How to start saving when money is tight

Can you save anything when money is already tight?

Sometimes the honest answer is not yet, and that is a fact about the arithmetic rather than a fact about you. If rent, power, food, transport and debt repayments already add up to more than the money coming in, there is no leftover to save, and no amount of willpower creates one.

That situation has a different first step from saving. It usually means working out what the essential costs actually are, whether any of them can be reduced or rearranged, and whether there is support you are entitled to and not receiving. Financial mentors do exactly this work, for free, and it is one of the most common reasons people contact them.

If there is a gap between income and costs, even a small and irregular one, the rest of this guide is about how to keep hold of it.

How much do you need to start saving?

There is no minimum. Sorted, the money guidance service published by Te Ara Ahunga Ora Retirement Commission, puts it plainly: start where you can, even with $50, because any amount of rainy-day money is better than none.

Small amounts matter more than they look, because the job of early savings is not to be a large sum. It is to be the difference between paying for a car repair out of your own money and paying for it with a credit card, an overdraft or a loan that then costs more than the repair did.

$5 a week is $260 over a year. $20 a week is $1,040. Neither number solves everything, and both change what happens the week something breaks.

Why does when you save matter more than how much?

Money moved on payday behaves differently from money left over at the end of the pay cycle. Whatever sits in the account you spend from is available to be spent, and it usually is, without any single decision to spend it.

An automatic payment set for the day after pay lands moves the amount before it becomes spendable. The amount can be tiny. The reason for automating it is that it then happens without a decision each week, and the weekly decision is the part that fails when you are busy or tired.

If pay lands on a different day from week to week, the same idea works by hand. Moving the money as the first thing you do after checking the balance is the same mechanism, done manually.

Where does the money go so it does not get spent?

In practice, into an account separate from the one your card is attached to. The separation is doing the work: money you have to deliberately transfer back before you can spend it survives far longer than money sitting one tap away.

New Zealand banks all allow more than one account under the same login, so this does not usually mean a new bank or a new application. What the account is called matters less than whether spending from it takes an extra step.

Some people use one savings account for everything, and some split it, for example keeping unexpected costs apart from known future bills. Both work. A split only helps if you can tell at a glance which money is for what.

What if you have debt as well as no savings?

That is a very common position, and the two goals compete for the same dollar. The arithmetic worth knowing is that interest charged on a debt is almost always at a much higher rate than interest earned on a savings account, so a dollar used to repay debt usually removes more cost than the same dollar earns sitting in savings.

The complication is that having nothing set aside is what sends people back to credit the next time something unexpected happens, so putting every spare dollar onto debt can quietly recreate the debt. Sorted's stated approach is to build a small emergency fund of around $1,000 first, then focus on paying down high-interest debt while continuing to contribute something to savings.

Which balance suits your situation depends on your interest rates, your income and how stable it is. A financial mentor will go through your actual numbers with you at no cost, including dealing with lenders on your behalf if that would help.

What if your income is different every week?

Irregular income changes the method rather than ruling saving out. A fixed weekly transfer fails in a quiet week, and a failed transfer can trigger fees, so the automatic amount usually has to be based on a bad week rather than an average one.

One common approach is to set the automatic transfer at something you could still cover in your worst recent week, then move extra by hand in the better weeks. The automatic part keeps the habit going, and the manual part uses the good weeks without depending on them.

Seasonal work, shift work, casual hours and self-employment all behave this way. A plan that has to flex is not a plan that is failing.

Where can you get free help with money in New Zealand?

MoneyTalks is a free national helpline that connects people with financial mentors, and the mentoring services are free and confidential. It is run by FinCap, has been operating since 2018, and connects people with more than 180 financial mentoring services around the country.

Financial mentors do not sell products. They help with budgets, debt, dealing with creditors, and working out what support you may be entitled to. Plenty of people contact them well before anything has gone wrong.

• Phone 0800 345 123
• Free text 4029
• Email help@moneytalks.co.nz
• Live chat at moneytalks.co.nz