Stuffing your cash outside of bank accounts may have drawbacks, mortgage advisers say. Photo: RNZ / Alexander Robertson
They might be a favourite of finluencers and organisational experts but budget binders and "cash stuffing" can be a major headache when it comes to applying for a home loan, mortgage advisers say.
Some people offering advice on personal finance suggest taking your money out of your bank accounts in cash when you are paid, and putting it into envelopes or specially designed binders to divide it up for bills.
It is sometimes claimed that having money in cash this way makes it easier to keep track of and helps people avoid overspending.
But mortgage advisers say it can be a problem when someone wants to take out a mortgage and needs to prove their spending habits.
One said she had had to tell a potential buyer to come back in three months, because they needed to build up an online record of transactions.
Glen McLeod, head of Link Advisory, said withdrawing a set amount of cash could sometimes help people stick to a budget.
"But it can create challenges when applying for a mortgage. Lenders rely on bank statements to assess affordability and ensure financial commitments, such as loans or subscriptions, are accurately disclosed. Having an accurate view of spending is essential to proving affordability to avoid future financial stress.
"While CCCFA refinements mean lenders are now less focused on minor spending habits, frequent large cash withdrawals can raise concerns, as they obscure spending patterns. Bank statements, alongside credit checks, help demonstrate good financial habits - avoiding overdrafts and bounced payments strengthens the borrower's profile.
"Maintaining a clear and traceable financial history reassures lenders that applicants can manage money well and meet repayment obligations."
Karen Tatterson, an adviser at Loan Market, agreed.
"There is some concern around these money binders for several reasons - firstly security and secondly large cash withdrawals are not deemed good account management from a banking perspective.
"You would be better to run a multi account programme - set up separate accounts - which many people do - for day to day spending, fixed expenses such as rates, insurances, regular expenses such as utility bills, gym membership and of course a savings account.
"As we are moving more towards a cashless society it does not make sense to withdraw your income and use budget dividers as many places do not accept cash any more.
"A dumb question, but how would you pay your power bill other than lining up at a Kiwibank branch or similar which I am sure most people don't have the time, energy or capability to do?"
Having online accounts for different purposes also means you can automate the transfers to happen every time you are paid - no visits to an ATM and physical movement of money required.
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