check due dates, and interest charges.
- Don’t just plan for the future, keep track of the past and present, particularly debts.
- If you can’t afford to pay your old debts, you probably can’t afford to repay new loans either.
- Debt consolidation loans sound too good to be true and often are. Check with your adviser.
I wanted to share a story with you about a client that I recently worked with. The client, who I will call John, had recently shifted to Dunedin. He had come from the central North Island to take up a position as a manager with the company he was employed by. John had approached our budgeting service because, despite earning a good salary, he was unable to pay his power bills on time. I was able to access a fund local fund provided by our City Council to help with his immediate need and pay his overdue power bill, however this was not going to provide a long term solution for John.
How high is too high?
John lived with his wife and teenage daughter. Being new to Dunedin, John didn’t know what sort of power bills to expect but was shocked when he received $500 – $600 power accounts each month. He was used to paying in the region of $150 and explained that he and his family were doing everything in their power (excuse the pun) to keep their power usage down. He explained he was showering as little as possible, turning everything off at the wall when possible and they were using blankets instead of the heat pump. After investigating John’s power account it struck me as being very high for a small family of three.
Technology to the rescue
Knowing that John’s electricity supplier was currently installing smart meters in Dunedin, I asked him if he by chance had one. He did, so I showed him how to install an app on his smart phone that can show your electricity usage from monthly right down to hourly. What I noticed was that even at night time John and his family were still using a lot of power. This was very strange because everything was switched off. Having come across this issue before, I advised him that there may be faulty wiring, a problem with the hot water cylinder, or maybe a fault with the heat pump?
Tenants have rights too!
John asked me what he could do about this. I explained to him that tenants have rights. Landlords among other things must ensure that the plumbing, electrical wiring and the structure of the building is safe and working. As we suspected an issue with the plumbing or wiring we could request that the landlord have this looked at. John’s landlord was in Auckland and was paying a property management company to look after the property for him. We contacted the property manager and requested that they have the power consumption issue looked at and fixed. The property manager came back to us and told us that the owner had recently spent money on the property and was not willing to have any further work done. I explained to John that this was not good enough.
Stand up for your rights
I downloaded a 14 Day Notice form from the Department of Building and Housing website www.dbh.govt.nz . We requested that the property manager address John’s issue or he would be going to the Tenancy Tribunal and would be asking to be released from his lease. The 14 days came and went with no word coming from the property manager. We applied online to the Tenancy Tribunal for a fee of $20.44, giving all of the relevant facts in the application and shortly after John received a date for a Tribunal hearing. I attended the hearing with John where the property manager tried to argue that John had wanted out of his lease the whole time. The adjudicator was quite firm with the property manager and advised that landlords have responsibilities just like tenants do. The adjudicator made a decision in John’s favour and ordered that he be released from his tenancy and be reimbursed the $20.44 that he paid for his application. John was so delighted that the next day he brought his wife in to meet me and at Christmas he dropped in with a card and a box of chocolates.
So what kind of assistance can a budgeting service offer?
Well as you can see budget advisers do more than play around with numbers. We can help in all sorts of ways and if we can’t, we can try and point you in the right direction. Of course you need to play your part too and be willing to engage in the process.
I often present the following scenario to my clients:
Quote: If someone was bleeding out, say from a perforated artery or vein, what would a doctor try and do first: transfuse more blood or stop the bleeding?
People don’t need a medical background to answer this correctly. It just takes common sense. Yet, when it comes to money, common sense disappears. People place themselves in a quagmire of debt but don’t think about trying to stop spending. Their self-talk seems to be, “I need more money” without considering the thinking behind what created the problem in the first place.
So in the context of money, what does mismanagement look like?
- Signing a 36 month contract (with all the ‘add-ons’ of admin fees, insurances) for an overpriced car and being unable to afford the repayments after 2 months and/or the Warrant of Fitness and/or the car registration and/or repairs.
- Signing a credit contract to regularly purchase heavily overpriced, low quality products, when you struggle from day to day with how you’re going to feed your children. (In defence of unwitting customers though, some businesses have left many budget advisers gobsmacked at the overtly predatorial behaviours that appear to target the low educated, the elderly, even the mentally impaired, most often in our low socio-economic districts and communities.)
- Choosing to live in a home or rental accommodation that leaves no money for other essentials like: food, power.
- Using credit cards for unwise purposes and then not even making the minimum monthly repayments. In my droll opinion, most people have displayed a lack of financial sense to justify being banned from using one until they understand how credit card institutions make money off them.
A lust for spending?
Most people I work with spend emotionally and without a plan. They have no solid rationale besides the fact that they just want it. Unfortunately, one of the consequences of living in a fast-paced society is, and that’s due to the rate of change and advances with technology, credit is so easy to access.
Even tougher on the unquestioning consumer with a lust for spending, is the powerful influence of the media which is more than complicit with retailers as their streams of revenue are highly dependent on advertising for their existence. New Zealand society is constantly bombarded with unrealistic media images that reach and teach us how we should define ourselves- brand clothing, fashion accessories, the latest electronic devices to engage in social media, cooler vehicles (that end up being repossessed), bigger houses and the list goes on…
Question: Why are we spending money we don’t have to keep up or impress people we don’t know and probably don’t even like?
Answer: Is it because we want to feel like we belong somewhere, whether it’s with our extended family or a group of friends, a small part of our community, even if it harms us?
Opinion: Feeling like we belong to anything at the expense of our happiness, of giving up control over our money, safety and security and all logical financial sense, is overrated.
Advice: We may want to consider seeking out what common sense and good financial management is that provides you with a sense of control. Go and make an appointment with your nearest NZFFBS budget adviser, read up on whatever information you can find.