New Zealand households are finding it increasingly difficult to save, build financial resilience and feel like they are actually getting ahead. With the cost of essentials continuing to put pressure on household budgets, the challenge isn’t simply spending less - it’s making smarter decisions around the parts of your finances you can control.
The numbers paint a difficult picture. Six in ten New Zealanders are struggling to save, while one in four couldn’t cover an unexpected $500 expense without borrowing, selling something or turning to short-term debt.
Why Households Are Feeling the Pressure
The problem is where much of that pressure is being felt.
According to the data discussed, 68% of people are struggling with groceries, 46% with their mortgage or rent, 42% with power and gas, and almost a third with petrol and diesel.
These aren’t necessarily expenses that households can simply remove from their budgets.
You can delay buying a new car, cancel a holiday or cut back on other discretionary purchases. Groceries, housing, power and transport are different. There may be opportunities to reduce spending around the edges, but these remain essential costs for most households.
That makes the traditional advice to simply “spend less” increasingly difficult to apply. For households already running relatively lean budgets, there may not be much left to cut.
Why Saving Is Getting Harder
This can also be seen in how difficult Kiwis are finding it to build and maintain savings.
Around 61% of New Zealanders say they are struggling to save, with 74% identifying the cost of living as the biggest barrier to building their savings.
KiwiSaver hardship withdrawals are another indication of the pressure some households are experiencing. New Zealanders withdrew $244 million from KiwiSaver in June, with around $200 million going towards first-home purchases and $43 million withdrawn due to financial hardship. Hardship withdrawals were up approximately 27% year on year.
At the same time, around $3 billion more is being held in readily accessible cash accounts. There could be several reasons behind this. Term deposit returns have become less attractive, while uncertainty can also encourage people to keep more money readily available in case of job insecurity, unexpected bills or other financial pressures.
Income Doesn't Always Equal Financial Resilience
A high income alone doesn’t necessarily make a household financially secure.
Someone earning $250,000 a year could still have high levels of debt, significant fixed expenses, no emergency fund and very little financial flexibility. If something unexpected happens, that household can quickly come under pressure.
Someone earning $90,000 could potentially be more financially resilient if they have lower debt, stable cash flow, an emergency fund, appropriate insurance and long-term investments.
The structure of your household matters.
Having children can also significantly change that equation. A couple without children who are renting can have a very different cost base from a household with two or three children and a mortgage. As those fixed costs rise, there is simply less money available to absorb higher prices elsewhere.
Start With Your Biggest Expense: The Mortgage
For many Kiwis, their mortgage is their largest household expense, making it an obvious place to start when reviewing their finances.
There isn’t one mortgage strategy that will work for everyone. Interest rates, loan terms, interest-only periods, offset accounts and other lending structures can all potentially affect household cash flow.
An offset account, for example, could allow someone holding cash elsewhere to use that money to reduce the interest charged on their mortgage while retaining access to the funds.
The important part is making sure the structure is appropriate for your individual circumstances rather than relying on general information.
Even if a mortgage was set up correctly several years ago, that doesn’t necessarily mean it remains the best structure today. A review may identify opportunities to make changes – or simply confirm that the existing structure is still appropriate.
Review Short-Term Debt
Short-term debt can be another area worth reviewing, particularly when high interest rates are adding further pressure to an already tight budget.
One option discussed in the episode is a balance transfer, where debt is transferred from one facility to another, generally to a credit card offering a lower promotional interest rate for a set period.
This can potentially reduce the interest being paid while the debt is being cleared, but the terms and conditions matter.
If new spending is added to the card, that portion could attract a significantly higher interest rate. The strategy also relies on having a clear plan to repay the transferred balance before the promotional period ends.
The goal shouldn’t simply be moving debt around. It should be finding the most effective way to reduce and ultimately eliminate it.
Don't Let Short-Term Pressure Derail Long-Term Plans
When household finances are under pressure, long-term investments can feel like an obvious place to make cuts.
KiwiSaver is one example.
There are three major decisions to consider with KiwiSaver: your contribution level, your provider and your fund.
For anyone who has paused their contributions because of financial pressure, having a plan for when they could restart them may help prevent a temporary decision from becoming permanent.
Contribution levels can also be reviewed. Someone making higher contributions may decide to temporarily reduce them, depending on their circumstances.
Choosing an appropriate provider and fund, however, doesn’t require additional room in the weekly budget. Fees, track record, investment approach and whether the provider aligns with your values can all be reviewed regardless of the current cost-of-living environment.
Build the Right Cash Buffer
An emergency fund can provide breathing room when an unexpected expense appears.
A general guideline discussed in the episode is holding around three to six months of expenses, although the right amount depends on the household.
Where that money is held matters too.
For homeowners with the appropriate mortgage structure, an offset facility could allow an emergency fund to remain accessible while reducing mortgage interest.
Revolving credit facilities may also be worth reviewing. Easy access to additional credit isn’t necessarily helpful for everyone, particularly if it creates temptation to spend money that would otherwise remain untouched.
Review Your Investments and Insurance
When money is tight, it is worth checking whether every part of your financial setup is still doing its job.
For investments outside KiwiSaver, that means reviewing contribution levels, fees, diversification, performance and the level of risk being taken.
For someone with a mortgage, it may also be worth considering the trade-off between holding investments and reducing debt, particularly after accounting for tax, fees and inflation.
Insurance deserves the same attention.
A review could uncover duplicate or unnecessary policies, opportunities to reduce premiums, or benefits you are already entitled to but haven’t been claiming.
One example shared in the episode involved a client who was able to claim approximately $4,500 after discovering benefits available through existing income protection and health insurance arrangements.
Even something as simple as checking vehicle insurance can uncover unnecessary costs. Mike discovered he was still paying insurance on a car he no longer owned after changing vehicles.
Focus on What You Can Control
There are plenty of economic factors households cannot control.
Inflation, interest rates and the broader economy aren’t going to change because someone cancels a coffee.
What can change is how your household finances are structured.
That could mean reviewing a mortgage, paying down short-term debt, building an appropriate emergency fund, checking KiwiSaver settings, reviewing investments or making sure insurance policies still make sense.
It doesn’t need to happen all at once. Spending 15 minutes reviewing each part of your finances and identifying one or two changes could be a useful place to start.
The objective isn’t to remove every enjoyable expense from your life. It is to create a financial setup that is sustainable enough to keep moving towards your goals.
Key Takeaways
- 61% of New Zealanders say they are struggling to save.
- 74% identify the cost of living as the biggest barrier to building savings.
- One in four Kiwis couldn’t cover an unexpected $500 expense without borrowing, selling something or using short-term debt.
- Essential expenses including groceries, housing, power and fuel are putting significant pressure on household budgets.
- KiwiSaver financial hardship withdrawals reached $43 million in June and were up approximately 27% year on year.
- Financial resilience depends on more than income — debt, fixed expenses, emergency savings, insurance and financial flexibility all matter.
- Reviewing your mortgage structure could identify opportunities to improve household cash flow.
- Short-term debt, KiwiSaver, emergency savings, investments and insurance are all areas worth reviewing.
- When broader economic conditions are outside your control, focusing on the financial decisions you can control can help keep your long-term goals on track.
Next steps:
Feeling the pressure of rising costs? Speak to the Lighthouse Financial team for personalised advice on your mortgage, KiwiSaver, investments and cash flow.
If you’d like to watch more, check out this episode below.
For a no obligation discussion to see how we can help you on the path to wealth, please contact us.
Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
