Liz Koh, Great Budget Advice All The Way From New Zealand:

Liz Koh is no ordinary financial planner. Sure, she can give you the best possible advice on how to manage your money and increase your wealth. But her mission is much broader. It’s to help you enjoy life—to the max!

Liz established her financial planning company—Moneymax—in 1999, after a successful career in management. Her practical, commonsense advice has led to a flourishing business and many referrals from her growing list of clients. She is in demand from newspapers, magazines and websites, and has published a bestselling book—Your Money Personality: Unlock the Secret to a Rich and Happy Life, AWA Press, 2008.

We were very lucky to be able to talk to Liz last month. For more information on Liz go to her website http://www.moneymax.co.nz/

Liz, while you are a well-known budget / money person in New Zealand a lot of people in Australia would not know who you are. Maybe you can tell us a little about your life and your book?
I started out in business as a financial adviser eleven years ago.

Just to give you a bit of personal background, prior to this I went through a midlife crisis, as most people do. So I chucked in my job; I was in a general manager role and two years prior to that I had divorced my husband. I was really looking for something to do with flexible work hours so that I could also look after my three kids, so I set up as a financial adviser.

From there, over the years I have talked to hundreds of different people about money stuff. And I found I kept repeating myself over and over again with the people who were coming to see me. Plus I was seeing regular patterns about how things were working out for people or not working out as the case may be.

From there, I thought the best way to help these people was to put everything I know into a book. Because a lot of people who are struggling with money haven’t got the funds to pay a financial adviser. And I knew what it was like myself from personal experience, because when I set up my business I had no income. It took me about five years to get a proper income out of my business. I was a solo parent with three children and no financial support from my ex husband. So I had to budget. From a combination of seeing what my clients have said to me, I really understood what worked and what didn’t. So from the book you are getting a lot of personal experience.

Unlike most authors, I write from a very privileged position. My clients open up to me about their intimate money issues, where they won’t talk to other people about their money problems. So I get to see inside the lives of hundreds of different people and I thought it would be really good to be able to share the information and knowledge I have gained from them with people who really need that information. So that’s the way the book came about. Yes, there are some basic principles, and once people know what they are; they can pretty much sort things out for themselves.

Sometimes when home budgeting books are written they take a very black and white view of numbers and figures. But you have split people into four kinds of different money personality types. Can we go through each one?
This is a theory I have come up with myself. It is not backed by any psychological research; this is just something I have observed. What I have found is that the amount of wealth people create in their lifetime is created by two things;

1. Their willingness to take risks.
2. How badly they want to create wealth (because if you don’t want to create wealth you don’t usually do it)

What I have observed is that there are various combinations of those two dimensions and that gave me a great little model on which I assess people. Honestly, this stuff really works. So if we look at someone who has a low willingness to take risks and low desire to create wealth. They are generally very conservative and quite frugal. They like stowing money away in the bank and they like to watch it grow every year. They are what I call Hoarders. They are very good at saving. They only take money out of the bank to count it every now and again. This is good, but the downside of this is sometimes you forget to enjoy life. You run the risk of being the richest person in the cemetry. That’s hoarders.

Then again in the low risk category but with the high desire to create wealth we have Achievers. These tend to be what we used to call yuppies. High incomes and fairly well educated; they love the status symbols. They like living in a lavish house, in a lavish street. They like driving an imported car and having a holiday overseas; sending their kids to private schools, having nice clothes, bottles of wine and a spender’s lifestyle. Of course, I’m talking extremes here, just to make the point. These are the type of people who want it all now, before they have the money to pay for it. So you usually find with these people, while they look good in terms of their assets, when you look on the other side of the balance sheet they have huge debt. They are the sort of people who might earn a couple of hundred thousand a year but they also might spend a couple of hundred thousand a year plus a few thousand. As they always want to live slightly beyond their means, they can end up living payday to payday.

If we look at people who have a strong willingness to take risks and a huge desire to create wealth, they are what I call entrepreneurs. They are the true wealth creators. The problem with them is their wealth goes up and down in cycles. Some of them make and lose fortunes; think Donald Trump. So the downside of these people is while they are really good at setting up a business and getting into property investment or whatever, they risk everything, and they don’t put some of their earnings away in safe place. So when things turn pear-shaped, they lose the lot and have to start all over again. They can learn a few lessons from the hoarders.

