Cath Armstrong, A True Cheapskate:

Cath Armstrong is our inspirational person for this month. She has set up the saving website http://www.cheapskates.com.au/. This site has heaps of ideas on saving money. We talk to her about her views on debt and getting better with money.

OK Cath How Did You Become The Thrifty Person You Are Today?            
We say it was when disaster struck. I was working part time and my husband was working full time. I lost my job on the Thursday. He was retrenched on the Friday. Both came quite unexpectedly and out of the blue. And we found out we were having our third baby the following Monday.

And two weeks prior to this disaster we ripped off the back of our house to start renovating. So we like to call this when disaster struck. To make things worse, my husband’s field was fairly limited. In fact he worked at the only place in town which needed his skills.

We also had a three-year-old and a two-year-old with a mortgage to pay. Plus, back then (1994) interest rates were topping 18% or 19%. In fact we had friends paying 21%. It was a crippling time. It was very frightening. It was an extremely horrible time. We felt like we were the only people in this position.

So this was the time you changed?
Well yes, but I didn’t want to change our lifestyle. We lived a really good life. We skied in winter and had holidays. And while we didn’t carry a lot of debt (thank goodness) at the time, we certainly didn’t have much savings. We had no such thing as an emergency fund. We were not even eligible for Centrelink money. All this combined made me all the more determined to do something with my money.

My husband is extremely handy. So he took any part time job he could get. He ploughed paddocks, he put fences in, he picked pumpkins and even put out feed on farms at 3:30 in the morning. He did anything he could to keep money coming in at that time.

What this did was make us realise that we could get by on far less than what we ever thought possible. And we could still live the life we had been living with one extra mouth to feed. Because by this time, our third child had been born.

It was a real eye opener for us. At the time it was terrible, but in hindsight it was probably the best thing that ever happened to us. Because otherwise we would be like the millions of other Australian families out there that are living from pay cheque to pay cheque. Not necessarily getting deeper in debt, but certainly not getting ahead. With no savings for when disaster strikes.

So this is how I became as fanatical as I am about saving money or not spending money unnecessarily. Money is not saved until it is in the bank; it’s just not spent. So many people will say to me I saved $15 on groceries this week. And I will respond, “Great, did you put it in the bank? Because if you didn’t, you haven’t saved, you just haven’t spent it yet. Otherwise it will get frittered away on something else. If you have a grocery budget of $200 and you only spend $185 use the $15 towards your debt, or save it in an emergency fund.”

So the experience changed you?
I became paranoid. Thankfully my children were only toddlers because if they were teenagers, I’m sure I would have damaged them. But I became paranoid about turning lights off and only one light at a time. And if we didn’t need a light we would only use a table lamp of an evening.

We lived in the country and the first winter when this happened to us, our daughter was a tiny baby and it was the coldest winter I have ever lived through. Some mornings it was minus six. It was freezing. I would have the kids so rugged up they became like little Michelin men. They would have so many layers of clothes on, just so we didn’t have to turn the heater on. We even lived in one room so we didn’t have to heat the whole house. Just because we couldn’t afford it.

Living in the country meant every phone call we made was STD. And back then, we paid per minute rates. There was no such thing as a $2.00 cap or cheap phone calls in those days. So every second Sunday morning before 8am, I would quickly get up and make a phone call to my mum. We would use an egg timer for 10 minutes. As soon as it got close to the 10-minute mark, I would hang up as this was all we could afford. I became really, really conscious of bills and the necessity of being able to pay them on time.

It also taught us that we ate far too well and far too much. In fact we halved our grocery bill while adding a baby.

If you could go back to your 21^st birthday and give yourself advice about money, what would it be?
I would tell myself to bank 10%, give 10% away and live on 80% of your pay. We call this the 10/10/80 rule. I firmly believe in what comes around goes around. If you are generous, good things will come back to you when you need it. It may not necessarily be in the form of money. It is very important to give as well as save. We definitely live by that rule.

Let’s pretend someone is squarely in what you call a disaster situation and they can’t see the light at the end of the tunnel. What would your advice be?
Stop spending in the first 24 hours. Put a hold on it. Sit down with a pen and paper and make a list of the things you absolutely need to survive. So obviously a roof over your head, food on your table, petrol, bus fares or train fares and clothing.

Can you move somewhere not quite as expensive? It’s only temporary; it doesn’t have to be permanent. If you can save just $200 a month on your mortgage or rent by going somewhere cheaper, you can feed a family of four on $200 a month.

They need to be really conscious of everything they spend. Then decide the things that are important to them.

