Financial specialists say that a whopping 90% of first home buyers rely on their KiwiSaver fund to make a deposit for their first home.
If you are one of the 90%, you want to make sure you’re set up to get everything you can out of your KiwiSaver. It could mean the difference between getting your foot on the property ladder or not.
Is your KiwiSaver first home ready? Read on for BetterSaver’s tips on how to maximise your KiwiSaver fund for your first home deposit.
Assess your risk tolerance
Do you tend to play it safe or do you enjoy taking risks? Or are you somewhere in the middle?
And what does this have to do with KiwiSaver funds? Quite a lot actually.
KiwiSaver funds are categorised into five types based on risk level. A conservative fund is on the lower-risk end of the spectrum, while a growth fund is at higher risk.
With any investment, KiwiSaver included, your balance will fluctuate. In a lower-risk fund, you are unlikely to see large shifts in balance - it’s more of a slow and steady growth over time. In a higher-risk fund, you might see big drops in your balance from time to time, but by riding it out you’re likely to earn more money in the long run.
So, if seeing your balance drop makes you panic, a lower-risk fund might be more suited to you. But if you can stomach the ups and downs, you stand to build up a higher balance in a growth fund. It can feel stressful, but it doesn’t have to be - read what BetterSaver’s founder and CEO, Joe Taylor, has to say about why you shouldn’t panic over the current state of the market.
Consider your timeframe
When it comes to making sure your KiwiSaver fund will help with buying your first home, one thing is of major concern: when do you plan to make the big purchase? Are you realistically looking at buying in the next few years, or is a home still pretty far down the track?
If you plan to buy a home in the next few years, you want a reliable amount for your deposit. A sudden drop in balance just when you find your dream home is obviously not ideal. Because higher-risk funds fluctuate more and you’ll see larger changes in your balance, the risk is that you will be left short when you’re ready to withdraw.
A lower-risk fund will have a more stable balance, and so it’s a better bet if you’re planning on buying in the next few years. If your first home is still far in the future, you have time to ride out the changes in your balance with a higher-risk fund like a growth fund.
Ensure you are in the right fund
If you’re not sure what type of fund you’re in, there is no better time than the present to contact your provider and find out. But there’s more to it than the type of fund since there are currently 28 KiwiSaver providers and over 300 funds. On top of that, there are no set guidelines to categorise funds, so what one provider calls conservative might fit into the balanced category with a different provider. How do you know if you’re in the best one for you?
Easy. BetterSaver has designed an algorithm to help you select a fund that matches your goals, timeframe, and values (because some providers invest in questionable areas like animal testing and we believe you should have a say in what your money supports).
It takes only five minutes to take the quiz. We’ll ask you multiple-choice questions about what you want to do with your KiwiSaver and when, and what issues are important to you. Then we’ll even switch your fund for you. Couldn’t be easier.
Get financial advice
Getting financial advice is always a good idea, especially when you’re considering purchasing your first home. A financial adviser will work with you to plan your finances and decide when to start scaling down your KiwiSaver fund risk level.
There are a few more things to be aware of, such as the process of withdrawing your KiwiSaver fund and various eligibility requirements, and an expert adviser will make sure you’re doing all the right things. Plus there are KiwiSaver grants and First Home Loans that you may qualify for. We explain it all in our First Home Buyer’s Checklist and are happy to answer your questions online or book a 15-minute meeting with our advisers.
Get your KiwiSaver first home ready
Whether you’re a couple of years or a couple of decades away from purchasing your first home, sorting your KiwiSaver fund now will get you on track to reach your goal. It’s the easiest way to make a big impact on your future finances.
Check out what BetterSaver staffer Zac learned from his first home buying experience and a cool article on Stuff about how he and his wife used their KiwiSaver to make it happen. Then read up on Rupak’s strategy to pay off his mortgage as quickly as possible.
Buying your first home is a big deal and it can be intimidating, but it’s totally doable if you put things in place now. Before you know it, you’ll be holding the keys to your own home.