The last one is what I call the Thrill Seekers. These are people who have a high willingness to take risks and a low desire to create wealth. They in effect gamble with their future. They live life for the here and now. They cannot save; usually their credit cards are maxed out. They don’t worry about the future because if it is a woman some nice bloke is going to come along and dig them out of their hole. If it’s a bloke “she will be right” the government will look after me. So they just cannot see past today. They cannot accumulate money; it just burns a hole in their pocket. They get instant gratification from spending. Quite often these people have a psychological problem because they spend to make themselves feel better and boost their self-esteem.

But remember what I have given you is pretty much an extreme view of all those different money personalities. Most people have a bit of everything in them. There is no right and wrong money personality. We are all different, and where the differences tend to show up most, is in a relationship. The main reason that eighty to ninety percent of relationships go their separate ways is due to arguments about money or money problems. When you are in a relationship, it can be a really useful thing to talk about the differences between each of the money personalities.

If for example you have a hoarder who is safe and secure and likes tucking money away, and on the other extreme you have a thrill seeker who cannot save and wants to go out and spend, spend, spend that causes huge conflict in a relationship. In a sense it’s not about being right and wrong it’s about recognising that other people are different. You need to know what your own money personality is. If you are a real hoarder you probably are going to die without enjoying yourself. If you are an entrepreneur you will probably have lots of ups and downs. As a thrill seeker then you might have a retirement plan, while you live in poverty. Most achievers live from payday to payday most of their lives. So you need to understand the consequences of your money personality and be OK with that. It’s your decision how you live your life and nobody’s going to come along and tell you stop what you are doing. But you need to know the consequences of what you are doing. You might think, well maybe I do need to change things here a bit, because I really don’t want to live my retirement in poverty.

The other thing too, is your money personality will change over time. Typically, young people will start out in life and they will be ‘whoo hoo’ as they are thrill seekers. They get their first pay packet and want to know what they can spend it on. They have no dependents and no responsibilities.

As you acquire a partner and maybe some children, you grow into the achiever state. You might want a nice home, furniture and car. Then the kids leave home and you think well OK what am I going to do, I’m maybe 40 or 50, and my life is disappearing; I know what, I will set up a business.

Then they turn into an entrepreneur. You might make some good money, and after a few years you retire.

Now you become a hoarder, because no new money is coming in, it’s all going out. So a lot of people change their money personality over time.

Liz, you are a financial adviser, what personality group would you usually get through your office?
Most people I tend to see are achievers, hoarders or thrill seekers; hardly any entrepreneurs because they tend to be in total control and they go out and do their own thing. Entrepreneurs don’t tend to go and see financial advisers. But I would probably see more achievers than anybody else, because they are the ones struggling from payday to payday; they want to get out of this trap. But occasionally, I see thrill seekers when their debt gets on top of them and they want some help.

Do you have any interesting stories; ones which really stick out in your mind?
The most interesting stories are with couples. There was a real life situation with a hoarder and entrepreneur. The entrepreneur wanted to be going out doing business deals and getting into property investment etc. etc. His wife was pretty much in the hoarder category. This relationship ended because they could not see eye to eye on their financial situation.

I worked with a different couple where he was a hoarder and she was an achiever. This caused a lot of friction because the wife wanted to do up the kitchen in the house, as a lot of women would like to do, while the hoarder husband said they had to save for their retirement. He said they couldn’t afford to do it. So what I did there was some retirement calculations for the couple. So the hoarder husband could see, yep if we saved this amount of money now, everything will be alright in the future. Anything over and above this could be used to do up the kitchen or the rest of the house. This way, both their needs were met.

So there is a case to be answered where someone could be on a good wage; drive the BMW, live in the big house but it doesn’t mean they don’t often have the balance sheet of their own budget in order? They are trying to fool other people into thinking they are rich but also themselves?
Yes, 100%. Some of them have an expectation that because they earn a good sum of money they deserve to have this kind of house. Or a yearly holiday, which goes along with their level of income and they are just full of themselves. I have seen people who spend more a week on groceries than other people earn in total for a week. Yet, they say to me they can’t cut back; there is no way they can spend less on groceries. This is just a mindset problem. I know people can live on whatever they choose to live on. It is all about your expectations.

