By Allison Tait
MSN NZ Money writer
Do you feel like the cost of living is rising? Here's how to take charge.
Ask anyone about the cost of living and they'll tell you it's going up. Groceries are more expensive. Electricity is more expensive. Everything's more expensive.
Except it's not.
According to the experts, the cost of living in New Zealand has fallen in the last six months.
"Food prices have been falling since August 2009," says Dr Stephen Burnell, a senior lecturer in the school of economics and finance at Victoria University of Wellington. "From September to December, food fell by 2.4 percent, with fruit and vegetables down by nearly 12 percent and also down by over 5 percent compared to December 2008. The CPI fell by 0.2 percent from September to December."
The cost of living is officially measured by the consumer price index (CPI), and it's determined by the current market value of a basket of goods (and services) deemed to be "average". Mortgage expenses are not included.
So if an "average" basket of goods is going down in price, why do we all feel we're paying more?
"Perhaps the index is not doing a good job," Dr Burnell says. "If they look at the cheapest price for a product in one store and then average that over all stores sampled, it may be providing misleading data."
But there are other possibilities: "Maybe there's an anecdote bias," Dr Burnell says. "People talk about prices going up, but they don't talk about prices going down. Or perhaps it's a perception bias; people only notice the bad news [prices going up], but not the good news."
Whatever the reason, New Zealanders are still finding there's less money to spend on day-to-day items. "The current times do seem to have encouraged households to borrow less and save more," Dr Burnell says. "Therefore the amount allocated to food, petrol, etcetera, may have shrunk some. This could make it hard to buy what you used to, but not necessarily because prices are rising."
Liz Koh, financial advisor with Moneymax and author of Your Money Personality: Unlock the secret to a rich and happy life (AWA Press), believes that getting serious about managing your money is the best strategy, no matter what the cost of living.
"Kiwis are notoriously bad at managing their money," Koh says. "I advise setting clear financial goals, being proactive about setting money aside for medium- and longer-term goals, having an emergency fund to cover unexpected costs, and setting up good banking systems to manage money."
Banks are getting on board to help customers out. "While some would argue that banks are still focused on increasing the amount of money people borrow, they are beginning to balance this out with new services designed to help you reduce the amount of interest you pay," Koh says.
The ASB, for instance, offers a series of "how to" guides on setting a budget, managing your mortgage, dealing with debt, saving and investment. Find them on their website under the heading "Your Money Explained".
BNZ's Total Money system, on the other hand, allows you to setup up to 10 different accounts for a small monthly fee, which is ideal if you're trying to budget, or save for a number of specific goals. In the same spirit, Kiwibank has a Bill Blaster account that lets you set (automatically if you wish) money aside for your bills.
Whether the cost of living is going down (like the experts tell us) or up (like most of us feel), the fact is that it will always feel too high if you're not in charge of your finances.