You don't have to be an economist to understand the effects of inflation. You feel it every time you shop, whether purchasing a flight, veggies or even dog food.
We've all become numb to these sky-high prices but tend to experience at least a weekly price shock.
Last week, I had mine at the Countdown in the pet food section, which has been hallowed out recently due to supply chain problems.
I gasped recently when I saw my dog's favourite brand shoot up by $2 a tin. Not to $2 but up by another $2. I bought one and then went looking elsewhere. I found it $1.30 cheaper somewhere else and loaded up.
Because we don't live off dog food, these are marginal savings. You're not likely to notice a huge difference in isolation. But if you apply the same vigilance in the hunt for savings across all spheres of your personal finance life, you may see a difference, even if you have to squint.
You might need to stock up on eye wrinkle cream the way things are headed.
Despite the government hoping for inflation cooling, the latest numbers show no change. Okay, it dropped 1/10 of 1% from 7.3% to 7,2%. Big deal!
To add insult to injury, we've also been dealt a further blow with a sharp decline in asset values in both the housing sector and the share market. The average KiwiSaver Growth fund is down by 10% year to date. Yup, it's painful.
You may console yourself by remembering that KiwiSaver (unless you're saving for your first home) is a long game. So think long-term and take a deep breath, right?
Even then, when you look at the long-term returns, those sunny days of 11% p.a. returns are fast fading from memory. Across all peer group averages, they've sunk around 2% p.a., pulled down by the recent meltdown, er, should I say 'correction.'
To compare returns and fees over the life of KiwiSaver, follow Morningstar's quarterly KiwiSaver reports here.
Looking on the bright side, you could choose to look at today's deflated share prices as a discount. We're entering a bear cycle, but it won't last forever. So anything you buy now will likely rise again. We just don't know when.
When KiwiSaver first launched in 2007, it was around the time of the Global Financial Crisis. Back then, default funds (which were Conservative in profile, not Balanced as they are now) and actual Conservative Funds, withstood the blows better than their Balanced, Growth and Aggressive counterparts.
It was demoralising for first-time retirement savers still trying to wrap their heads around KiwiSaver, but those who stuck it out were rewarded in the end with much higher returns.
From that low, we saw one of the longest bull runs in some time, including housing. Markets were almost gravity-defying. They kept going and going, even through Covid, a byproduct of Central banks printing money to prevent total economic ruin.
Fast forward to 2022, when we should be celebrating to return to quasi-normalcy in a sorta-post-covid world, we get slammed.
The effects of all that cheap money finally caught up.
Hence, inflation is at 7% and higher in some places. And interest rates creeping back up to levels that younger investors will have never experienced.
I still remember when my sister bought her first home. We were all very excited for her. Her interest rate was a whopping 14% something that is unimaginable to today's borrowers.
I'm not forecasting or suggesting we're headed back to these crazy highs. Far from it, it would create mass homelessness in New Zealand.
Banks deliberately build a buffer when assessing your ability to service a mortgage. It's called stress testing. Currently, many of them are stress-testing would-be borrowers at 8%. With inflation, what it is, many hopefuls will be knocked out before their first meeting.
Since June 2021, fixed-rate mortgages have increased by almost 4%. On an average mortgage of $650k, you'll be paying around $1,000 extra monthly to service your debt.
The pain is real if you have kids or pets, drive a car, and like to eat.
Personal loans are rising in popularity, and food banks are busier than ever. People are struggling.
So easy wins to reign in costs include the following:
It is increasingly hard to save but not impossible, and if you approach it like a challenge, you'll find more joy in it.
When it comes to money, attitude and behaviour are everything.
We may not be out of the woods yet, but sitting idly with fear, worry and/or apathy isn't going to move the dial. That's on you.
(The usual caveat applies. This is not personalised financial advice. If you need some, see fee based authorised financial advisor. Check out the FMA website to find out more.
Amanda is a personal finance expert who draws on Eastern wisdom to help you grow your wealth and wellbeing. Money Matters was published in 2013 by Penguin Random House in NZ.