I have another story about a lady who came to see me. She was receiving a benefit of around $12,000 a year from the government as she was on a sickness benefit. She was 64, about to turn 65 and go on her superannuation. She would be getting another $2000 a year when this happened. She came to me and said, “Look, I really want some investment advice because I will have another $2000 a year and will not know what to do with it.”

Yet, you compare this to someone who earns $100,000 a year, who feels they can’t spend any less than this; it’s just a total mindset.

There is another story of a guy on sickness benefits who used to save $100 a week. He just purchased a brand new $35,000 car because he really, really scrimped and saved. Now, I’m not saying everybody has to do this. There is not a right and wrong answer here. But, if you are prepared to scrimp and save you can have really good things, only a bit further down the track. If you spend it all now, you will have even less down the track. Money is to be spent, but the question is do you spend it now? Do you spend it in a little while or way into the future? It’s about getting the right balance on each of those things.

Do you have a story of an overachiever in your mind which really stands out? Someone who looks rich but wasn’t?
Well there was a couple that I worked with who were on a couple of hundred of thousand a year. But they lived as if they earned more than this. They couldn’t see that you could live a different lifestyle. In the end, I didn’t succeed with this couple because they were not prepared to change their mindset. They determined they would have to battle on and try to find ways to make more income. They wanted to buy a holiday home and help one of their daughters. They had all these really great goals, but because they were stuck in the here and the now, spending all this money on food, entertainment and the huge house they lived in, complete with housekeepers and gardeners and stuff. They were compromising their longer-term goals. It was really hard to help this kind of people. Sometimes, you have to be quite firm with them. I did do this with this couple, but changing people’s behaviour and mindset is not an easy thing to do.

Have you always been good with money?
No, it was a progression in my life. I probably started out being a bit of a hoarder. In my student days, you had to be frugal. Then after school, I went to the achiever category because I was in a successful career, on a good income, and I wanted to have nice things and nice things for my kids. I had a fair bit of debt and all that bad stuff which went along with it.

Are people more involved in their work than taking care of their home finances?
It’s funny; with a lot of really busy, professional people their own money stuff gets ignored. Then when it comes time to pay the bills, there is a big flurry. Then they think to themselves, where are we going to get the money. They never take a step back and look at the overview of what’s happening to their financial money situation.

If someone came to you and they were just drowning in debt and couldn’t see the light?
If they are really downing in debt and using some debt to pay off other debt, you need to restructure your debt with creditors. Usually in really bad cases like this, I have to refer them to a budget service which is better equipped to deal with this sort of thing. But some people leave it way to late to get help.

When the Global Financial Crisis hit do you think people’s attitudes changed with regard to their home budgeting?
People in my mind are definitely cutting back on debt. And a lot more people are coming back to see me on the money management side of things, and this really needed to happen. This is what governments needed to do. If you looked at the New Zealand government policies they were looking to see households reduce their debt. That is what was needed at a national level.

People were just going berserk. A lot of it was driven by property prices. People’s house prices were going up 20 percent in value and people thought, “Wow, I have all this equity now, let’s go borrow on the equity; let’s go on a holiday or go get a new car or something.

When the property values fell here in New Zealand, they still had all that level of debt and the interest etc. plus their equity suddenly vanished. Over in New Zealand, we are still seeing a lot of mortgage sales and people walking away with nothing. Or even worse, walking away still owing the bank money. It’s been a very hard lesson for some people.

The other lesson people have learned is when times are good, to put away money and not spend everything. Especially with the likes of real estate agents. I have consulted with a few of them. In boom times they were making megabucks, but they were spending it all as well. But when things went crunch, they had nothing to fall back on.

The lesson people need to learn, is good times are always followed by bad times, and bad times are always followed by good times. The economy is always running in cycles. So when things are really, really good, you know sometime in the future they are going to be really, really bad. Put some money aside for backup when things do turn to custard. Things don’t keep going up forever. The economy will always come back to the centre point. There will be a turning point at the peak and a turning point at the bottom; it’s a law of nature. Make sure you have something to fall back on.

What’s your opinion on credit cards?
OK, credit cards. If you are a thrill seeker chop it up. Personally, I use credit cards. I advise people to have one card which has a low limit on it, and you pay it off every month if you need a credit card for an emergency fund. Preferably you should have funds elsewhere and not have to rely on a credit card. But if you need one just in case of an emergency and you have no other buffer, have a second card to cover this.

