Your Questions Answered

Your Questions Answered

A while back I asked you to send me in any questions that you are looking for an answer to and I received well over 100 responses. So, I’ve hand-picked just four to answer today and I'll come back to the others in the future. At the moment with this blog I feel like I could post something every day and still not keep up, such is the thirst for knowledge amongst Kiwis! Now, the bonus of writing my very own blog is that I can write how I please, but I’m always first to point out I’m not a financial advisor and these are just my opinions. But I should point out that I don’t have debt, I invest each week and I’ve learned some stuff along the way that other’s seem to find useful. So, with that being said, on with the questions!


Q:

Is it worth paying off your mortgage a lot earlier when the rates are so low? Especially if you don't have much left on it?
- SM

A:

In my humble opinion, HECK YES!

It’s a great opportunity to get rid of it once and for all when rates are low, not an opportunity to ease up. If rates were up over 10% again like they have been in the past we would all be bemoaning the fact we were paying SO MUCH interest on our mortgage, so if we have been handed a golden ticket with low-interest rates just get stuck in and pay it off would be exactly what I would be doing FOR SURE! Low-interest rates are a great time to make good progress.

This also applies to student loans which have zero interest. I’ve heard the arguments for never paying them off because they are interest-free or paying the minimum and inflation will take care of them on your behalf, but I don’t really buy it. It’s like having a big party, trashing the house, getting up the next day and NEVER tidying it up. You made the mess, you took out the loan, tidy it up and put it behind you. Forever!


Q:

Kids and further education; should you be saving for this? Should you bother with kids KiwiSaver or should you put the money in something else?
- NSW

A:

I receive so many questions about how to pay off mortgage debt, how to save for a retirement, how to save for a home deposit, how to invest, how to make sense of this confusing investing industry, how to clean up a money mess created because the person had no financial knowledge about how to do things differently etc. And these questions come from people of ALL ages, yet all facing similar questions and hardships.

I’m a person, I struggled with the same questions myself and it took me years to figure it all out and now that I feel I have a pretty good understanding on life, my one regret is not having started being better with money sooner, but how could I have, I didn’t know what I was doing.

And I’m also a parent, so in my view, why would I NOT help my child so they don’t have to struggle with the same questions too? Why should my daughter have to try to reinvent the wheel all over again?

Just go and find a millennial on the street who is struggling with student loan debt and now wants to buy and house and have a family. Ask them if they would have liked some assistance when first starting out.

Having money won’t solve all issues, but money and financial education certainly help with a number of them! So why wouldn’t you give your kids a head start on these problems that they are certainly going to face in 10, 20 or 30 years time?

So, YES I think it is certainly worth “bothering” to give my daughter a financial leg up but to do it properly I need TIME to let compound interest do its thing. I started her in KiwiSaver at birth and contribute just $40 a month to her fund (Simplicity Growth) and she also has index funds (US 500 and NZ Top 50) which I contribute to for her each month but which she is now starting to contribute to herself as she earns pocket money for work done or money from little side hustles she creates. It’s my expectation that she takes over all contributions as she grows up.

So, I’m setting her up for her retirement AND for “something else”. Will it be tertiary education? Creating a business? Will it be a house deposit? Will it be on a brand new car (better bloody well not be!)

She knows that we are investing on her behalf and through a number of ways she can see the time it takes for this slow accumulation of money to happen and that one day she will use this money for “something” and we spend a good deal of time teaching her to be good with money and HOW to be an investor. So when the time comes it will be a hand up, not a hand out she receives and we will have stepped back and I’ll be more than happy to give her full ownership of the decisions she chooses to make with it.


Q:

I would really love it if you would consider covering the wonderful/awkward/exciting time that is our 20’s - from high school to the big 3-0, the years in our 20’s feel like some of the most transformational of our lives.

I'm 28 now, and my fiancé and I are only just getting into investing. In a story as old as time, I just never thought investing or being clever with money was meant for ME. I saw all of the other sections on the ASB website but never associated myself with them. I would have so loved to 'click' with money earlier than I have (and benefit from 8 more years of compound interest!! D'oh!)

