Did my financial plan stand up to the test?
14 Jun, 2020
Even though Level 2 had felt quite ‘normal’ here in Alexandra, going to Level 1 on the 9th of June did have me going “phew, we did it”. Collectively as a town, region and as a country, WE DID IT! That’s a pretty good feeling. Well done whanau of 5 million!
But personally speaking, I don’t quite feel out of the woods yet. Maybe it’s having gone through the long slow disaster that was the Christchurch earthquakes, that my thoughts are along the lines of “don’t relax too soon Ruth”. Therefore, I’m going to listen to my gut instinct this time too and from a financial standpoint, I’m not done with being cautious just yet as economically I think this has quite a way to play out.
Jonny, we need to talk
When COVID-19 hit our shores back in March my immediate reaction was to have a quick ten-minute money meeting with Jonny where we looked at our PocketSmith budget and because I knew our incomes were now uncertain we immediately turned the tap off to any unnecessary spending.
I colour code my transactions into:
Green: Income
Red: Necessary Expenses
Yellow: Insurance
Orange: Fun Stuff
I can tell you there was NONE of my favourite colour orange on my Earning and Spending pinwheel from that moment on! And the savings we immediately made were noticeable in our bank accounts too. Fear not though, throughout lockdown we did manage to have a pretty good time, but it just didn’t cost us anything.
My colour coded Earning and Spending Pinwheel for April
Picture of April (showing no orange)
As we headed into June and lockdown eased, my favourite colour started to appear again as we relaxed and had a bit of fun, plus we bought a few things we had been holding off buying during the stages of lockdown.
So today, because it’s been a while, I thought I would give you an outline of how we are faring and where we are currently allocating money because I know that people like to see the decisions I’m making so you can compare it to what you might have going on yourselves. And for those who are new to my blog, WELCOME, this will give you a bit more insight into me as well.
Income
I was paid a part time weekly wage of $292 throughout the lockdown (my employer received the wage subsidy) and I’m now back working 14 hours a week at my office job, I expect that will go back to my normal 16 hours a week soon. As you can see, I don’t work a lot, so I don’t earn a lot! The automotive business I work in has actually recovered really quickly and is very busy which is great and a good sign that our customers are doing ok too.
Jonny works as a part time freelance graphic designer and his work dried up but in the last couple of weeks his workflow is increasing, but still well below what it was, so we are grateful for him having received the part-time work subsidy of $350 a week for 12 weeks.
This blog brings us in a small monthly income now, plus more recently I’ve also been doing freelance writing work so that adds to the income account too.
As I have heard from friends and readers of my blog who have lost their jobs I am grateful for the fact that Jonny and I continue to work part-time and derive our income from four different sources and although we are on a low income (it’s looking like being about $50K net income for 2020) because we have a very good grip on our expenses we are doing absolutely fine. To have just gone through a period of earning the least we have earned in years and say “we are doing just fine” is good news indeed. Not being reliant on just one or two sources of income and having a side hustle really gives options, so if this is available to you, my advice would be to take it.
Expenses
I sound like a broken record I know but honestly folks, keeping a budget is crucial. The fact is that it’s not restrictive, instead, it gives me the freedom to spend because I know our exact financial position and have made plans to save up for things we want. We have no debt at all, I’m 46 now and we became debt-free when I was about 32 and despite the offers of cheap debt over the years where we could hypothetically use borrowed money to grow wealth, we never took it. Because we can’t/won’t turn to an overdraft, credit card, interest-free loan or mortgage top-up we keep a bigger cash buffer than most, keeping money handy in a variety of bank accounts:
Emergency fund - $14,000
Sinking funds and cash accounts - $16,000
Total: $30,000
As COVID started I really thought that this might be a time that we needed to tap into our emergency fund because as we went into lockdown both of our incomes dropped. BUT by cutting out all unnecessary spending we just adjusted to living on LESS than this new lower income thereby sticking to our rule of “always live on less than you make” and it meant that although there was a little bit of juggling between bank accounts, we achieved it. Call me a weirdo but I actually enjoyed the process of stripping our lives back to the basics (which still included wine and good food I should probably add) because it gave me an absolute baseline for what it costs to run our whanau of three. And it was $72 a day. So, based on that, if we had to rely on our emergency funds, they would last a good six months, which would be more than enough time to find another source of income.
