 One of the first riddles I learned as a small child was the chicken or egg quandary.
It did my head in trying to crack that one. The relationship between the mind and money is also somewhat circular. What came first, the right mindset or the money? You'll have plenty of examples on either side of the ledger I'm sure but it is an interesting debate. For those fortunate enough to be born into wealth, money came first naturally. But just because someone is rich at birth doesn't assure them a good relationship with money ,or a guaranteed supply of it either. And regardless of whether you made it, or inherited it, wealth needs a healthy mind to manage it properly. I'll never forget the scene in "All The Money In the World," documenting the life of Jean Paul Getty senior. At one time, America's wealthiest man, Getty was apparently so thrifty he would wash his own undies in a hotel sink to save a buck. Notoriously, he did not pay the ransom when his grandson was kidnapped. It's an extreme example, but it underscores how the mind can delude itself where money is concerned. Research has found that folks living in wealthier postal districts give less money to charity, than those of more modest means suggesting that the richer you become, the less generous of pocket. With today's cost of living, and mortgage rates tripling for some, the financial pain of 2023 is not exaggerated. But wishing one's financial situation was better than it is, without doing something differently, is unlikely to make a difference. However, seeing your situation from a different angle and forming a plan of action will. It starts with having mental clarity and then a road map. Sadly far too many people become paralysed by their finances. They either fail to do anything at all or make matters worse for themselves by pretending things are different than they are. Neither is helpful. In the gripes of a financial crisis, what you need first and foremost is a clear mind and then a clean slate to set a new course. The mind needs to be cleansed of fear, anxiety and generally unhelpful thoughts to find a way forward. It may not be easy, but it's far better than freaking out. This is where mind-calming techniques like meditation or slow, steady breathing come into hand. When practised with some regularity, both have the effect of taming that monkey mind. Both work on a physiological level overriding the fight or flight mode that we haven't evolved out of yet. When the body relaxes, the mental mind fog also lifts. It can alter how you perceive your external world, and teach you to become more responsive and less reactive. Regular meditators will know from experience the positive benefits of having that clarity and calmness of mind across all areas of life. Don't get me wrong, you can do some fundamental things with money that result in better financial outcomes that don't take meditation or psychoanalysis. They include simply not spending more than you earn, automating your savings, understanding the actual cost of debt, avoiding it where possible and tracking your spending more mindfully. But for those more perplexing financial situations, and more ambitious goals having greater mastery over one's mind is key.
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 I could start with another New Year, New You personal finance post, but I won't.
That is well-trodden territory; if you're honest with yourself, you will know the answers. If not, very quickly, here's a reminder to:
Instead, indulge me in a rant about the finance industry and others who are currently inadvertently perpetuating the myth about the weak, stupid little woman. If I have to read another column written by a white middle age man, dispensing cliches from his mother or grannie, about coupon clipping, baking their own bread, and 'you can do it girlie' fist-pumping propaganda, I'll puke. I get there are good intentions behind all this, about wanting better outcomes for women, but I can't help but be cynical about the current approach. It's all well and good to preach money 101 basics to gals, ostensibly because you want them to achieve higher savings, but the narrative at the moment seems built on the assumption that women don't know there are financial inequities that could impair their financial wellbeing and don't know how to fix it. Extra cynically, those players piling into this female empowerment space are seeking to win over and build their female client base. There is a zinger of a speech that actress Reese Witherspoon, an accomplished actor and producer, gives at an award ceremony that takes aim at the same issue. In it, she describes how far too many Hollywood movies feature a scared and helpless female who turns to the firm and stable male and cries, "What do we do now?!" Ask any woman whose been lost with her partner in a foreign country, dealt with an errant child, had a broken-down car, or dealt with virtually any crisis, and you'll know that the Hollywood myth is bullshit. These pathetic stereotypes about women do not match today's reality. They probably never did, but women have not had the same chance to record their history or stories as men. In my world, most of the women I know are financial powerhouses. Whether single or partnered, they are the money managers in the household, and I'm not talking about