We had a family last year. Mum was working and Dad worked for himself. They had two teenage kids. Unfortunately Dad was injured at work. If he didn’t work, he didn’t bring in money. Both the teenagers did sport. I said to them, you have to decide what is more important. Can both kids give up sport for a term? They could save $400 in a three month period just by giving up the sports.

The other thing people need to do is if they have debt to contact their debtors right away. Tell them what the disaster is. Ask them if something can be worked out so that you can keep paying out debt but at a lower monthly instalment. Most of the time if you have been a good payer, they will consider changing your arrangement so they can help you. If the company does make a payment plan, you must stick to it. Don’t make a payment late. In fact try and make them early.

So how long have you been doing the website for?
We have been doing it for eleven years.

In all that time have you ever come across or helped someone who has really stuck in your memory; a Special Case?
Bear in mind, I’m not a financial counsellor. I’m not qualified to give financial advice at all. So I try very hard not to. But one morning, out of the blue I got a call from a lady called Rhonda. She had four children, one was disabled, and her husband had lost his job. They had already sold their house and moved to cheaper house. The husband had been out of work for eleven months and she didn’t know what else to do. They couldn’t make the mortgage payments. They were behind on all their bills. Electricity, gas, and telephone; everything was behind. She really didn’t know what to do.

So I actually went to her home and sat down with her. I made her get out her bills and we came up with a spending plan for her. And the biggest thing I taught her was to say no to her kids. Because her biggest problem was she just didn’t want to say no to her kids. I can understand that because I have three. However when you don’t have the money, you shouldn’t spend $120 on a pair of runners for your 12-year-old daughter. Especially when you can’t pay the gas bill. That’s what she was doing because she didn’t want to say no to them. She never sat her daughter down and said; “Sorry, mummy and daddy don’t have the money to purchase your shoes at this point in time. This is what we can afford, let’s go shopping with that.”

Also they didn’t own anything. All their furniture, fridge, and washer; everything was on 12 months interest free. They owned absolutely nothing. So this was the other thing we worked on and it was hard for her and her husband to say no to the kids. It was hard for the husband to understand why they could no longer eat well and had to change their shopping habits.

I taught them about op shops and garage sales. Plus they started growing tomatoes and a few herbs in their backyard. It didn’t happen overnight. It took them two and half years to get back on their feet, but they did it. Every time they would pay off a debt they would call me. They were very excited. Had they not been as faithful to the plan it would never have worked. If people really don’t want to do it, it won’t work for them. People say all the time that they could never live on a budget that it is too hard. Well it is not that hard, you just have to want to do it. It’s all there in black and white. The rules are there. You can spend this much on this or this much on that. And that’s what you do.

We live in a world where people are greedy. Not selfish, but greedy. We are seeing that with plasma TVs. People need things bigger and bigger. Now we need a whole room devoted to a television. Then this is not good enough you need a projector which hangs down from the ceiling. It would be really nice to have a flat screen TV. However it is going to cost me $999 and we need to save up for a couple of months. It is very easy to rip out that card and get it right now. There will be a whole generation of people who die and only leave their children debt.

What is your opinion on credit cards? What are the biggest excuses you hear from people in debt who won’t give up their credit cards?
You have to be in debt to make money. If you don’t owe money you can’t make money. I firmly believe the worst thing that happened to Australia was in 1974 when bankcards came in. This was probably the first easy to get credit card for Australians. Before this time credit cards were rare. Only rich people or companies would carry Diners Club cards. If you were lucky, you would have a store charge card. But then along came the good old bankcard followed closely by MasterCard and Visa. I firmly believe this was the downfall of Australian savings. It was easy credit. Now you could afford to buy something for $200 and pay it off at $5 a month. Everyone thinks they can afford $5 a month however; it’s going to be $5 a month for 115 years. You will never own it and by the time you do it will be obsolete anyway.

People use their credit card for things which drop in value. Bills, movie tickets, haircuts, and shoes. Credit is a terrible, terrible thing and there is no such thing as good credit.

So Cath could you give our readers three tips they can include in their budget right away?
1.Never leave the room with a light on. It might not be a great strain on your electricity bill; however it is a great habit to become aware of the waste.

2.Don’t be afraid of generics in your supermarket shopping. Try it, it’s just a plain package; it’s got to come from somewhere. If you don’t like it go back to the branded product. And if you go back to the branded product, only buy it on sale, when you know it is a genuine sale. It is very easy to pick the sale cycle these days because the two major supermarkets have shopping lists online. So you should never be caught out at the checkout. You can do your shopping lists online, and have all the prices there printed out and take it with you. Then you will know exactly how much your shopping will cost. There is no excuse for being caught out at the checkout. You never want to go over the grocery budget again. There is no reason for it in this day and age.