As I reflect back to when this all kicked off in March, I know that we did exactly the right thing here, we did a stocktake of our current financial situation, taking our income, our expenses and our investments into account and we adjusted our spending habits to fit it. Then once we knew where we were at, we could look for opportunities to gain more work and also to carry on investing.
The reason I share this is that I think that many people who have never had to worry about paying the bills are, for the first time, worrying about paying the bills and the reality of it is your current lifestyle and expenses HAVE to immediately change to fit your new reduced income. For some, a high level of debt is going to become a big problem pretty soon and whereas banks are understanding and accommodating at the moment, that might not last if they see good money being thrown after bad. Be very careful. If you have been given a notice period at work, then my advice is to not wait for D-Day, but instead, start living on your new lower income right now and start making some moves to plan ahead. If you simply continue living on as you were then inevitably you WILL run out of money, so my advice and the strategy we took at the first hint of a reduced income was to pull back spending and live on the money that was actually coming into our bank account while we planned our next steps.
Once again, because I budget I knew every category we spent money in so I could anticipate what was coming up that was a necessity (rates and insurance) and what could be cut (clothing and regular visits to Paper Plus!). I was also able to reallocate money to other areas given the fact that we would normally fuel up the car but because we were stuck at home, that was money that could be used elsewhere. There was no eating out, so that money was reallocated too. Once up and running, a budget literally takes two minutes a week to maintain and is such a useful tool to use.
Investing through the ups and downs
Initially, I thought that we might have to temporarily stop our regular investments, something I certainly did not want to do because as the sharemarket took a tumble I knew I wanted to continue to buy in at cheaper prices. Plus, up until this point, we have invested month in month out for years, with no signs of stopping so I REALLY didn’t want to stop now! So, although I was not able to invest too much extra, I kept up our normal payments into:
Simplicity KiwiSaver - I contribute monthly to Jonny’s, mine and our daughter’s growth funds
SmartShares - I contribute monthly to the NZ Top 50 (FNZ) and US500 (USF) funds
Sharesies - I contribute to the New Zealand Property (NPF) fund weekly
But because, as I mentioned above, I was reallocating money I did manage to find some extra money to invest. Once again, budgeting is freaking brilliant for that! It’s like finding change down the back of the couch or a $20 note in your unused jacket pocket! Once our weekly costs were met and making sure I kept our cash buffer as high as I could, I went ahead and invested any ‘spare money’.
Because I have an affiliate link with Sharesies ($10 for you and $5 for me) and because people flocked to the Sharemarket for the very first time during the share market crash it meant that in $5 increments, money kept appearing in my Sharesies wallet to invest. So, I continued to invest in the NPF that I’ve always invested in but because I wanted to take immediate advantage of the drop in the New Zealand share market, instead of having to wait to invest only monthly via SmartShares, using Sharesies, I also started up another investment into the FNZ fund too (which is a double-up) and once or twice a week I just kept pushing money from our bank account into these investments. The sums were not huge over all (a couple of thousand) but it was worth it for sure.
We just trundled along
While I know that many people out there were saying things like “don’t waste a good crisis” and were investing any money they could lay their hands on, my investment approach more or less trundled on as it always had. Now, “trundle” is not usually a strategy you hear about in investment webinars but I’m just not an excitable investor. I just figured that we had invested throughout the steady rise in the share market to its historic highs in February, we then invested at the very bottom in March and we have now been investing through this current climb. And I fully expect I will have the same approach during every future share market crash.
My Sharesight graph showing the NZ Top 50 fund from when I first started investing in this fund.
