While we were getting ready to launch BetterSaver, we encouraged people to sign up to our waitlist to be the first to access KiwiSaver advice. We added an extra incentive by entering everyone who signed up in a draw to win $10,000 deposited straight into their KiwiSaver account.
We randomly drew five winners, and recently we chatted with them to see how they planned to use the money (check out the pod to get the whole rundown). Do you know what you would do with $10,000 in your KiwiSaver?
What our winners had to say
Three of our winners - Sasiru, Chloe and Sophie - all plan to use their KiwiSaver for a deposit on their first home.
For Sasiru, a recent Uni graduate, his KiwiSaver was something he didn’t think about too much. Since the contributions are automated he wasn’t going to think any further until he was ready to buy a home. That’s changed now that he has a $10,000 kickstart on saving for the future.
For Sophie, the goal has always been to buy a home. As a primary school teacher she opted into KiwiSaver early, but spent eight years in a default fund. It was only two years ago that she started thinking of how impossible it seemed to have a home and family when she was living paycheck to paycheck. She sorted out a budget and started saving, and changed her KiwiSaver fund to a growth fund. She says now, with the $10,000, it feels “more realistic” to be able to actually achieve her goal of buying her first home.
For Chloe, a health coach, her main goal is to save for a house but she still feels skeptical that it is within her reach to put together a deposit given the high cost of housing.
So where to from here, not only for our winners but for anyone else with their sights set on a first home or saving enough for retirement?
It’s all about financial goal setting.
Setting financial goals with KiwiSaver
First up you need to decide what your goal is. Are you going to go after the goal of owning your own home, or use your KiwiSaver for retirement? (It’s possible to use it for both, if you start early and make the right choices.)
Saving for your first home
What you need to think about:
- How much will you need for a deposit? This is your savings goal.
- What is your contribution rate to KiwiSaver? How much will you likely contribute in your remaining working years?
- What other sources of savings do you have?
- How long will it take to save up your goal amount?
- Should you keep all of your money in KiwiSaver or look at alternate investments?
Bear in mind that many lenders require a 20% deposit. For some, this seems out of reach. But if you qualify for a First Home Loan through Kāinga Ora, you might be able to shrink that deposit to as little as 5%.
With recent changes to housing policy, it may become easier for more people to reach the goal of home ownership. If buying a home is something you intend to do, the best time to start thinking about it is now.
BetterSaver can help you answer all of these questions and set up your KiwiSaver in a way that is optimal for you to get that first home.
Saving for retirement
What you need to think about:
- How much will you need? A good goal to shoot for is 80% of your pre-retirement income every year, to maintain a similar lifestyle.
- We know retirement seems far in the future. Are you disciplined enough to commit to saving for it? Saving doesn’t mean denying yourself things that you love - it means making a savings plan and committing to it.
- If you have a house, you may need to consider selling later to unlock some equity.
- Will relying on KiwiSaver provide enough money, or should you look at alternate investments?
The NZ Super currently provides approximately $650 per week for a married couple. For most of us, that won’t be enough to maintain our desired lifestyles in our golden years. Setting your retirement savings goals now gives you plenty of time to smash that goal, so you can retire in style, whatever that might mean for you.
We’ll help you identify how much you need to save up for an independent, comfortable retirement, and how to maximise your KiwiSaver to lock that goal in your sights.
Get financial education early
Talking with our winners, a common thread was that none of them felt they had adequate financial education before leaving school. Sometimes this was a cultural issue, where money was a taboo subject, or it was due to a lack of financial education provided in schools.
When asked what financial advice they would give to their younger selves, all three would have thought about their finances earlier. Sophie said she would have learned about money and investing, particularly where her KiwiSaver is invested. She laments having spent 8 years in a default conservative fund, when she could have seen a lot more growth simply by switching to a different fund early on. Chloe would advise herself to make the effort to be aware of where her money is going and of the choices available to her. For Sasiru - he would have told his younger self to invest in bitcoin.
The key theme is to start early, and think long-term.
Need more motivation to start now?
Why start early? Other than the obvious fact that the longer you save, the more you will have, there is another key factor that works in your favour: compound interest.
Compound interest supercharges your savings and investments. It’s when the interest earned on your account gets reinvested - so your interest earns interest. Your money makes more money, without you having to do a thing.
Here’s a simple example to illustrate the difference compound interest makes. If you save $10 a week from age 20 without earning interest - say you’re putting it under your mattress - by age 40 you’ll have $10,400. By putting your weekly $10 in an account with 2.5% interest, at age 40 you will have $13,450 - an extra $3,000 simply by putting it in an interest-earning account. By the time you’re 60, you will have earned over $14,000 in interest alone.
With compounding interest, your money grows exponentially over time.
When it comes to KiwiSaver, the principle is the same: your returns are added back into your account to earn you further returns in future. That’s why it pays to start your KiwiSaver early, even if you are only making small contributions to start. Starting small is better than not starting at all!
BetterSaver Makes it Easy
If this seems overwhelming or confusing, don’t worry. We have made it our mission to make KiwiSaver easy for everyone. We do all of the hard work to find the right fund for you, taking into account your personal circumstances, goals and timeline. Buying your first home and saving enough for retirement are goals within reach if you get started now.
It’s never too early to seek financial advice. A trusted advisor can help you with multiple aspects of your financial future, whether you have a little or a lot to work with. Planning for what you would do with $10,000 will get you on your way to saving while making sure you have the know-how to make your money grow.
So start thinking about your goals if you haven’t already, and sign up to get early access to BetterSaver’s tools to sort your KiwiSaver.