Sometimes we spend money on things that aren’t important. Maybe more than we realise. When you sit down and think about what’s important to you, you might be surprised at how much you waste on things that don’t really matter.
We spoke to James – a working professional with a young family and a large mortgage – who along with his wife (a solicitor), have managed to make massive inroads into paying off their mortgage by prioritising the things they spend their money on. They’ve managed to take years off their mortgage by making little changes. The first of which involved creating a budget that covered their expenses, and putting all their remaining income towards the loan.
Their budget gave them an amount they could spend – say $300 a week at the supermarket, including alcohol – and once that was gone, that was it for the week.
It’s a different approach to simply monitoring your spending. To come up with their budget, they looked at all their expenses and then methodically went through the list. They soon found there were some things they spent their money on that were more important than others.
James loves getting out on his bike, so an allowance for new bikes, parts and trips away was important to him. An annual winter family holiday to somewhere warm was also high on the list, as was clothing allowances and money towards replacing the car.
So how did they reduce their spending? “It’s the little things that really add up” says James. “Things like buying lunch.” “A $10 to $15 lunch for each of us – say $30 a day, three days a week is nearly $100. That’s $5,000 a year we can take off our mortgage, simply by being organised in the morning.” Another thing their expenses highlighted was the amount they spent on coffee.
James and his wife now allocate $20 a week on buying coffee.It means instead of the three coffees they used to have each day from the local café, they now only buy a couple a week.
When asked about the effect it has on his life, James passionately points out that, as with their lunch example, they don’t go without, they simply cut back. James still gets to buy his lunch twice a week, and while it took some discipline at the start, the benefits a few years down the track, more than make up for it. “When you see that you’re making progress on your mortgage, the small sacrifices become easier.
Eventually you reach a tipping point where the savings start compounding and that becomes the motivation to stay disciplined.” For James and his family, staying disciplined has really paid dividends. They’re now much closer to realising their goal of being mortgage-free. It all starts with a question. What’s important to you?
Names have been changed to protect privacy. This article is intended as a general discussion only. BNZ recommends the recipient get independent advice. The views expressed are the those of the interviewee and do not necessarily represent those of BNZ or its related entities.