Our combined investments of about $270,000 took a bit of a hammering as the value dropped by about $40,000, but as of writing this on the 11th of June, we are just a few thousand dollars short of where we were back in January 2020. It’s been a remarkable ride in just a few short months and it has been one of the best educations I could get into the benefits of keeping a cool head during a crisis because there is no substitute for learning on the job. And I think we are in for quite a few more lows and highs yet.
Throughout this process there was one thing that never entered my thinking: Selling any investments. Whether that meant cashing up one of our SmartShares funds to stem further losses or moving my KiwiSaver from high growth to conservative. No freaking way would I be doing that! I recalled the wise words of the likes of JL Collins who points out that share market crashes are just a normal and expected part of investing, but over time, the share market always goes up. If you have not read his book, it remains one of the most influential ones I’ve read and is worth checking out. There was also never a point where I thought I had the skills (or interest) to pick out a single company and buy shares in that, although I watched with alarm the young guys on Youtube who were doing just that! I suspect I know how things will turn out for them, but I also suspect we are less likely to hear about those losses via social media.
Right place right time
Our calm attitude all swings back around to budgeting and also to what I tell people about money when they email me; it’s about having money allocated to the right places at the right time. A short, medium and long term investment strategy. Even with the screws on us with earning a reduced income, I would rather sell my car than sell an investment! We are in the wealth accumulation phase of our life and nowhere that I read does it say “panic and SELL your investments”. In doing so I would have sacrificed my future to solve a short term problem that could be easily fixed by managing our expenses better.
How did we teach our daughter during this time?
I don’t mean “teach her” in regards to school work (her fabulous teacher was all over that), I mean, what financial lessons could we share with her. The thing I like about how Jonny and I parent is the teamwork involved and although we do shield her from a lot of the national and international goings-on (a pandemic is a pretty scary proposition when you are only 12 - I read Z for Zachariah at that age and it scared the crap out of me) but we do calmly explain how it might impact us as a whanau.
So, when she knew that our income was slowing, she could hear a calm and rational response to it (much like Jacinda Ardern gave the whole country). We always share the financial goings-on of our household so we simply shared the facts of the situation with her and what plan we had to solve the problem. No argument, no raised voices, just a calm conversation and I think (I know) that is what kids need to hear. Countless people I have spoken to (and myself included) remember our parents fighting about money and that there was an underlying current of fear around money. Well, I want her to see that yes, there is a problem, but here is the way to solve it. And just to make her understand it on a personal level, I reduced her pocket money too and I explained why. When times are tough, you tighten your belt.
What’s next?
We are moving out of lockdown with caution. I’m afraid I don’t see it as our responsibility to kick start the New Zealand economy by spending more than I normally would, but I will instead keep doing what we are doing. We have made a few purchases since lockdown ended, our 10-year-old MacBook Pro finally gasped its last breath and because we knew this day was coming we had already saved up the amount of money needed to replace it, so we just went ahead and did it. We did head to Queenstown for a bit of fun, once again using money that we had been regularly setting aside in our ‘holiday’ fund. It does not look like we will be getting out our passports anytime soon so local holidays are a fantastic option. We had a -8 frost here so a pair of winter pants to walk the dog in was kinda a necessity too. So, we ARE spending money, albeit cautiously and no longer is it just $72 a day. But I have to say that I, like many, actually enjoyed the calmer pace of life that being forced to STOP for a month or two gave us, so I’m in no great rush to complicate things again.
Living where we do, down at the bottom of the country, I think that we may escape some of the economic carnage that the likes of Queenstown (which is just one hour away) or bigger cities is experiencing. This town kinda has no ‘excess’ so the majority of the stores and businesses that are here are well frequented by locals and necessary to everyone. But I do have many friends and connections who have lost their well paying middle to high-income jobs and that just has to flow down into the local economy at some point and have ramifications for us all. And that is why, even though we are personally back on more stable ground I just don’t feel like it’s time to relax just yet and we will both keep working to bring in income from a variety of sources and keep monitoring our expenses as we go. All the while, I’ll keep investing and just keep trundling along because to answer my original question to myself, “did my financial plan stand up to the test”, the answer is “yep, it sure did”.
Happy Saving!
Ruth
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