Last week I had a client contact me requesting to decrease his life insurance payments in order to save money. Things happen, and sometimes cut-backs need to be made to allow for more important things. These things are often sudden and can stem from major life changes; your insurance becoming redundant or you or a family member becoming ill, to name a few.
Alternatively, your cost of living might have gone up, or events might have arisen that require extra funds. In any case, I was happy to help my client through this process, but wanted to give him a few things to think about beforehand to ensure he was making the right decision.
1. Double check your budget
The first thing to consider whenever you are planning to make changes to your cashflow is your budget. Creating and maintaining a budget will allow you to specifically see where your money is going, and what is costing you the most. Often when clients complete a budget, they are very surprised to discover what their biggest expenses actually are. This can highlight some key areas where easier cut-backs can be made – things such as buying lunch or coffee every day, or paying for parking.
2. Re-examine your insurance plan
Have you reviewed your insurance plan and looked at what cover you have in place, if it is adequate for your level of debt, and how many children you have? Most New Zealanders are under-insured because they simply can’t afford to get the insurance they actually need.
What’s more, it’s remarkably easy to forget that insurance acts to keep anxieties of the uncertain at bay – by reducing it, these fears may return, and for some clients, you can’t put a price of peace of mind.
If you decrease your cover or cancel, and something happens, what will you do? If you remove one of your major safety nets for when tragedy strikes, then you could regret all those expensive nights out, new clothes you bought, or fees you paid on credit cards.
3. Think about insurance in the future
Insurance is hard to get and easy to lose. Once it has been reduced or cancelled, reinstating it or adding more cover requires you to go through the entire underwriting process again. Note that this means if you have had any changes in your health since you took out the original policy, these may now be excluded, or alter the policy in some way.
I would suggest discussing with your adviser what options are available here and if cutbacks definitely need to be made, as there may be other options to look at if you are in need of cash.
4. Explore other options
There may be additional work that you can do to generate some extra income. Beyond trying to increase your income, there may be ways to mitigate your expenses.
Consider inviting your friends or family around for dinner instead of going out. Eating out is expensive, and if you have to pay for parking too, it can soon add up. If you have children, try looking at ways you can make cooking at home fun and yummy.
Do you have credit cards that have high interest rates? Look at getting these paid ASAP to reduce paying 15% interest. Also look at your bank account fees – what are these costing each year, and are there other options out there that are cheaper or even free? You may be surprised by how much you can save by optimising your banking.
You might also cancel unused club memberships. Do you have a gym membership, or other memberships that are costing you money, but you’re not using it often, or even at all?
Another area you can potentially improve your monthly cashflow is by examining the structure of your mortgage. Is it structured in your favour, with the best possible interest rate? If you think your mortgage could be structured better, give us a call – we’re a leading agent for refinancing mortgages in NZ, and this alone could save you thousands.
Finally, buy used items where you can. There are some amazing second hand shops in NZ, that sell a large range of amazing pre-loved items. This may be a good option to consider if you don’t mind looking through the second hand shops to find the bargains.
Need further help?
Rethink Group has the expertise you need to get your money working for you, not the other way around. If you ever need help, feel free to reach out for mortgage or insurance advice, or if you have any questions regarding the above.