paying the bills and buying food. I'm talking about investments across all asset classes. Much of the talk around women and money currently centres around women not having as much as men in their KiwiSaver accounts. The inference is that women don't know this; they don't understand why they should care and don't know how to fix it. It is also commonly assumed they lack the confidence to deal with money beyond managing household accounts. I have no doubt some women may fit this profile, but if I'm honest, I know more males than females who fall into that category and rely on their female counterparts to play the CFO in the family. Both of my grandmothers controlled the family finances AND the investments. My late mother, who managed her own finances as a single working mother, was far savvier about investments than any fund manager or financial advisor I know, warning me about unjustified investment fees back in the '80s when I was in high school. She retired more than just well. Still, there was this assumption by those who met my mother for the first time that she must have inherited her wealth or received some cash windfall in a divorce, or was supported by a partner. I'm not sure my mom would describe herself as a feminist, but by most traditional definitions, she was. Financially independent, self-directed, wise and career driven, she had total confidence and control of her finances. That was my role model growing up, so maybe that has shaped my thinking and behaviour around money. My mom didn't buy Barbie Dolls or bake cookies for my sister and me when we were kids. She worked in a male-dominated industry with a title she held until she retired as a "Landman." She negotiated land deals for a living and was very good at helping buyers and sellers reach their targets. I never met another woman who did what my mother did for a living (or matched her capabilities in so many areas). Still, I have known numerous professional women like her. My tribe may be unique in that sense but what steams my bean about the current narrative is that instead of looking through the lens of women who are not languishing in debt and spending all their disposable income on hair, nails and high heels, we talk about women as though they are helpless financial illiterates. Just because women's savings in KiwiSaver are lower, we should not infer incompetence or ignorance with money. In most cases, the disparity is directly attributable to lower pay or likely workplace absences for the purposes of rearing children. The financially savvy female will know they should contribute at least $1,043 a year (even if they have left the workforce) to receive the $521 in free Government support. They will also be acutely aware of their savings shortfall while not working full-time. The difficulty for most women, at least those working women who decide to have children, will be balancing a career and motherhood and trying to excel at both. This, in my experience, is not the same burden (yes, there will be exceptions) as men who have the luxury of pursuing (unbridled by guilt) their careers. At the same time, the working mother typically organises play dates, sports, after-school programmes and tutoring, birthday parties and gift buying whilst remembering to do the shopping, keep the house in some semblance of order and do a good nay great job at work too. That is the challenging piece for intelligent women, not any deficiency in their intelligence or ability when investing their money. It is time to spin a new narrative around women and money, address the pay inequities that are the real barriers to equality in financial well-being and make it easier for women to balance work and raising a family (i.e. subsidised child care) so they can get on with building wealth on par with their male equivalents. And please, let's bury the helpless female myth once and for all. Women know what to do. Let's create an equal playing field to allow them to do so.  Photo by Dakota Corbin on Unsplash The plight of the single parent...where do I start?!
Your assets are halved, your household income savaged, both made worse by your ability - or lack thereof - to work unless you have free, or highly subsidised childcare. Throw in the stress of separation, the emotional aftermath of a bitter ex, and now the crushingly high cost of living issues, and it is no wonder New Zealand's collective mental health is in the toilet. Having been a single parent myself, without the benefit of free child care from family living living on another continent, I am familiar with the pain. My childcare arrangement, as a full-time working mum, consisted of a patchwork of friends, other school mums, cheap after-school programmes and a revolving door of young nannies. This was pre-covid and pre-WFH when your absence at work was noticed. If it was a reoccurring thing, you would likely get the axe. Journalism was merciless. Maybe it still is? Stories don't write themselves. It was a stress fest of unceasing deadlines, juggling of childcare and a lot of running around to manage a household on my own. Student flatmates to make ends meet, sick kids, parent teacher interviews and the elusive goal of work life balance. It was several years before I was able to carve out a four-day workweek that included a few days of school pick-ups. On