3.Always, always, always, remember money is not saved until it is in the bank. Until then it is just not spent. So when you buy that pair of shoes and they are $10 off, put that $10 into the bank right away as part of the transaction.

People should understand it is all very well to say, “We live within our means.” That’s great, but you will not save money unless you live below your means. So you need to stop spending.

The global financial crisis hit in 2008, did you notice a change in people’s behaviour?
There was a lot of talk. I think that more people came to my website. But I’m not sure they changed their habits quite so much. It didn’t seem to hit here as badly as it did overseas. Plus our media didn’t give us a lot of doom and gloom about Australians being out of work, we heard snippets, but not a lot of it.

Most stories were about people being turfed out of their houses in America and then being sold for $2000. And the owners owing hundreds of thousands and that sort of thing. It wasn’t really a tangible thing in Australia. I think the worst thing that happened was the bonus payments people got to try and stimulate the economy. It didn’t make it real to them. Instead it was like let’s go party; we have got all this money to spend. Whilst it probably did help the economy a little, it was a very limited thing. It was always going to come crashing back down anyway. Unfortunately, I don’t think people really made that many changes to their habits. It was more an American thing and we sort of sailed through.

The next will be the one which will hit Australians hard, and I firmly believe we are not over it by a long shot. I’m watching closely what’s going on in the Middle East at the moment. Things might get really tight for a lot of Australian families. They are going to turn around and get hit by a wet fish because it will be totally unexpected. Most don’t see it coming.

A lot of people think it’s all going to be rosy. However it’s not practical and it’s not real. I truly believe within the next 12 months unemployment here in Australia will go through the roof and interest rates will go berserk. The cost of living will go sky high and there will millions of people sitting in their lounge rooms saying to themselves, “What’s going on?”There will be hundreds of thousands of families losing their homes. And the sad part is there will be even less people to buy them because no one will have the money. Nobody saves anymore.

Our family learnt the hard way. We are living proof: just because you have a job, it does not mean it is guaranteed. Not in our wildest dreams would we have thought that we would both be unemployed. Neither of us had ever been unemployed before for any reason. In fact, this was only the second job my husband had ever had. In his first job he learnt his trade; he started as a 15-year-old apprentice and worked there for 16 years. He then left to go to this other job which was only his 2^nd job in his lifetime. He thought it was secure and safe, and it wasn’t!

People often say to me, “Why do I need an emergency fund?” Because one day something might happen and you will have no income. And most times they respond, “Well, there is always Centrelink.” My response is, “Guess what, there will come a time where we can’t fund Social Security anymore.” Our social security system will be as bankrupt as the American social security system. There won’t be any such thing as unemployment. It will be back to the Great Depression, where people literally have to fend for themselves. And people just don’t know about this.

About 10 years ago, we would tell people to have enough money for 3 months in your emergency fund. About 5 years ago, we changed it to six months of total living expenses. And late last year we changed it to 12 months. So people have one year of all their living expenses put aside, so that if something happens, you know you can live for a year. But probably you might be able to stretch it out to three because you won’t be living as extravagantly as you are now.

I get people emailing me all the time. We paid off another credit card. We only have to pay $15 dollars this week and then it’s all gone. And I tell them to go do a happy dance. But out of the thousands and thousands of members, we don’t get that many emails. We probably only get two or three a week from people who do that. A lot are still in denial. Most people know what they have to do. Everyone knows what they have to do; it’s just a matter of doing it. It’s like Nike” just do it.”

I have just turned 50 and there will be people of my generation who will retire at 67 with nothing. They won’t even own a home. How do they think they are going to survive? Most say, “Well, we will have the pension.” My mother is 73 and she is on the pension because she didn’t have superannuation. When my dad was alive there was no such thing as compulsory superannuation, everyone went on the pension. She was a stay-at-home mum anyway. But now she lives on $715 dollars a fortnight. She owns her house, but even so, this is not a lot. Insurance, rates, gas, electricity, telephone, and food; all that stuff costs money.

Everything is going up. The government has just passed an increase for health insurance and it is going up 7 or 8 percent. It is quite a hefty increase. From my point of view, when I do the shopping each month or put petrol in the car to fuel up, it’s gone from $70 to $75 to $80. I would hate to think what it will be this week when I fill up. Prices seem far above the rate of inflation. Groceries alone, sugar’s gone up 35 percent since November. How can you justify a 35 percent increase? There is no reason for this price to go up. And if I hear one more time that electricity prices are going to go up, I said to my mum that I’m going to hit someone. Because nobody can tell me why electricity is going up. I keep saying, “You tell me why and justify it to me.” But no one seems able to justify electricity going up. It’s just greed.

Thanks Cath Armstrong for this very telling interview. You offer some great tips and a sobering look at the future.