It’s Money Week, and we’re covering five major money themes to help you get your finances in order faster than Lisa Carrington paddles (ok maybe not that fast - she’s pretty impressive!) or at least remove any obstacles you have to getting started.
Topic #1: How To Set Financial Goals
Let’s start with goals. Without them, how do you know where you’re heading? Goals keep our eyes on the prize and help us develop a strategy to get to where we want to be.
3 Steps to Setting Your Financial Goals:
- Decide what you want in the short- and long-term.
First up, you have to decide what is important to you. Do you want to buy a home? Travel? Raise a family? Plan a holiday? Save an emergency fund? Set yourself up for retirement?
Once you’ve narrowed down what it is you want to do, set timelines for your goals. Saving for a holiday or an emergency fund are more likely to be achievable in the short-term while buying a home and starting a family might be more long-term.
- Set specific and realistic goals.
Specific means dollar amounts. How much money will you need?
Realistic means assessing how much you can save in a certain timeframe.
For instance, say you would like to save an emergency fund of $1,000. That is your specific goal. The realistic part comes in when you consider how long it will take you to save that much. If you set aside $20 a week, you’ll have $1,000 in a year. If you can afford to stash $100 a week, your emergency fund will be met in just 2 ½ months. Everyone’s situation is different so you have to set your own realistic timelines for yourself.
- Try different methods until you find one that works.
There is more than one way to save for your goals. We believe anyone can do it if you find the right method for you.
Whether you have the willpower to self-regulate by being strict about your needs vs wants or you are motivated by paying your future self, there is a savings strategy and budgeting technique for you.
Schedule regular check-ins to track your goal progress. Need some inspo? Check out our Top 5 financial reads to get you going.
Topic #2: How To Avoid Debt
You’ll save yourself a lot of stress if you can avoid getting into debt - stress that can directly affect your physical and mental health.
3 Ways to Avoid Debt
- Live within your means.
This means the B word - budget. We know, it can be hard when you’re starting out with your first job not to spend it all and live a bit extravagantly. But a bit of discipline in setting a budget will make things easier all around. You’ll know what you can afford to spend, so you can do so without guilt.
We have sussed out five budgeting techniques so anyone can get started budgeting now.
- Avoid debt traps.
If it seems too good to be true - it is. It is easy to get caught up in debt traps when you think you’re getting a good deal. Once you’re in debt, it can rapidly become a cycle that feels impossible to get out of, or in fact can take you years to pay off.
The moral of the story here is to make sure you know what you’re getting into before signing. Credit cards, buy now pay later schemes, payday loans, and even overdraft protection from your bank can spiral out of control if you aren’t careful.
- Understand how loans work.
It can be all too easy to swiftly get in over your head by taking out a couple of loans. Sometimes it seems that society has normalised taking out loans and living in debt, but it doesn’t have to be this way.
Remember when you take out a loan, you’re paying extra in order to borrow that money in the interest and fees the lender charges. If you miss payments, you’ll pay extra fees. Also, loans put your future self in debt - so you are depending on nothing happening in your life that will affect your ability to repay the loan.
With a little planning and patience, would you be able to save the money first and then make that purchase you’ve been dreaming of?
Topic #3: How To Make KiwiSaver Work For You
KiwiSaver is the easiest and most accessible way to save for New Zealanders. Getting in the right fund can mean the difference of hundreds of thousands of dollars later on, so it pays to sort your KiwiSaver fund now to get the most out of it.
3 Things to Check to Make Sure You Are in the Right Fund
- Risk
What risk level you are comfortable with is a personal matter. Your risk tolerance as well as what your goals are, influences which KiwiSaver fund is right for you.
- Returns
A return is the money you make or lose on an investment. Each KiwiSaver fund has its own rate of return. One key area to look at when considering a fund is its long-term rate of return. Don’t be fooled by fund managers who talk about 3- and 6-month returns - check out their 3-5 year performance. But bear in mind that past performance doesn’t guarantee the same for the future. It’s always best to seek help from a financial adviser who makes it their job to know this stuff inside out.
- Ethics
We mentioned this in the blog last week. If you wouldn’t give your money to weapons, animal testing or big tobacco, why invest your money in funds that support them? Not all KiwiSaver funds are completely transparent with where your money goes. That’s why BetterSaver launched a platform that allows you to see what ethical issues your money might be invested in. We thoroughly research every fund and only recommend the ones that line up with your ethics, so you can be sure you’re comfortable with what you’re investing in.
Topics #4: How To Start Investing
If you have a KiwiSaver fund, you are already investing. If you want to branch out and try other means, here are a few things to keep in mind.
3 Things to Know Before You Invest
- Understand compound interest
Most of us are familiar with the concept of interest - your bank pays interest on your savings account, you pay interest to your creditors. But compound interest is the key to investing - it multiplies your gains or losses over time.
Basically, the interest you earn gets added back into your balance before your new interest is calculated. So your money makes you more money (or losses, if your investment doesn’t perform well!). Your interest is compounded every year, so the earlier you start, the more time you have for your investment to grow.
- Invest directly vs managed fund
You can invest directly through term deposits, shares and property, or ‘indirectly’ through managed funds. Investing directly requires more research on your part to make sure you know what you’re risking. Managed fund providers pool your money with others’ and invest it on your behalf.
Either way, it’s a good idea to diversify your funds - a fancy way of saying don’t put all your eggs in one basket.
- Get advice
The best way to start investing is to get advice from a trusted financial adviser first. They are experts who research the data for you, assess your personal circumstances, risk tolerance and goals, and give you advice.
Topic #5: How To Prepare for Retirement
It may seem a long way off, but taking action to set yourself up for retirement now means you’re more likely to have enough money later.
3 Steps to Prepare for Retirement
- Figure out how much you need.
There is no one-size-fits-all answer. It depends on the sort of lifestyle you are accustomed to living. Most experts recommend saving 15% of your income every year so that you can enjoy a retirement lifestyle similar to your pre-retirement way of living. The team at sorted.org have a handy calculator to help you estimate how much to save.
The earlier you get started saving, the better. We’ve put together a guide for saving for each decade of your life to make it easier.
- Assess your KiwiSaver contribution rate.
Your KiwiSaver contributions are taken directly out of your wages. You can choose the rate: 3%, 4%, 6%, 8% or 10%. Decide the highest contribution rate you can afford, and use a KiwiSaver calculator to estimate how much you could potentially end up with later. Every increase in percentage makes a difference, and you might not miss the difference out of your pay so much.
- Make sure you’re in the right fund.
Going back to Topic #3, make sure you are in the right fund to meet your retirement goals. Next to your contribution rate, it is the other piece you can adjust to influence how much you end up with. The team of experts at BetterSaver are ready and waiting to help guide you.
There you have it: BetterSaver’s top tips for Money Week wrapped up for you. Of course if you have any questions, our team is here to answer them - simply get in touch.