the one hand, it was reassuring the kids were at home and not in the after-school programmes they despised, but it was also a pressure cooker trying to get interviews done with kids banging at the office door demanding sandwiches and snacks, and hard deadlines hanging over my head. Journalism is a tough gig because you have to deliver. And at the risk of sounding ancient, before the media was savaged to its existing skeletal state, there was a fortress of subs to get through, which meant you couldn't just rewrite a press release and file it with a single quote. Single-source stories were (rightly) thrown back in your face, and typically, you had 2-3 sources so you and your readers could be offered differing perspectives. But this is not a pity party. I'm just glad I'm at the other end of it. I was reminded just how tough it can be after catching up with a good friend going through the wringer with a terribly messy divorce, made even worse by money problems and custody issues. I shared some resources with her and thought this week's blog might be helpful for others in the same boat. Know your rights In the case of my friend, who was the leaver in the relationship, her ex took revenge in the most cowardly way, via the children. Because she was forced to leave the house, she was left homeless, literally. Her access to the kids was another form of control, and abuse, which he used liberally to punish her. It is widely known that unless one parent is an abuser, you shouldn't prevent your kids from seeing the other parent. For some reason, my friend's lawyer advised her to try to get her relationship property matters sorted first, and for almost two years, they have not had a custody order. The effect of this has been soul-destroying for my friend. Step one Know your rights. Visit the Ministry of Justice website here for Relationship Break up guidance. Step two Get your finances sorted ASAP. As dreadful as it may seem to think about doing a budget, getting a second job or figuring out if you'll be left homeless, you need to be pragmatic. Figure out your financial position and try to get some agreements while formalising your separation and relationship property. If you're the primary caregiver and work a minimum of 20 years, you will likely be eligible for Working for Families, and the additional support is not insignificant. Apply for what you can as soon as possible, and if its child support, make sure you get that in train ASAP via Inland Revenue. One friend, assumed that lawyers would make things happen faster, and to better effect but was left instead high and dry. She didn't see a single cent and is still waiting for resolution in the courts. If she had gone to Inland Revenue in the early days, at least she would have had help with child care costs. You can work out what your potential support payments are from WFF here. Get the support you need Don't stress, if you can't afford a lawyer. You may qualify for legal aid. You can also consult with the Citizens Advice Bureau to get further support. Like cancer, the longer you let your problems fester, the worse the outcome will likely be. Surround yourself with loving, helpful and supportive people, and try to minimise the time spent wallowing in anger, sadness or bitterness. Easier said than done, I know but focusing on taking some practical measures will not only be helpful for you, and your kids but also distract you from the pain and grieving you inevitably need to process. "Getting through it all" takes much longer than you may expect. Years in fact. So, it is best to get on with the things you can change, like bank accounts, mail forwarding, and child care arrangements, so you can rebuild the life you desire, along with your tattered finances. Procrastinate at your own peril.  You don't have to be an economist to understand the effects of inflation. You feel it every time you shop, whether purchasing a flight, veggies or even dog food.
We've all become numb to these sky-high prices but tend to experience at least a weekly price shock. Last week, I had mine at the Countdown in the pet food section, which has been hallowed out recently due to supply chain problems. I gasped recently when I saw my dog's favourite brand shoot up by $2 a tin. Not to $2 but up by another $2. I bought one and then went looking elsewhere. I found it $1.30 cheaper somewhere else and loaded up. Because we don't live off dog food, these are marginal savings. You're not likely to notice a huge difference in isolation. But if you apply the same vigilance in the hunt for savings across all spheres of your personal finance life, you may see a difference, even if you have to squint. You might need to stock up on eye wrinkle cream the way things are headed. Despite the government hoping for inflation cooling, the latest numbers show no change. Okay, it dropped 1/10 of 1% from 7.3% to 7,2%. Big deal! To add insult to injury, we've also been dealt a further blow with a sharp decline in asset values in both the housing sector and the share market. The average KiwiSaver Growth fund is down by 10% year to date. Yup, it's painful. You may console yourself by remembering that KiwiSaver (unless you're saving for your first home) is a long game. So think long-term and take a deep breath, right? Even then, when you look at the long-term