Joan Baker Explains Why A Man Is Not A Financial Plan

Joan Baker is a money author from New Zealand who has published 9 books in both Australia and NZ. We came across Joan through reading her book A Man Is Not A Financial Plan. But she has also written Improve your FQ (Financial quotient), Smart Women –Smart Money, Live The Dream And Get Rich – Stay Rich. Plus she writes newspaper articles for high circulation newspapers in NZ. Joan was happy to give us some time.

Maybe you can give our readers a bit of a background into your history?
Prior to writing books on home budgeting I had a career in education, for around 15 years. I have a background in how to make hard concepts easier for people to learn.

One of the things that got me really interested in the home budgeting stuff was everywhere I seemed to go in the commercial world, people who I considered to be accomplished in their jobs and careers were often very poor around numbers and home budgeting. And this gave me the idea to start writing.

So you have come across a lot of people who do quite well at their job. They might work in a highly technical position and even earn quite a lot of money. But for one reason or another they just can't get their budget in order. Do you have any ideas why this is?

One of the things I found out as a teacher is that learning doesn't transfer very well. So one of the funny things that go on with us as human beings is that we can be quite skilled in one area of life but we don't tend to take those skills into other areas of life/work.

So for example someone might have very good financial skills at work. They are excellent at budgeting, managing a budget, controlling costs, and using spreadsheets. But you find for some reason or another they never make the connection between this and their home life. So they have a great plan at work, but no plan for themselves outside work. They have no plan for their finances. There is no overall budget; there is no monitoring of expenditure.

There is no excuse for not doing a budget for home. Because these people can't say they don't know how it works, because they do! A lot of us put things into categories and we say that stuff belongs at work and it doesn't have a place in our personal lives. But of course when it comes to our money that is not true.

Your book "A Man is not a Financial Plan" was aimed at women. What would you suggest the biggest differences between men and women are in a home budgeting sense?
I think one of the things that goes on in the home front, is that women tend to get dragged into managing the micro stuff. For example they get to make choices on a question like:

Do we spend $145 a week on the shopping or do we spend $150?

Do we buy this brand or that brand?

Can we afford new shoes for the kids?

Women tend to get bogged down in this stuff and it is hugely to their detriment. Because once you decide to spend $150, it makes no difference if you spend it on celery or champagne. You are spending the money anyway and it's gone.

But the stuff that makes a difference to your finances is the money you don't spend and what you actually do with that, and women tend to miss this point completely.

Because the men seem to take control of the bigger issues like mortgages or investments. And if a woman is unlucky enough to be partnered with a man who doesn't do this correctly, then often they can end up in serious financial trouble as a consequence.

So one of the reasons I aim some of my books at women is because I wanted to say, "Wake up! You can't actually just leave this stuff for the men. It's far too important, because you need to know what is going on with your future finances."

In Australia we have no home budgeting courses in school. Do you have them in New Zealand and do you think they are needed?
We are starting to have some units of work which schools can use. However, they are not compulsory to use. I have mixed feelings about some of this. Because you are often trying to give kids a skill too early. If they don't have a home budget to manage right now, it doesn't make a whole lot of sense to teach them in school. I think some of this stuff would be much better aimed at people who are already at college or TAFE. Most kids don't really have any money so it makes this thing seem kind of redundant.

If you could go back to your 21st birthday and talk to yourself about money, what would you say?
The absolute standout essentials are that regardless of what you earn you must not spend all of it. You must get into the habit of living within your means right from the start and putting some money aside for your future. This is the key principle.

Most people spend most of their working lives thinking that sometime in the future they will become a saver, and they never ever do.

The situation is a little bit different in Australia because you have quite high levels of superannuation savings. But in New Zealand we don't. So this advice is less critical in Australia than New Zealand. If I was talking to Australian people alone, my advice would be to wise up about investments. Because it is one thing to save money, but you have to understand what your options are in an investment sense.

What is your opinion on credit cards?
I think they are very useful things. But you shouldn't have one unless you are committed to paying it off in full every single period. Also my view is that nothing should be going on the credit card that you wouldn't be able to afford in cash.

They cost you an awful lot of additional money if you are not paying them off in full. I don't like the idea of people having more than one credit card. But a debit card should be looked at prior to getting a credit card, particularly if they know they have a problem with overspending.

