Ask Away - Your Money Questions...
Every single day I receive emails from YOU about anything and everything that is playing on your mind in regards to money and I absolutely love responding to them. Sometimes you will get an instant response and other times it may take me a few days as I ponder over the best way to answer and to find the time to sit down to write. I get some particularly curly questions sometimes and if I can’t answer it I reach out to the people I know who can and from time to time I hook a few of you up with each other which I know has resulted in some really helpful friendships.
All of the people I hear from are articulate, kind, respectful and intelligent. My fear when deciding to start a blog all those years ago was that I would attract the haters but apart from the extremely forthright man who critiqued my poor spelling on one occasion I’ve had nothing but thought-provoking interactions with everyone. It blows my mind how open and honest you are with your financial lives and I thank you for that.
So I thought that this week I would just give you a snippet of the queries I get because to me they are one of the main reasons I blog, to interact with other people who are thinking about PF. And for those who have emailed me and might recognise the content, don’t worry, no names or identifying features will be used and as always I treat every email I receive in confidence and I also point out in each email that I’m not a financial advisor and that I’m just offering my opinions and what I would do if I found myself in that situation:
I had an email from a retiree in her 70’s who was feeling a bit panicked about her KiwiSaver balance in late 2018. She had been watching it DAILY and the steady climb leading up to October (ish) had been replaced by a decent decline and then a wobbly ride since then. There was the thought of switching funds or pulling money out.
So, what would I say to someone like this?
STOP looking at your KiwiSaver every day! It was not designed to be looked at daily; if it was they might have called it DailySaver. She is retired and closer to the end than the beginning so let's not speed up the process by giving herself heart palpitations ok? Even in her 70’s, her mindset is still in the accumulation phase because after years of saving and investing to build wealth it’s hard to flip the switch and pull money out to use and enjoy, so any drop in her net worth is hard to watch. I asked her if prior to these bumps she felt she was in the right fund for her and she felt that she was and I explained that markets rise and fall and it's normal and to be expected, they have been doing it her entire life it’s just that she never engaged with them before having KiwiSaver. And given that she has been an investor far longer than me, in her heart she knew this, it was just nice to talk it through with someone else (me). And given that she is in her 70’s I asked her if she needed the money for anything at the moment because if she did she could easily remove money from KiwiSaver and put it somewhere less volatile? Nope was the answer because she is a good budgeter and she has ample cash at hand and low living costs and no big expenses planned. So, my thoughts on what I would do would be to look at my KiwiSaver no more than once a month and get on with living life instead, which would include starting to spend some of my capital. You can’t take it with you after all...
In a similar vein, I had an email from another intelligent woman worried about an impending financial crisis and a big financial reset coming in the western world due to the debt burden that governments and countries are groaning under the weight of. It’s not just households who are in debt up to their eyeballs, governments are at it too. How and where on earth do we go about investing with something like this on the horizon?
Holy heck, that’s a whole big lot of worry right there!
What are my thoughts on this???
As far as an economic crash coming I am sure she is absolutely correct, there IS ONE COMING but to quote JL Collins in his excellent book The Simple Path to Wealth:
"Market crashes are to be expected. What happened in 2008 was not something unheard of. It has happened before and it will happen again. And again. In the 40 odd years I’ve been investing we’ve had:
The great recession on 1974-1975
The massive inflation of the late 1970s and early 1980s. Mortgage rates were pushing 20%.
The now infamous 1979 Business Week cover: “The Death of Equities” which, as it turned out, marked the coming of the greatest bull market of all time.
The Crash of 1987, including Black Monday, the biggest one day drop in history
The recession of the early 1990s
The teach Crash of the late 1990s
And that little dust in 2008.”
He goes on to say that “the market always recovers and if someday it really doesn’t then no investment will be safe and none of this financial stuff will matter anyway”.
So, the way I invest is to buy into index funds and have no plans to sell them for at least another ten years, if at all. The market goes up AND down, yet I buy every month without even looking at the share price and will continue to do so through the highs and the lows. So, I’m holding my course, I’m well diversified and I keep cash on hand in the bank too, I have ZERO debt and will never take on any again because it freaks me out and adds a layer of risk I’m not prepared to accept. I don’t worry about what the share market is up to and IF/WHEN there is a big drop, all shares will be cheaper, so I’ll buy extra. And taking a tip from my husband Jonny, I no longer listen to the news, that's a sure fire way to make me feel like we are all doomed, media is in a relentless drive to sensationalise every single market movement in an effort to get us to watch/read their content. Oh, and as a bonus, it also means I don’t have to hear about that idiot occupying the White House at the moment!!