returns, those sunny days of 11% p.a. returns are fast fading from memory. Across all peer group averages, they've sunk around 2% p.a., pulled down by the recent meltdown, er, should I say 'correction.' To compare returns and fees over the life of KiwiSaver, follow Morningstar's quarterly KiwiSaver reports here. Looking on the bright side, you could choose to look at today's deflated share prices as a discount. We're entering a bear cycle, but it won't last forever. So anything you buy now will likely rise again. We just don't know when. When KiwiSaver first launched in 2007, it was around the time of the Global Financial Crisis. Back then, default funds (which were Conservative in profile, not Balanced as they are now) and actual Conservative Funds, withstood the blows better than their Balanced, Growth and Aggressive counterparts. It was demoralising for first-time retirement savers still trying to wrap their heads around KiwiSaver, but those who stuck it out were rewarded in the end with much higher returns. From that low, we saw one of the longest bull runs in some time, including housing. Markets were almost gravity-defying. They kept going and going, even through Covid, a byproduct of Central banks printing money to prevent total economic ruin. Fast forward to 2022, when we should be celebrating to return to quasi-normalcy in a sorta-post-covid world, we get slammed. The effects of all that cheap money finally caught up. Hence, inflation is at 7% and higher in some places. And interest rates creeping back up to levels that younger investors will have never experienced. I still remember when my sister bought her first home. We were all very excited for her. Her interest rate was a whopping 14% something that is unimaginable to today's borrowers. I'm not forecasting or suggesting we're headed back to these crazy highs. Far from it, it would create mass homelessness in New Zealand. Reckless lending? Banks deliberately build a buffer when assessing your ability to service a mortgage. It's called stress testing. Currently, many of them are stress-testing would-be borrowers at 8%. With inflation, what it is, many hopefuls will be knocked out before their first meeting. Since June 2021, fixed-rate mortgages have increased by almost 4%. On an average mortgage of $650k, you'll be paying around $1,000 extra monthly to service your debt. The pain is real if you have kids or pets, drive a car, and like to eat. Personal loans are rising in popularity, and food banks are busier than ever. People are struggling. So easy wins to reign in costs include the following:
It is increasingly hard to save but not impossible, and if you approach it like a challenge, you'll find more joy in it. When it comes to money, attitude and behaviour are everything. We may not be out of the woods yet, but sitting idly with fear, worry and/or apathy isn't going to move the dial. That's on you. (The usual caveat applies. This is not personalised financial advice. If you need some, see fee based authorised financial advisor. Check out the FMA website to find out more.  Photo by Johannes Plenio on Unsplash You've heard it many times. Those who don't learn from history are doomed to repeat it.
It wasn't that long ago I wrote in this blog for Simplicity KiwiSaver about the cost of knee-jerk reactions to investment market jolts. It was back in March 2020, around the time the first big wave of Covid had a tsunami effect on the markets. As usual, when significant market movements make mainstream news, investors wakeup. In the case of KiwiSaver, it jolted many erstwhile apathetic investors to log in to their accounts for the first time and look at their balances. Naturally, when you see balances drop and returns move into negative territory, you feel seasick and search for solid ground. A quick recap for those who don't remember: We saw an unprecedented rush of DIY investors switching fund types and doing it without any proper advice. Like buffalos fleeing a bushfire, fear drove them from one precarious situation to another. In that case, right over a cliff's edge. The exodus at that time was from Growth funds, which were getting hammered the hardest, into Conservative funds, then perceived as a safe harbour. As I explained in my blog, losses in KiwiSaver, or another investment-type product, are only paper losses until you make a tangible move, like withdrawing them. The losses are therefore realised when you take action. In this case, investors crystallised those losses by selling one fund type, and buying another. Given all that is happening in the world these days; geopolitical instability, the Wild West of investment trades and structures, cheap credit, quantitative easing, and now unprecedented inflation and interest rates, it is very difficult to know how best to sail these rough seas. When hedge fund behemoths like Ray Dalio start chiming that "cash is no longer trash" you know times are really tough. Not unlike climate change, we tend to be experiencing the opposite of what we expect, or at least what was forecast. And in many cases, the outcomes are more dramatic than expected too. Those who switched in early 2020 from KiwiSaver Growth funds to Conservative funds, were reminded of the wicked temperaments of the markets when Growth funds shot back up only a few months