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KiwiSaver hardship withdrawals have gone through the roof lately, and this is an increasing concern in the financial community. This is because we know that using KiwiSaver for hardship may plug the gap today but will also push the problem down the road where it can become much bigger.

There are two key things you need to know before you withdraw:

KiwiSaver Hardship will cover 13 weeks of expenses only.

If applicants can’t make budget adjustments in that time, what happens after 13 weeks? This may force people into more high-interest debt and not be effective in addressing the underlying financial issues.

Withdrawing KiwiSaver for hardship will have a long-term effect on your retirement fund.

Withdrawing money reduces your future savings by much more than the amount you withdraw. If your fund has dipped lately, you will not only lock in those losses, but also lose out on future returns.

Look at this example from The Financial Markets Authority.  A 35-year-old earning $80,000 who has contributed 3% to a KiwiSaver balanced fund since KiwiSaver started 13 years ago could have a fund now worth $100,000. If she withdrew $30,000 now, she could have $47,000 less by the time she turns 65.

Ok, so what are your other options then?

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Look to your mortgage:

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Below are the ways we know that can help tide you over with your mortgage. As always, we suggest you seek talk to one of our financial advisers if you are going to adopt one of these strategies.

Extend

Extending the term of your bank loan can reduce your fortnightly or monthly payment amounts. Keep in mind though that this option may increase the overall cost of your lending if you continue to repay the minimum for the remainder of the new term.

Refinance

If you’re looking to get better rates on your mortgage, you can consider refinancing it with another bank. This option may also provide you with a cash payment that you can use to pay off your mortgage or other debts. This option may come with break fees and legal costs, so be sure to evaluate the costs and benefits before deciding.

Consolidate

Consolidate your debts into a new loan with better terms to reduce your repayment amounts through lower interest rates or extended terms. This will help you pay off your debts in full and renew them with the existing loan provider or a new lender. However, as above, this option may come with break fees and legal costs, so be sure to weight up the pros and cons first.

Redraw

If you have unused lines of credit or redraw facilities on your home loans, you can consider using them to get back on your feet in the short term. However, keep in mind that this option may increase your monthly payments due to increased interest payments. Therefore, it’s important to carefully evaluate this option before drawing down further lending.

Plan

Our financial planners, Dean and Elizabeth, can help you develop a strategy to manage your finances. This service is fee-based and can be a great option for those who are yet to roll off a fixed rate and are unsure of what to do.

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Top tip! If you have a fixed-rate mortgage rollover coming up, you can start saving the difference now or increase your repayments if possible. This will help you determine if the increase is manageable for you or if you need to explore other options. Additionally, any savings you accumulate between now and the rollover will help offset the increase when it rolls around.

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Increase your income:

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Increasing your income is a better long-term solution to a cost-of-living issue. The quickest way to do this is to increase your hours, negotiate a pay rise, or take a higher paying role. If that is not feasible, consider taking on a second part-time job to tide you over or embark on your own side hustle. See this extensive 2024 list by Shopify for more side hustle inspiration. You would be surprised at the number of people we know who are already earning extra income this way using some of these methods!

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‍Generate passive income off what you already own:

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You can rent just about anything these days! Why not rent out your stuff?

- Rent out your spare room to a boarder. If you have a rumpus room or hobby room, you could rent this out to a boarder, maybe even family or a friend. The couple of hundred dollars a week for the room will help cover the cost of the mortgage. Read this guide for more info.

- Rent out your house, then rent yourself, somewhere cheaper. Check out what you could earn by finding similar properties to yours on Trade Me Property, and get a rental appraisal from a real estate agent or property management service. (Make sure you understand any rental income tax or Brightline implications by chatting to your accountant before you do this.)

- Rent out unused family property on Airbnb or Book A Bach.

- Rent out your campervan or holiday vans while you are not using them.

- Rent out your carpark – Check out SharedSpace.co.nz if you are keen on this idea.

- Rent out unused office space or equipment - Look at Office Hub for ideas.

- Rent out your car – see My Car Your Rental for an example of how this works.

- You can even rent out your wardrobe!

Top tip! Check out what insurance you need to keep your assets protected if you are going to rent them out. Our Caveo team can help.

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Create Surplus Cash:

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Lastly, what cash can you save by changing a few behaviours? Here is some inspiration.

Take a KiwiSaver contributions holiday. (Not ideal as this means less into your retirement fund today, but a short-term option none the less.)

Ask your family for help. Do you have adult children who can contribute to your rent or mortgage payments? Or parents who can help?

Got an electric guitar, jewellery or motorbike gathering dust? Sell what you don’t need on Trade Me or Facebook Marketplace.

Reduce commuting costs by WFH more days and taking public transport where possible.

Downsize your car to something cheaper to run. AA has some downsizing tips here.

Top tip! Try a hybrid meal plan of food boxes topped up with cheaper veges and meats bought online from the supermarket or local market. You can seriously reduce your grocery bill!

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‍Many people struggle with overspending, regardless of what they earn.

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Even though many of us do have a budget, not many are good at sticking to it! Know your areas of weakness and address them one at a time.

A recent study found what we generally know to be true. These are the most common weekly budget busters:

1.     Online Shopping – 40%

2.     Groceries – 39%

3.     Subscriptions services – 37%

4.     Technology products – 36%

5.     Buying lunch – 35%

6.     Household essentials – 32%

7.     Coffee – 32 %

8.     Food Delivery – 32%

9.     Gym membership – 30%

10. Entertainment – 29%

According to our financial planners, the most common areas of overspending are usually based on emotion. We are certainly guilty of a few of the above!!

Top Tip! Take an audit of what you spent last year and find your areas of weakness to be mindful of. Do this before you make a budget for this year, so you can keep your expectations realistic. Sorted has a fab budget tool to get your started on your 2024 budget.  

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Get Professional Support

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Make a time this week to talk to a financial adviser. They will be able to talk you through some options you may not have thought of yet.

Want to talk with us? You can book a free chat online.

And remember there are other organisations you can talk to as well.

The Money Talks helpline gives you access to expert financial mentors via phone, text, live chat, and email. Call them on 0800 345 123, email: help@moneytalks.co.nz, or text 4029.

The Sorted website has tips, guides, and tools to help you work through your money problems. You can also email office@sorted.org.nz.

You can also free call or text 1737 at any time to speak with a trained counsellor – it’s free and confidential.

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Shona.

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About Shona: Hi, I’m Shona, the communications and marketing support person for Velocity Financial. Designing effective communications in a complex industry such as Finance is a worthy challenge. Finding ways to bridge gaps between complex financial information, and the everyday needs of people trying to navigate that world through informed choices, is something that I relish. I love deciphering and disseminating the expert knowledge and ideas of our clever team, into simple messages that speak directly to our clients, who are hungry for more knowledge and better understanding. In my outside life, I am a keen photographer and, like others in the team, I have a passion for the outdoors, hiking and mountain biking. I also train in martial arts and have been known to wield a sword on occasion.

Disclaimer: I am not a financial adviser and what I have shared is general advice that has been peer-reviewed by my team. As always, make a time with our financial advisers for expert advice about your own situation.

‍Always get professional advice

The information shared in this post is meant to be general guide to support you on your journey. When making important decisions about your finances, we encourage you to seek independent financial advice first, tailored to your unique situation.  As well as talking with a financial adviser, make sure you talk to your lawyer and accountant too – together they'll help you find the best solution for your specific situation. Our knowledgeable financial advisers are here to help. Check out our website for the details about our financial advisory services in our disclosures.  

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