Why is a Financial Mindset Important?

A strong financial mindset is important – especially now!

Before we heard of COVID-19, how many people thought they’d be out of a job or business at this time? Or that they wouldn’t be able to leave the country? Or even to leave their house to go to work?

If we don't take responsibility for our financial wellbeing, no one else will.
If we don’t take responsibility for our financial well-being, no one else will.

No one knows what the future holds. As a society, we haven’t had the level of worry that we have now. Financial backstops are no longer there. Businesses are closing and families face the prospect of breadwinners losing their jobs. We don’t know if there will be future changes in government support, particularly superannuation. We do know, with the aging population, the current model is not sustainable.

However, the crises evolving out of Covid and the responses to it are also providing a much-needed financial wake-up call when it comes to our personal finances.

Who will take responsibility for our financial future?

Many people sleepwalk through their finances. They live in a world of spending and borrowing to spend without a moment’s thought. They are oblivious to what they do with their money and how their spending impacts their future. No wonder 85% of the western world needs to rely on financial help from the government or family members when they retire.

For many, this current situation has brought home the realisation that if we don’t take responsibility for our financial wellbeing, no one else will.

As children, our elders told us if we worked hard, did a good job, we would be OK. But this is not always the case. There are now thousands of hardworking dedicated people out of work.

Government COVID-related Debts – a ‘long bumpy hard road’ back to recovery

To ease the economic shock of COVID-19 lockdowns the New Zealand government has taken on NZ$140 billion in debt.

At around 50% of GDP, this is a heavy debt for future generations of Kiwis who will also carry the burden of an aging population. According to MSD forecasts, the over-65 demographic is growing more than ten times faster than the under-14s.

Source: NZ Debt Clock, Screenshot from 27 Oct 2020, 9.23 am
Source: NZ Debt Clock, Screenshot from 27 Oct 2020, 9.23 am

New Zealand Economist Cameron Bagrie told Newshub that, “The increased cost of supporting a swelling elderly population while trying to pay back money borrowed to ease the economy through the COVID shock will make it hard for New Zealand to save up for the next rainy day.”

In the US, $2.5 trillion of COVID stimulus funding will push its national debt “to levels not seen since World War II”. Predictions say if left unchecked, the federal deficit will reach 195% of US GDP by 2020.

UK’s Covid national debt hit £2.024 trillion at the end of August 2020, pushing borrowing up to 101.9% of gross domestic product (GDP). This figure is the highest level of government debt recorded in the UK since records began.

Across the ditch, Australian Treasurer Josh Frydenberg is predicting a “long, bumpy and hard” road back to recovery for Australians. Their predicted deficit will skyrocket to A$185 billion by the end of the June 2021 financial year. Reuters reported that “At 9.7% of GDP, this would be the highest since the end of World War Two.”

It’s more important than ever to manage your personal finances

Public debt was high by historical standards even before the COVID-19 outbreaks. The longer the COVID economic fallout lasts, the higher these figures are set to rise globally. No country is immune, and it is the people who carry the financial burden. It is more important than ever to start managing our personal financial futures.

This means living within our income and putting some of it aside into investments that accrue. It is vital now because that money may be all we have to live on in the future.

There are winners and losers in every crisis

While others fret over their financial health, those who focus their energy on improving their financial wellbeing attract greater opportunities.

Some people did very well out of the 2007/8 financial crisis. Because they were in a healthy financial position, they were in a better mindset relative to those who were not. While others were focussing on the worry around how they were going to survive, their safe financial situation put them in a better place to be able to take advantage of significant opportunities.

The best thing about Financial Freedom is that it is available to anyone. It doesn’t matter how much money you make; it matters what you do with it.

Life always contains unknowns. Now is a time of global change. There will always be those who through good financial management can take advantage of the opportunities which exist in every situation.

Can a person ‘on the benefit’ be financially free?

Can a person ‘on the benefit’ be financially free?
Can a person ‘on the benefit’ be financially free?

The answer is probably not. The Job Seeker ‘benefit’ is the lowest amount the government can offer to ensure a person can survive until they find a job.

For these people, looking for opportunities to get off the benefit is the first step towards financial freedom. Once back into employment, the discipline of setting aside regular amounts – even if it means starting with $5 – will see their savings accrue. Over successive months, this amount can be incrementally increased.

It’s not just about saving

It’s not just about the savings, but what we do with those savings that counts. How we send those savings into the world of accrual.

Like the story “The Richest Man in Babylon”, gold nuggets, beget gold nuggets, beget gold nuggets. That’s taking the interest from savings or dividends from investments, and reinvesting them. And continuing this cycle. Each time they continue to grow.

There is no shortage of opportunities for the person who wants them. It doesn’t matter what amount you start with. The most important thing is to get started, being disciplined, and continuing with a successful strategy of accrual.

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