later. The returns seem to defy gravity, until just recently. Those that ended up switching out, then back into Growth fund when returns appeared healthier, paid the price. Literally. They crystallised their losses, then paid more to buy back into the fund they had just abandoned. Those who went into Conservative from Growth and stayed, are now seeing history repeat itself but this time the fund fortunes are reversed. Conservative funds are now trending down worse than Growth funds, which had years of unnaturally high returns to cushion the latest meltdown. The tech revolution has been fantastic for so many areas of our modern lives, but in the investment space tech's ability to serve investors responsibly has moved ahead of people's ability to use the technology wisely and knowledgeably. I hate to think of the aggregated account losses in all those $250 fractional share accounts where investors bought on impulse, trend or in some cases, even allowing their kids to select based on the colour of the fund that appeared in their app. I'm not making this s-t up. In one of the more popular finance forums, where a legion of newfound DIY investors share their 'expertise' with one another, I read that colour choice comment from a mother when (she) was responding to another person's questions on how to choose the right fund type for a kid's account. Previously, if you wanted to choose or switch your investment portfolio up, you had to do that via a financial advisor or a broker, or someone else (presumably smarter and more-savvy than you). I'm not saying the 'good-ole-days' of being forced to use a financial advisor or broker at a much higher expense, and being turned away at the door for less than $25,000 is superior to our current environment but it was some measure of protection that is absent now. And yes, there are plenty of examples (pre-fin tech revolution) of bad eggs fleecing too trusting mum-and-pop investors. Think BridgeCorp and the like. But that unfortunate time shouldn't be used as an excuse to ignore the hazard that easy DIY investment platforms have created. A little too late to the party, we have the regulator posting on Facebook or Linkedin with educational tips that barely anyone reads. It is like the horse has bolted, and they have set out the neighbourhood watch to round them up with dog whistles. KiwiSaver may be getting on in age (it was introduced in 2007 when I moved to NZ from Canada), but in relative terms, it is still spanking brand new. It has only been in the last few years, that many enrolled in the scheme have woken up to the fact that KiwiSaver is not one single entity that swallows money from their pay cheque each month, but a range of individual different players all vying for a slice of that juicy pie. Just how big is that pie? According to the latest FMA report on KiwiSaver, the honey pot now holds close to $90 billion, the collective savings of close to 3 million New Zealanders. From the very beginning, when I first started reporting on KiwiSaver, it was speculated that at the point at which members' accounts reached the equivalent value of a small car, they would begin to take note. With average balances now hitting the $29k mark, that's precisely what we are seeing. Investors have become more knowledgeable about the fact that they have agency i.e. they can switch to one of several dozen providers who among them, offer hundreds of different fund types. They now feel like they have some buying power and can demand more from their provider, which is great. They ask questions about performance and fees and how much they pay in tax. Also awesome. But there is still a huge gap to close beyond those basics and more fundamental questions about risk tolerance, contribution rates, and how much they are on track to have in expectation of their time frames for needing their money i.e. buying a first home or hitting retirement at age 65. For a price, some providers build in 'advice' for their investors, but few are aware of that and even fewer take advantage of it. How do I know? Because I've sat at roundtable discussions where fund managers have been attacked for their higher fees (justified because of the advice component) and admitted that people don't know, don't care, or can't be bothered to get advice. Until people start to care more, history will continue to repeat itself, and some expensive mistakes will be made. When is that magical turning point? My guess is when balances hit the equivalent valuable of a more expensive car, the one that you baby, clean weekly and get annoyed by parking lot dints. So maybe somewhere in the order of a Tesla for example, at $70k ish. Until then, there will be plenty more crash and burn and angry investors getting upset at fund managers and/or the FMA that they weren't better warned, prepared, or educated. There is always someone to blame and more often than not it is a deflection for not taking more personal responsibility. Don't let that be you. Check your Fund Profile here using the Gov'ts finance website Sorted. Your Provider will also have fund profile tools and or advisors in some cases, so check that out too.   I’m sure a few Millenials choked on their oat milk lattes this week when they read the latest news about how much they’ll need to have saved to enjoy a comfortable retirement.