To paraphrase a wonderful email I received…
“Help, I’ve had a financial epiphany over Christmas, I’m 44 and have left it too late to save! My kids have almost left home, my house is halfway paid off, I’m paying into KiwiSaver. How can I get ahead quickly?”
I get a lot of emails from people of different ages, yet with a similar theme; the feeling of having missed the boat.
This was an easy one to respond to because clearly being age 44 they are still young and awesome! Martin Hawes book Twenty Good Summers struck a chord with me many years ago and I think it applies here. They still have 21 years to go, or 21 good summers, plenty of time to get financially sorted if they get intentional about it right now, which clearly they were planning on doing.
What would I do if I woke up in their shoes? Make paying off debt my absolute focus. Use these low-interest rate times not to ease off but to kill debt off instead, every $1 of debt paid off is $1 gain in your net worth! Living without debt simplifies life. It’s awesome that their KiwiSaver is ticking along, just make sure they are in the right fund for them (KiwiSaver Fund Finder) and keep investing with each paycheque to ensure they receive the member tax credit. That way they will make use of time and compounding while saving for retirement and also reducing debt. They were also itching to invest, a theme I notice in many emails I receive where people have suddenly had a financial epiphany, they kinda feel they have to do EVERYTHING at once. They have discovered two new words: compounding and time and feel that they must start NOW (even though prior to this many have lazily paid down debt which you guessed it is also impacted by compounding and time, just in the wrong direction!) Personally and sometimes controversially, I focus on the debt first, then invest (and don’t forget that your KiwiSaver IS investing). Buuuttttt if you insist, which many do, then just dip your toes in the investing waters by using something like Sharesies, a platform where you can invest tiny amounts. I would invest just $10 a week and think of this as my EDUCATION in investing where I learn a new saving habit and learn how the system works. By the time debt is gone I will understand more about investment and then can turn my attention and my surplus income to it full time. But, stay focussed and pay off debt first and don’t get sidetracked by shiny new investment opportunities! And finally, talk to those kids of yours about what you are up to and why and that way you can save them from a similar situation when they hit their 40’s.
Other emails are short and sweet:
“Ruth, I’ve come up with another tool to help save. You’ll like this one:
If I make a mistake and buy something I don’t need or really want, I invest that exact amount extra into InvestNow. It helps me BIG time and gives me a self-slap to stay the course!”
Yep, I like this one. I love hearing all of your ‘ah ha’ moments and hearing about your tips and tricks that are helping you stay focussed and on track. Cutting back and god forbid GOING WITHOUT are words no marketing department wants to hear! But, where has “having the latest everything” in our consumer-driven culture gotten us exactly? In debt, stressed out and unable to understand why even when we spend more on things that will bring us joy, we still are not happy. In my humble opinion, devising strategies to get yourself and your family spending less than you earn and saving the difference is the secret sauce. Those who work that out get ahead pretty quickly! I’ve seen this now more times than I count when an excessive spender gets in touch and have come to realise that always striving for instant gratification actually makes them pretty miserable. But you have to teach yourself discipline and to radically change the way you have been doing things for years and it’s as simple as not going out for dinner tonight, but cooking at home instead. One step at a time, out of small acorns, grow mighty oaks…
Property investment is a topic that regularly comes up and many ask me to write about it. I’ve been sidestepping this topic for a long time now because it holds no allure. I “get” that some people make money out of it. Or do they? It’s just not for me, something I’ll never get involved in and I just can’t get past this thought: If investing in a single rental property, or maybe a couple, is such a brilliant way for a run of the mill Kiwi to make money, why is it that banks don’t sidestep the lending part and just buy rental properties themselves? My simplistic view is that money is to be made in the lending itself, not the property.
I’m investing for the first time, want to use an index fund and can’t decide who to go with…
Yep, I’m hearing you. There is such a lot of choice out there that it is hard to cut through all the noise and make a good investment. What if we get it wrong, how will we know, are they legit…?