We go from uni/study/apprenticeships, flatting, earning actual moolah for the first time, to saving for a wedding, paying off our student loans, and (for some) saving a big enough deposit to buy a home.

I'd really love to know - how can you balance all of this? For many, kids haven't come along yet, and your earning power is on the rise... so how do you nail your 20’s financially?
- BM

A:

Well, I could not have scripted this question better! Leads nicely on from the one before right? I received a beautiful email from this woman (with more detail than I’ve added above) and here she is at the age of 28 trying to reinvent the wheel again, like most of us had to, and discover for the very first time how to win with money. She is in the awkward position of wanting to pack a whole lot into a smaller number of years. If only her parents and wider whanau had created the framework for her from birth by setting money aside for her from early on and creating an investing strategy that she can then take over and take with her throughout her life. Then she would roll more comfortably into her late 20’s without the questions of “how do I get started now”.

So, how DO you nail your 20’s financially?

In my 20’s I did the following:
Started uni, made lifelong friends, stopped uni, worked full time, finished uni, got married, bought a house, moved cities, travelled heaps. None of it was planned, it all just evolved. All of it brings great memories (although to be fair I can’t recall some of my uni ;-)

A long way back I wrote The Happy Saver Top 10 Money Tips and if I was doing things again I would probably keep these in the back of my mind:

1. Consume less in order to always spend less than you earn. That way you will always be a saver.

2. Take on as little debt as you possibly can and pay it back as fast as you possibly can. If you buy it, make sure you own it. Debt is no good.

3. Have a rainy day fund of at least three months of wages. And just to be clear - a holiday is not an emergency! Losing your job while on holiday, that is an emergency!

4. Whether self-employed or employed join a KiwiSaver scheme with the lowest fees possible. Every year invest at least the minimum of $1042, that way the government will give you $521 for free.

5. Actually read your credit card statement and pay it off in full every month.

6. Have insurance, but only what you need. Change it when your needs change.

7. Buy Index Funds. Why buy one share in one company when you can buy the whole market and spread your risk?

8. Know your net worth, to do this you need to budget. Otherwise, how do you know if you are getting ahead?

9. We work for many years of our lives. Change career if you are unhappy at work. No one likes hearing you whine about work.

10. Educate yourself about money and don’t take financial advice off people who have no money.

I think these apply to someone wanting to nail their 20’s. Firstly you might need to clean up any debt mess from student loans and to also stay away from consumer debt, like no-interest finance, buy now pay later, after-pay… All that does is let you spend money that you don’t actually have. Get focussed and disciplined around what you want to achieve and you will get there because chances are that your 20’s will be one of the best earning periods of your life, so take the opportunity to achieve great things in your career, earn great money, pay down debt with it and save up for things that will actually benefit your life down the track. It’s never too late to learn about money and be good with money, you just need to turn your attention to it and seek out information so you can understand it. And I’m always happy to help you with that! Set these key points in place and that leaves only one thing left to do. Enjoy your 20’s, because hindsight does tell me that you are right BM, these are some of the most transformational years of our lives indeed.


Q:

I’d love to hear about KiwiSaver or retirement saving for self-employed people, please! As in, how it works, what’s the best way to do it etc. My husband is self-employed and I work for him as an employee. Neither of us are in KiwiSaver because we haven’t figured this out. We’re both in our late 30’s so it seems like something we should get on top of. Thank you!
- BH

A:

This is pretty straight forward, in fact, you could have yourself set up within half an hour of reading this and I would encourage you to do just that. KiwiSaver works exactly the same whether you are employed or self-employed. The only difference is that you have to put money into it yourself because there is no employer to do it for you.

My husband Jonny has been self-employed for over 6 years and I’ve always come and gone from employment (I took time off for kid and crisis), so even when I stopped work I kept contributing voluntarily to my KiwiSaver fund. Even now, I’m working part-time and I don’t get enough contributions from my employer so I top up my fund myself every month without exception.