According to researchers at NZ’s Massey University’s Fin-Ed Centre, if you want to have a retirement that comes with ‘choices,’ you’ll need around $755k in your KiwiSaver or an equivalent savings vehicle. Oh, and that figure also assumes you have paid your mortgage in full, or you’re living rent-free then retirement. Given the average amount saved by New Zealanders currently is around $30k, many will be working well past retirement age to afford those flights to Bali or to visit their future grandkids in Australia. Of course, where you’re at savings-wise depends on a range of factors, not the least of which is how long it is before you actually stop working for a living. The Financial Markets Authority, which serves up an annual report on KiwiSaver full of juicy stats, provides a nifty breakdown of how many investors are by gender (yes, so passe) and age. You can see the bulk of them have a long way to go to reach the golden age of 65, and thereof have plenty of time to pad that nest egg, that will hopefully buy them choices in their golden years. Most people should be concerned about their current levels of savings, but the reality is most will not have read this latest research or even have a clue who their KiwiSaver provider is, let alone know their balance. The truth is, numbers scare people. And true to the reptilian brain which we have yet to evolve from, they will run rather than face their fears and take action to deal with a savings shortfall that is potentially avoidable. The sad reality is that it doesn’t take much effort to figure out the above and set a course of action. So for those who don’t know, or even know but want to help someone who doesn't, here’s a simple plan:
Your annual KiwiSaver report shows you how much you’re on track to have by age 65 based on your current contribution rates and fund type. This is a conservative estimate, as the FMA introduced a standardised calculation method a few year ago using conservative long-term figures. They did this because some providers rather sneakily for the purposes of luring new customers used sky-high annual figures based on bull market double-digit returns, annualised over 40 years. In other words, they overstated what you’re actually likely to earn over the working life of KiwiSaver when factoring in market cycles and meltdowns, like what we've currently seen. For these long-term projections, they are based on returns of: 4.5% for a Growth Fund 3.5% for a Balanced Fund 2.5% for a Conservative Fund You can also read some of the FMA's scenarios on their website based on differing income and contribution levels which will give you an idea of how a 3% contribution rate looks long-term to 4% or higher. They also discuss boring but important things like inflation (which, as we now know, matters) as well as the inclusion of superannuation contributions. Also, handy. Pray that's still on offer when you retire. Okay, so now that you know how much you might expect in retirement, you have a few options for addressing any potential shortfall. Please note: this is not personalised advice, only information for you to consider:
Whatever path you choose is your choice, and comes down to priorities and goals. Whatever you do, don’t use lack of information as an excuse. Everything is out there ready for you to discover. And thanks to more rigorous regulatory enforcement in recent years, the financial services sector can no longer be blamed for making information hard to find or understand. Time to stop looking for scapegoat's and take action.  Many parts of my life make it a rich one. Most have little to do with money or my net worth.
In no particular order, I'd say it is my health, friends, family, interests and environment.
Find your Flow, and the Money will Follow. Recommended reading: The Top Five Regrets of the Dying.  "All of our life, so far as it has definite form, is but a mass of habit - practical, emotional, and intellectual - systematically organised for our weal or woe, and bearing us irresistibly toward our destiny, whatever the latter may be." ~ Williams James
Beginnings are not grand. They are mostly humble, and the subsequent steps, to keep forward momentum consistently applied, become habit forming. One of the biggest differences between those who do, and those who don't progress their goals or achieve change, is getting so tied up in fear of failure or anticipating unknown outcomes that trip you up before even crossing the starting line. One of my favourite books recently, Atomic Habits, by James Clear makes the same point over 300 odd pages. I was gifted this book last Christmas by my niece, and it was an unexpectedly riveting read from start to finish. Clear starts with his own journey of transformation, sharing his improbable recovery from a debilitating brain injury. It is a story of mind over matter, as well as a series of staircase triumphs. Using compelling case studies, like how the British cycling team pulled itself out of the performance gutter to world-leading, Clear makes the point that big change is not one-time-radical but a series of small but cumulative tweaks over time. Honestly, this book was a page-turner for me. Like most people these days, I admit to suffering from a bit of attention deficit, given the competing pull of social media snacking. Atomic Habits kept me glued. Charles Duhigg's "The Power of Habit, Why we do what we do in life and business" was similarly mesmerisingly. Duhigg doesn't focus as much