"When you're young and broke is truly the best time to start working on your money; you can achieve a lot with just a little bit of money and a lot of time.
"That's thanks to compounding, which means that you put a little bit of money to work, that money earns you profits, and then those profits also start earning profits.
"Compounding works like a big money snowball, quickly building up."
Frances Cook, Cooking the Books podcaster, columnist and author.
Money. It's the driving factor behind many life choices, but is it the be-all and end-all?
'Me and My Money' is a regular feature that investigates Kiwi attitudes towards money and what drives the choices they make.
Tales from a Financial Hot Mess author Frances Cook told Newshub the irony of being "young and broke" is that it's the best time to start putting money to work.
Ignoring KiwiSaver is a big financial mistake, Cook says. Having run the numbers on her own situation, being in the wrong type of fund could end up costing "hundreds of thousands" (in her case, the estimated difference was $200,000).
As a new Mum, Cook has become even more dedicated to buying second hand, saying it allows her to buy what she needs without stressing about the budget.
1. Are you a saver or a spender?
Naturally, I'm a spender.
That's how I became interested in the personal finance world. I could never seem to get ahead, no matter how much I earned and I was getting frustrated with myself.
I'm still a spender, but as I've learned more about money, I've managed to channel that impulse in healthier ways. I have automatic payments that transfer money to my savings and investing accounts the day after pay day, to make sure I don't try to wriggle out of it.
Investing actually feels a bit like spending, so I took to that like a duck to water!
I also keep some of my budget for little treats so I never feel deprived. There's a lot of freedom to be found in acknowledging what your personality is and then instead of fighting it, to channel it in a way that works for you and your future goals.
2. What's been your biggest financial lesson, success or failure?
This one happened very early on in learning about money and it's a mistake many other New Zealanders are also making.
It’s easy to ignore KiwiSaver - but for those who do, it can cost hundreds of thousands of dollars.
In one of the first episodes of the Cooking the Books podcast, we ran the numbers on me to see how bad this mistake was. I was in a default, conservative KiwiSaver account at the time, which I just hadn’t got around to changing even though I knew a growth account was better for my goals.
When we ran the numbers, the conservative account would give me about $200,000 by retirement - but the growth would give me $400,000.
Every delay I delayed switching was costing me a lot of money. Switching only took 15 minutes to do.
Don't make that mistake! I highly recommend the Sorted Fund Finder as a free, independent way to figure out the best settings for your KiwiSaver.
Default accounts aren't meant to be permanent. If you've never actively chosen your KiwiSaver account, then you're in a default one.
3. What do you know about money now that you wish you'd known sooner?
How important time is.
When you're young and broke is truly the best time to start working on your money; you can achieve a lot with just a little bit of money and a lot of time.
That's thanks to compounding, which means that you put a little bit of money to work, that money earns you profits, and then those profits also start earning profits.
Compounding works like a big money snowball, quickly building up. All you have to do is keep pushing it along.
A little bit of money plus a lot of time is a recipe for success - with very little effort.
4. A recent purchase you consider was value for money?
A $30 Jolly Jumper front pack which I bought from Trade Me.
I've just become a mum for the first time and this thing has been a lifesaver!
Any time bub has refused to go to sleep or is a bit grizzly, I just pop him into the front pack and he's asleep before I've hit the end of the driveway.
I was already a big believer in buying second hand. Last year, I successfully challenged myself to buy no new clothes for the entire year, documenting it on my Instagram under #CookingTheLooks in order to hold myself accountable.
It's an incredible hack for staying on budget, but still getting quality.
5. What's the main piece of money advice that you plan to give as a parent?
Not to be scared of money. So many people struggle to have open conversations about money, even amongst their family.
We'll see how it all goes in reality, but I plan to be as open and honest with him about our finances as possible.
I'm a big believer that children don’t do what you tell them to, but they watch and copy what the adults around them do. If I let him see what I’m doing and talk to him about why I'm making the decisions I make, I hope he’ll be ready to go into the world and make decisions that are right for him.
6. What's your preferred form of investment and why?
In an ideal world, it's good to have a little bit of everything.
My personal favourite is shares. It's very democratic: people can start investing with just $5. An easy option is to buy into some low-fee passive funds and then leave them alone.
Share investing means people are buying a piece of a business, to become one of several owners - they now have a "share". As part owner, the investor gets a piece of the profits in the form of dividends. If the value goes up, they can sell for a profit.
Sometimes businesses have a bad year, sometimes the whole economy does! But for the most part, businesses get to work, employ people and make money. Shares let people get in on that action and are a wonderful wealth builder.
7. What's your best saving tip?
Automate everything!
Don’t wait to feel motivated, don’t rely on remembering - it simply won’t happen. Set up an automatic payment for an affordable amount, the day after pay goes in.
Bonus tip: don't save absolutely everything. Life is for living, so always make sure there’s a little treat money, even if the budget only stretches to a chocolate bar.
If there's no money left for enjoyment, saving will be hard to stick to.
8. The best money advice someone's ever given you?
To alternate what's given up for the budget. One month, it might be giving up buying clothes, the month after, giving up beersies at the pub.
I put this tip in my book and it’s the number one thing people mention to me as a tip that helps them stay in control of their spending without losing their mind.
It's a tip that didn’t come from a 'money expert' - it was from a university friend, during a relaxed chat. It really shows the value of having open money conversations with the people in your life. You never know who has a great pearl of wisdom for you.
The views expressed in this article are personal and are not professional financial advice.