There are many KiwiSaver providers and funds to choose from and you can go to the following site to help you choose one: Find the right type of fund for you

No disrespect to the creators of this site, but it’s likely to confuse the heck out of you. If you don’t know what you are looking for, it’s extremely hard to decide which one to choose right?

I suspect this is one of the reasons why you have stayed away from KiwiSaver since it first began in 2007, overwhelmed by choice, despite every company banner ad telling you they will make it easy for you.

Now, I don’t know you and I’m not a financial advisor, this is just my opinion but if you make a start in a ‘growth’ fund with a low fee provider that will be an excellent place to begin. These are just two of many options to choose from:

www.simplicity.kiwi (I’m with this crowd)

www.superlife.co.nz

You can do your own research but just keep in mind you are looking for a provider with fees of LESS than .50% and you should be in a growth fund at the very least. Why? Because you still have more than 25 years to go until you hit 65 so that’s plenty of time to ride the ups and downs of the market. The more aggressive the fund you choose, the higher the returns are likely to be over a long period of time, but it will also go up and down with the markets. Some months your balance may surge up, other months it may fall, but over 25 years the returns will be higher than a default fund or a moderate fund (lower risk funds).

Open up a fund of your choice for each of you (they can be the same fund if you like) and drop a lump sum in there to get you started. What can you spare? $1,000? $5,000? Don’t baulk at doing this. You are late 30’s and you have some catching up to do!

Then you just need to go to your bank and set up an automatic payment that goes into your KiwiSaver fund each week or each month, whatever time frame works for you. In your internet banking head to the payment tab, find the “Pay Tax” option, it will give you the option of “pay a new tax type” or something similar, enter the tax type “KSS” (KiwiSaver Member Account), enter your own IRD number (this is what helps the money find YOUR fund), other details, amount you want to transfer and also set it up as an ongoing payment or direct debit.

It is a straight forward process but I know when I did it for the first time I worried that I might be sending my money off to god knows where! Don’t panic, breath, I’m sure you will do it perfectly.

If you are confused AT ALL, just ring your bank!

In order to get the full member tax credit of $521 a year (soon to be called Government Contribution), you need to make sure you personally put in $1042 a year, or a MINIMUM of $87 a month. The government provides their contribution as an incentive to get you into KiwiSaver and it’s crazy not to take them up on it!

It is really as easy as this:

  1. Sign up to a low fee growth fund.

  2. Set up a direct debit from your bank account.

  3. Invest every single month without fail, it is your future you are protecting by setting money aside now.

Any money you contribute to your KiwiSaver will be locked in until you are 65, seems harsh I know, after all, it’s YOUR money yadda yadda, but this is the best way to keep you hands off it and then at 65 if you want to take it out and blow the lot, that is up to you. But I’m pretty sure you won’t do that because by that stage you should have come to realise that you need your OWN money to top up the government superannuation so you can live a good retirement.

Once again, head to the Sorted website: KiwiSaver Saving Calculator

And just for a bit of fun use their KiwiSaver calculator to work out what different monthly investment amounts will give you in retirement. I guarantee you that once you do this, the thought of just contributing the minimum to your new KiwiSaver fund will disappear. The more comfortable you want to be in retirement the more you need to invest.

Once you are set up and running after a month or two log into your new KiwiSaver account and just have a poke around. Find the voluntary contributions you have been making, notice what your balance is etc. Just start to familiarise yourself with how the fund works and if you have any questions just phone/email your provider and they will be happy to help you.

Hope that helps, I could go on, but if you feel I’ve missed something and you want more information on it, you can of course just email me too.


I’ll tackle a few more of your questions in the coming weeks. Thanks to all of those who emailed them in to me, I’ve read every single one and look forward to answering them soon.

Happy Saving!

Ruth

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Margin Lending - Borrowing money to invest in shares.

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