on the micro but on the macro behind what drives human behaviours and the overlapping insights and connections that lead to great outcomes. The quote above comes from his book. One of the many stand-outs was Chapter 4 on Keystone Habits or the Ballad of Paul O'Neill. This chapter describes how O'Neill, a former US bureaucrat, transformed Alcoa, The Aluminium Company of America, from one of the most lethal workplaces in the U.S. to a shining example of workplace health and safety. In doing so, he transformed their balance sheet beyond expectation. It's a cool story and a reminder of what can be achieved when social good is a priority. The Starbucks chapter was a similar feel-good story that revealed some humanity underlying corporate America. If these books don't leave you feeling inspired, I'm not sure what will. They are both must-have additions to your personal finance library or reading list. Psychology is central to personal finance. Habits are too. If you understand your mind, as well as your habits, you'll find that sweet spot in personal finance where it becomes less like work and more like a challenge. Everything in your life reveals a story. Your weight, your scars, your job, your relationship, where you live and how you live. If you were conscious of those choices and decisions, chances are they will be a net positive. If you're looking to improve your finances, you need to understand how you came to be where you are and then map a different journey if you want one. Most millionaires are not made overnight. They are the product of cumulative choices made over time. Ask, and you shall receive. Seek, and you will find. Firstly though, define what are you looking for? Map out a timeline and a series of steps you need to do to achieve that goal or destination. Note the impediments, challenges and resistance you may encounter. Expect a setback. Expect several. That should be implicitly understood as part of the process. Find a buddy or mentor to hold you somewhat or fully accountable. Reward yourself with little victories along the way. And to quote a now famous fishy, "Just keep swimming." Oh, and if you need one more little reason to feel hopeful, dig up the incredible back story of Ellen DeGeneres's voice acting job for the role of Dorrie and where that subsequently led her, if you don't already know. Incredible story. If you can't find it, watch her Netflix interview with David Letterman on his show "My Next Guest Needs no introduction."  Photo Credit: Fabian Blank Big topic! It's hard to know where to begin.
Let's put aside all the other core parenting requirements under the banner of 'investing', including proper nutrition, quality time, good role modelling and boundaries and focus on the financials, shall we? If you're a Kiwi parent, you'll wonder about KiwiSaver as a starting point for investing. This used to be a no-brainer, given your child received $1,000 free from the government to kick-start their account. The bonus provided a huge incentive to sign up for the programme when it was introduced in 2007. It worked a charm. The country now has more than 2.8 million people enrolled in this Government-regulated, workplace-supported retirement savings "Scheme." They couldn't have picked a worse word to call it, but fundamentally it is a good scheme. To hear more, tune into my last appearance on NewstalkZB's Smart Money on the Weekend Collective. Given that KiwiSaver is designed for retirement, you may wonder whether it makes sense to sign up your sprog before they can walk. It is hard to imagine them a senior when they are still drooling and babbling in your arms. Alas, they do grow up way faster than you may expect. Many parents choose to open an account to help give their kids a head-start on a first home deposit. Remember, unless you leave the country permanently, get seriously ill, or fall on your luck financially in a bad way, you can't quit KiwiSaver after you have joined. This is an excellent reason to think through the decision tree carefully, without too much sentimentality. If you want to help junior avoid student debt, investing outside of KiwiSaver would be the logical move because you can access those funds when you want to. Today, there are plenty of options for investment fund accounts for kids. Typically, you or another named guardian will manage those accounts until they turn 18 and then have access. You will have to trust that your child doesn't buy themselves a car at this stage, instead of an education. Who knows if first-year fee-free will be around when your child comes of age for college. Maybe it'll be four-year fee-free, or perhaps junior decides college isn't for them. If there isn't an immediate need for the funds, then you could elect to keep the investment for a first-home deposit, move it into a retirement savings account or designate it for a different purpose. That's your business entirely, well, junior's, but it is worth some frank discussions over the years to ensure the funds are well managed and spent. Dedicated university savings funds came with all sorts of fish hooks, including (believe it or not) forfeiting a portion of the money to your fund manager if the kid didn't go to university! Fortunately, today there are so many more options available that empower the investor. The difficulty is choosing a fund manager or deciding between online investment platforms. I can't tell you what to do. If you don't know what to do, it would be wise to