The global financial crisis hit in 2008. Did you notice a change in people's behaviour from before the crisis to after the crisis?
Yes, it gave people a real wakeup call and lot of people realised they were living beyond their means. It got a lot people worried about the amount of debt they were carrying. A lot of families could only pay the debt payments each month when two people were working, and the jobs' market started to look worse. So I think for a lot of people, it was the first time in their life when things around money had been tough.

What I have learnt over the decades is that people have very short memories about these financial cycles. When times are good the only thing that is bothering people is seeing someone make more money than them. But they completely forget about what their situation might look like when things turn sour.

We have many baby boomers in Australia and apart from their superannuation they have nothing saved for their retirement. They are of the opinion that the government will look after them. What is your opinion on this?
A lot of people in New Zealand would have very similar views and it is even less likely that the New Zealand government will look after people. NZ has a far less easy run wealth wise than Australia. Because Baby Boomers have had a very easy run all through their lives, they have an inbuilt sense of entitlement about some of these things.

But you only have to look at the numbers, from the government's point of view. To know there will be no question of governments helping baby bombers right throughout their lives.

You have written a number of books and newspaper articles. What is the most important article or chapter you have written on home budgeting?This is hard one. But there is a theme that runs right around my writing. People must completely get comfortable with the idea that you must have a surplus of money each week. It doesn't matter if you are earning $50,000 a year or $500,000 a year (and one makes for a much more pleasant life than the other and we can all agree on that). But for your financial health, the thing you must agree with upfront, regardless of what you bring in, you must be committed for there to be money left over.

I think that once you make this agreement with yourself, everything after this becomes relatively simple.

One of the things we have seen in modern times which was very different from when I was growing up, people now think it is normal to be in debt. And the generations before us never thought that way at all. The only thing they were ever in debt for was a house. What's changed is people are borrowing for consumption; cars, holidays, and clothes are now attracting debt.

So the bottom line is if you really want to be able to spend more money, we need to be very committed to earning more money, because there still must be money left over.

Have you always been good with money?
I left school at 16 and I have been financially independent ever since. So I had to learn pretty early. Now I wasn't very good at it at 16. I would have two very good weeks every month, and two very bad weeks. But you get fed up with this after a while and you start to learn how to do things a bit better.

Something I think is very important for people is to stay on the self-improvement track. So they continue to earn, more and more as life goes on. You have to spend all of your life, penny pinching if you earn very small amounts of money. To have any reasonable money to make investments with requires you to earn reasonable money and that doesn't just happen. I think it's very important people continue to read and self educate to improve their personal income.

You have helped a lot of people out of their money problems. Can you give some examples of what you really try and do right from the start?
I think that the things I have seen which help most with people have been getting people to have a handle on what is actually going on in their lives. What I find when people are really struggling with their money is that generally speaking they really only have the vaguest idea on where they are spending. So when you get them to do something like keep a spending diary, most people get an awful shock about how much they are really spending in some categories.

Most of the cases where I have seen the biggest turn around in people is to get them to really face up to what they are doing with money. Then confront them with this and ask, "Is this actually how you want to spend $50,000 or $100,000 a year." I have seen couples earn as much as $500,000 a year between them and still be broke. And they really had no idea where their money was going, at least not in any detail. And while it doesn't seem possible to earn this much and not know, but believe me it is.

Most people need to have a really good look of what's going where. One of my rules is never to tell anybody where to spend their money as it's not my money. So if they want to spend $30 a week on flowers, hair treatments, or nails, this is their decision. But I do want them to look at the numbers of what they are spending so they know the truth. Because usually when people look at the numbers they say this is ridiculous. They don't want to spend that amount of money on lunches, magazines or whatever. And most people at this point then start to look at where they can cut back.

Most people are very moved by the goal of giving their children a much better life or upbringing than they had. So often, even when they were looking to change their own behaviour they also start teaching their children better budgeting behaviour.

Do you have three savings tips around the house which you tell people?
1. You need to know how to cook. Because buying ready to prepare food is very expensive.
2. Become a really good shopper. Just by having this skill you can save 10 to 20 percent at the supermarket.
3. Be tidy and organised around the home. Because this stops things getting lost or broken.

Thanks for your time Joan Baker