Calculating Expenses

Step 1 - Calculate Non Discretionary Expenses

(AKA Benchmarkable Expenses)

What are non-discretionary expenses?

These are expenses that cannot be reasonably expected to change. For example, someone’s council rates are unlikely to be able to be reduced.

Examples of these are:

  • Council Rates

  • Home Insurance

  • For banks that require it, investment property rates and insurance

  • Body Corp Fees for apartments and some townhouses. This usually includes insurance and occasionally rates.

  • If the client owns a car then car insurance is a basic expectation

  • Other insurances that the client has not notified you will be cancelled

  • Childcare

  • Child Support

These expenses can only be reduced with very good reason - EG: Selling the home so rates no longer continuing, or the child is going to school from next month so this is no longer continuing.

You should manually check every line of the statements to ensure that there are no fixed expenses like this that the client has either not declared or have not been picked up by the Illion link. Please also check the client fact find to check if there are any further declared Non Discretionary expenses.

Step 2 - Calculate Expected Discretionary Expenses

(AKA Non-Benchmarkable Expenses)

Some expenses in life are inevitable. Make sure there are expenses listed for each of these things, but note that these can be noted as changing in the diary notes and no further evidence is likely needed. That’s as long as the change is reasonable. For example, a couple spending $1,500 on groceries might be able to reduce it to $1,000 per month. But $100 per month grocery expenditure would not be normal.

Generally we can use the figures from the Illion V3 and edit as required from there. If the change is drastic, some explanation is a good idea, EG: Groceries are going to drop by 30% as their eldest child is moving out of home.

  • Groceries (not including dining out, just supermarkets etc)

  • Utilities

  • Phone

  • Internet (sometimes included in phone or utilities)

  • Vehicle running costs or transport costs if they don’t have a car

Step 3 - Note Unnecessary Discretionary Expenses

This step is really simple. Any regular payment noted, put it in a list, note is as discretionary and then don’t add it into the calculations. It might read something like.

Spotify, Gym membership, dining out, Netflix noted. These are discretionary.

As they are discretionary, you will not need to provide proof of their closure.

Examples of Unnecessary Discretionary Expenses

  • Online Memberships

  • Gym memberships

  • Software Subscriptions

  • Gambling

  • Dining Out

Step 4 - Note Kiwisaver contributions

These can be found on the clients payslips. It will either note the percentage on the payslip, or you can work it out with the following formula

(This payslip’s Kiwisaver Deduction)/(This payslip’s Gross income before tax) = Kiwisaver percentage. EG: 0.03 = 3%.

These can be changed but it depends on the lender as to what amount.

At time of writing:

Can be reduced to no lower than 3%

  • SBS

  • Kiwibank

  • Co-op

Can be reduced to 0% (sometimes they will require proof at 0%, but no proof required at 3%)

  • ANZ

  • ASB

  • Westpac

  • BNZ

  • TSB

If reducing to 0%, make sure to note that this is for the foreseeable future.

If the client does not contribute to Kiwisaver, note this and do not include KS expenses.

Kiwisaver expenses for an average couple might read something like this:

Andy contributes to Kiwisaver at 6%, but this will drop to 3% on settlement. Beverley currently contributes to Kiwisaver at 4%, but this will drop to 0% on settlement. She is not looking to contribute to Kiwisaver for the foreseeable future, preferring to concentrate on repaying their home loans.