get a financial adviser to help you decide. Choose a fee-based advisor, as many will otherwise rope you into a product for which they receive a commission and or 'trail.' This means that if they get you into a particular fund, they will receive a % of that investment balance as long as you are invested in it. I know, right! Well, it may be a good option, but it isn't easy to tell if it's the best option when your adviser also benefits from their guidance. This is why low-fee diversified index fund options are so hot right now. They don't cost you an arm and a leg. You're invested in a cross-section of assets across many countries, which helps to reduce your risk. Unlike putting all your eggs in one sector, for example, housing in New Zealand, having multiple investments spreads your risk. If you are DIY'ing, make sure you choose a fund type that is appropriate for your time horizon. While the markets are dismal at the moment, a few years ago, we saw people piling into growth and aggressive funds, lured by the double-digit returns being generated. Now that interest rates are on their way back up; inflation is running its hottest in decades. On top of various geo-political disasters, returns are back down to earth, many in negative territory. In any case, be sure you line up your fund type to the following:
Regulations today are stricter than ever in New Zealand and other places worldwide. After decades of being fleeced via high fees and crappy products, investors are better protected than ever. There is a heavy onus on fund managers and other financial providers to fully explain and outline their investment's costs, risks and nature. The hazard with low-cost online investment options is that many investors tend to rush in and tick all the boxes to declare they've read the essential details when they couldn't be bothered. These are all critical learnings, and if you get burnt, you won't make a mistake again. Still, if you can avoid any financial mistakes by doing your research, asking around and taking a measured approach, you'll be far better off for it, as well, little Johnny or Jenny. What is your risk profile? Check out Sorted.org.nz calculator here  Photo by Alice Pasqual Buy now, pay later is a great idea until it's not.
With the rising cost of living resulting in skipped payments and late fees, the reality of all too easy borrowing facilities is coming home to roost. Since After Pay and the like came to New Zealand around five years ago, the Buy Now, Pay Later approach to buying has become very popular. Especially with younger folks and students who may not be so cashed-up. It's easy to understand why? (Listen to my most recent podcast on Smart Money with NewstalkZB here). It ropes in a whole new slew of buyers that will add to their bottom line for retailers. It gives shoppers easy access to debt that they may not otherwise get because, unlike credit cards, there are no credit checks done to get it. It also serves up an easy consumeristic high. They call it retail therapy for a reason. Typically, you pay 25% of the cost upfront, with the remainder being split over six-eight weeks, which is interest-free. Too easy, right? Yes, until you forget or can't make one of the regular payments, you are fined. With After Pay, the fine is $10 for anything under $40. And for over $40, the maximum fee is 25% of the original cost, up to a maximum of $68, whichever is less. (Read this excellent review of AfterPay here on MoneyHub.) With a maximum purchase limit of $2,000, it may seem harmless enough, and yet even at that threshold, people are now running into repayment problems. (Read more in this Stuff article by Rob Stock here). With petrol rising above $3 a litre and cheese costing $20 a block, it's no wonder. Suddenly, the cost of living in New Zealand has soared. Inflation, nearing 8%, is running hotter than in 50 years! Those cheap shopping sprees are now riskier than ever from a repayment perspective. The harsh truth is that it has become too easy to borrow money. As tempting as it is to blame the lenders for making it too easy, there should be some personal accountability too. So many people are in the poo financially because they don't keep close enough track of their spending, and they fail to understand the critical T&Cs of borrowing money and the actual long-term cost. But the root problem I maintain is that most folks don't know how to control their impulse, which leads to buying stuff in the first place that they couldn't actually afford. Don't get me wrong. I get that it is convenient if you need a new pair of shoes for an important job interview and don't have the cash up front to buy them. First impressions are everything, so you wouldn't want to show up looking less than your best. I get that. But the sad reality is that most purchases people make are totally frivolous and unnecessary. If you can afford them, great, I guess. Still, if you can't, it will cost way more than the purchase price because you were late with the payments or failed to pay off your credit card balance in full each month. This is where one bad habit builds after another and starts to make your life financially difficult. So...
Mind over money. Simple. |
Amanda MorrallAmanda is a personal finance expert who draws on Eastern wisdom to help you grow your wealth and wellbeing. Money Matters was published in 2013 by Penguin Random House in NZ. Archives
October 2022
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