Plan for future financial success.
They say: If you fail to plan, you plan to fail.
It can be tough to put future-you’s needs ahead of what you want in the present. A feast at Burger Burger, some flash new clothes or a big night out all seem like a far better way to spend your money right now. Future-you will be fine right?
Absolutely – but only if you put a plan in place to make sure of it. If you devise a smart investment and savings strategy now you can still enjoy little luxuries and your Friday work drinks. Most importantly, you’ll be able to enjoy them later in life too.
It’s very interesting because people will look at the future version of themselves and see a very rosy picture. But, statistically speaking, very few do anything about making that future a reality. It will be very interesting to see where the recent Census comes in as the past ones have shown that only a very small percentage of the population have a decent income in retirement.
Working on our financial literacy is something us Kiwis really do need to put some focus on.
For example:
Do you know how much it will cost to fund your retirement? (You’re probably blissfully unaware that the figure is likely to be the biggest cost or expense in your entire lifetime – yes – even bigger than your mortgage repayment most likely)…
Do you have a plan to reach that goal?
Do you know which asset classes are the best to get you to that goal?
Do you know what an ‘asset class’ even is?
The crazy thing is, all that’s required is a few little changes. We speak to clients about this all the time. Really it’s all down to having a plan to put ‘something’ aside that looks after the future you, and becoming a lot more savvy when it comes to your tax position and how to take advantage of efficiencies in this space.
I guess this is where the advice piece comes in, because knowing what the end goal figure is, and how you’re going to get there is where most people fall over. In fact, they don’t even fall over, they just flat out don’t even begin to even consider it.
It just takes some desire, followed by some action!
What’s the average Kiwi like at saving?
Kiwis are fairly sharp when it comes to money, a MasterCard Asia Pacific survey found. We ranked first ahead of Singapore, and Australia in overall financial literacy, as well as basic money management, financial planning and Investment.
But there are still improvements that can be made. In 2016 Reserve Bank data shows that household savings actually decreased by $876,000,000 in total, or around $500 per household. That’s a step in the wrong direction and one that could cost us all if we continue as we are.
The first step towards changing our behaviour is setting a goal to work up to. But what should that goal look like?
What amount do we really need?
The ultimate goal for any saver should be to set themselves up for retirement. At the end of a life of hard work you certainly deserve a decade or so with your feet up!
Westpac estimates that you’ll need to own your own home and an extra $83,859 on top of your pension to live a simple no frills lifestyle when you retire. That means no sirloin steak in the supermarket trolley, no trips overseas and hand washing your dishes for the rest of your life.
If that sounds like a bad time, you’ll want to aim for a more comfortable lifestyle in retirement. Westpac estimates you’ll need to own your own home and have a lump sum of $295,000 to do so – if you have expensive tastes you’re likely to need even more.
That goal may seem too far off to really motivate so what you need now is a step by step financial plan, complete with smaller goals that eventually lead to retirement in the lap of luxury.
When we sit down with clients and ask how much income they would need to generate in retirement, the target funds required are around $1.5M – $3M.
For clients under 55, we default to the assumption that the Government Super won’t be there when you reach 65. It’s good to plan for a major change in how the Government fund retirees – and not for the better. It is mathematically impossible that the Government can continue to fund retirees the way that they are now. There are just too many people retiring, and not enough tax-paying workforce to fund retirees’ income needs.
What will my plan look like?
Every financial plan should be different according to what stage of your life you’re in, what your income is and what your expectations are. But a great place to start for anyone is getting bad debt like credit cards and personal loans off your back.
From that point it’s time to optimise your KiwiSaver, before buying property and taking steps to grow your wealth.
Taking advantage of Managed Funds is something we’d also recommend, as well as looking into a leveraged strategy (if possible) around residential investment property.
Whether it’s KiwiSaver, Managed Funds, or residential investment property, all of these areas require the initial and ongoing advice from a Financial Adviser who has long track record of experience.
Don’t try to shortcut the process…. If it’s too good to be true, it probably is and greed should never play a role in financial/retirement planning.
Get quality advice – buy the right investments – stay the course and play the long game. This is get rich really bloody slowly scheme, not a get rich quick scheme….
We know better than most how hard saving for the future can be and we’re experts in creating a detailed and actionable plan that can make it far easier.
Here’s to your financial independence!
Daniel Carney