The problem I face with writing a blog is that I am ALWAYS hearing from companies and individuals about new products, new start-ups and new ways of investing (cryptocurrency anyone?). And part of me thinks I should just push all this information out to you so you can make up your own mind, but to be honest, it would just confuse you because we are all being marketed to for our investment dollar. So what to do?
If something new appears I just sit, watch, learn and wait. Because if I jumped at every new ‘thing’ I would be so diversified it would be ridiculous, pointless and speculative. Coming back to index funds, the ones that are on my radar are: SmartShares (which I use), SuperLife (which I would have happily used), InvestNow (which I was receptive to using but at the time felt confused by, less so now) and Sharesies (which in all honesty I signed up to after a year of sitting, watching, learning and waiting so I could blog about it but have now formed a habit of buying each week). I buy every month without fail and then just get on with my life and I don’t jump at every new fund that is released. I don’t dwell on whether I should have chosen SuperLife or InvestNow instead, because after much indecision and angst at the beginning, I’ve made my decision and now I’m in it for the long haul. So, when investing for the first time, don’t waste precious months dithering over who to use. Do some research, here is a starting point:
Soon you will realise there are many similarities between each fund, pick one and just get started. Then once you have created this new habit, don’t stop. Refer back to Number 2 email if ever you start to doubt yourself…
These are just a snapshot from the last couple of weeks of the types of emails I receive. People write to me for a bit of help and as someone to talk stuff through because they don’t have access to that sort of person in their daily lives and/or don’t feel they can discuss finances with their nearest and dearest. They feel that if they talk to their bank then they will just become a sales target. I find the topic endlessly fascinating and could talk about your’s and my own financial lives all day! But, how odd is it that we feel we can’t talk to our own close friends and family about this instead? Just so you know, most of my OWN friends and family don’t want to talk about it either!
I’ve been blogging long enough now that I get updates of how people I’ve emailed, spoken to or had coffee with over the last couple of years are getting along. Because often, after a flurry of contact and questions there is often just silence. Until I get an update.
And it’s these updates that keep me blogging. To hear that people have drastically changed the direction of their lives for the better due to a conversation we have had and the subsequent journey they embarked on is INCREDIBLE and so so fecking rewarding I almost can’t explain it. So, hats off to all of you that have not only reached out to me but have gone away, educated yourselves some more and then not just thought about it but have TAKEN action. Brilliant! I’m cheering you on all the way and it just highlights to me that changing your financial future takes time, but time passes extremely quickly so the end goal is always closer than you think. And the right time to take action is NOW.
Because at the end of the day, it’s down to YOU to actually research your options and do something and make whatever changes to your finances you need to in order to get to whatever financial goal you are heading for. It’s like many of you ‘just knew’ there was a better way of doing things but didn’t know how or where to start but then one day you heard something or read something that got you moving. I’m pleased to say that for many that “aha” moment came when they stumbled upon my blog. Once you worked it out, holy heck, you were into it, with one of the biggest changes being paying off debt aggressively and using your income more wisely. Once that debt is gone then you immediately flip the switch and start investing for your future instead.
And I’m also pleased to report that your whanau and friends have noticed that something has changed and they have started to ask YOU questions, or you feel emboldened enough now to ask questions of your own whanau and friends. A conversation about money has finally begun and that is probably the biggest point of my blog. To get people talking and thinking about their own money and learning how to control it and not have it control them. In New Zealand, so many of us are absolutely crap with money, but we are only doing what we have been taught to do by slick marketing, what our parents and peers have taught us, including all of their bad habits. It comes through loud and clear from everyone that I hear from that there is a tipping point where you realise you may have stuffed up and that there is another way of going about things, most likely a more successful way. But as soon as you have acquired the knowledge to be better with money you are off and racing, but feeling remorseful that “I didn’t know how to handle money sooner and I’ve missed out”.
Don’t dwell on that, just keep moving forward but do look around you at your friends, family and colleagues and just gently ask them if perhaps they need some help sorting out this money stuff as well. And if they won’t talk to you then give them my email address instead!
So, to you all, I say thanks for contacting me and “ask away, let’s hear it and just see if we can’t help you sort out whatever you have going on”. And by doing this I know that heaps of you find the answer you are looking for.