Just try and pay off credit cards as soon as you can, and keep a low limit on it. But ideally, your goal should be to get away without one.

I’m sure you have come across people who have had disasters and they have been underinsured and something happened to them. How important do you think insurance is?
Yes, it is really important because it is the flipside of wealth creation. If you are creating wealth, you should be protecting it. Where I see the biggest debts on people not having insurance, it is not fire and home insurance, but not having life and income protection insurance.

Once I saw a widow whose husband died, her husband had no insurance and she was struggling. Then I had a case of a young woman who came to see me in her late 30s. This was a few years ago now. She had a few health issues then. She was a single lady who was not likely to have children. I said, “Look your biggest risk is losing your income for health reasons or whatever. Go and have a look and take out some income protection insurance.” I put her on to somebody to go and do this. But she decided it was a bit too hard to fill out all the forms because she’d had a few health problems in the past. So she decided not to proceed. About 10 years later, she came back to see me. She said, “Wow Liz, I so wish I had taken your advice. I have had the most horrendous time, because three or four years ago I was diagnosed with breast cancer, which I have been battling ever since. I can still only work part time because of reoccurrences of it. I have lost all my savings and I can’t get insurance for this now. I’m stuck for the rest of my life, because now nobody wants to know me.”

This is the thing I come across most often; people not insuring their lives or their income. You need income insurance. People have no idea. Especially if you are a single person and don’t have a partner to rely on, whether you have kids or not. But if you lose your income, who is going to look after you? What will happen to your retirement plan or your mortgage? It’s a huge risk which most people don’t acknowledge.

You think about it, your future income is your single biggest asset. If you are going to earn between one and two million dollars in your lifetime. This is way more valuable than the house you live in. Yet people don’t insure it. Because if it ends up you can’t work for the rest of your life, there goes 2 million dollars down the drain and you will be left struggling on sickness benefits.

We get a lot of people who are baby boomers who have not saved a lot for their retirement. Their reasoning is the government will look after them. What is your opinion of that sort of thinking?
Baby boomers, there are so many of them. How are governments going to be able to afford to look after all of them? There is going to be a huge issue in 10 years time or so when the bulk of them reach retirement age. Besides which, even today with a smaller number of retirees what you get paid from the government and superannuation is just a basic existence living. It gets you from day to day. It puts a roof over your head and puts food in the cupboard. But it doesn’t give you any fun in life. It doesn’t pay for travel, new cars, or even dinner at a nice restaurant. So who wants to live their life just as a day-to-day existence? Most people now live 20 to 30 years in retirement. Imagine living 20 to 30 years just from week to week eking out a living. Goodness, this could be like a third of your life. Don’t leave it to the government to determine your standard of living. I know I want more than that!

Let’s go the other way and think about children in schools, do you think they get enough financial advice? I’m not sure what the New Zealand schools are like, but in Australia there’s very little financial advice given on home budgeting or balancing a budget?
I was very lucky to be involved in a pilot project with the ministry of education looking at financial literacy in schools and this worked really well and is now being brought into schools. However, the problem is its voluntary, so teachers who are very busy and overloaded choose not to.

I will tell you how important this is. When I look at the sort of people who come to see me later on in life with a large sum of money to invest. The sort of people who have a lot of money are in this situation not because of their education or their income; it is to do with how well they have managed their money. It is to do with how long they have been saving. So you could have someone with a PhD and huge salary and if they haven’t been a good saver, by the time they get to retirement there might be nothing or very little. So their success in life and your ability to enjoy life is not determined by your income level or education; it is determined by what you do with your money. This is really, really important stuff.

You need to teach your kids from a young age, and because the schools are not doing it, you need to get the parents to do it. Kids do pick up a lot from their parents. What I have written about in my book, is a lot of what was learned in childhood and the role models you had in your parents. Parents have a huge responsibilty to teach the right values about money. To teach their kids to respect money. To see it as being a scarce commodity and it does not grow on trees. But to have a positive attitude about money and to have as much wealth as they want to if they do the right thing. Of course, if parents’ money management is out of control, then kids generally do the same. But it is a generational thing in the schools and it won’t be an easy thing to fix. We need to work on the parents as well on the children; it’s been ignored for a long time.