A large part of my role as an Authorised Financial Adviser is actually meeting people in the community. As we take a holistic approach to our client’s financial lives, we dig deep and collect a lot of relevant data we need in order to create a laser-targeted plan.
In this column, I’m going to discuss five key points that we continually find Kiwi families struggle with. If you just make changes in these areas, your family’s financial health could be better than 95% of the rest of New Zealand and your future may be a lot more secure.
Five tips for improving your family’s financial health
Savings
I would have to say that at best, one in ten families I meet with have some sort of savings. This can range anywhere from a few thousand dollars and up. This is an unfortunate and scary statistic. If you’ve ever read the book ‘The Richest Man in Babylon’, you’d know that the Author’s advice is to put away 10% of all income for the distant future. Whilst we don’t stick hard and fast to this 10% rule, we do believe wholeheartedly that there needs to be some sort of savings plan in place. A percentage of your income should be set-aside for the distant future, for example retirement. A good rule of thumb is, of course 10%. A further 10% should be set aside for short-term needs like travel, car troubles, or any sort of emergency.
Budgeting
Even fewer people budget than those who save. We’re not even saying that you need to have strict budgets that you stick to religiously (although it would be good if you did!). We simply recommend that you track every single dollar you spend. This might seem like a laborious task, but it only takes me about 10 minutes per week to complete. Whether you use a software tool, an Excel spreadsheet, or simply a book, you need to be tracking and documenting every dollar you spend. The simplest way to do this is by using one account to purchase goods, and use the statement to check off each line one by one. By tracking your spending and knowing if you’re spending more than you earn, will enable you to be better disciplined and start a savings plan.
Retirement Planning
When was the last time you and your partner sat down to discuss retirement plans? Only about 5% of Kiwis will retire financially secure and not have to rely on the Government for pensions and healthcare. The reality is that the Government cannot continue to pay the superannuation like it does now. Most families need to begin to make retirement planning their number one priority.
Mortgage Structure
Banks are not interested in showing you ways to pay off your debts quicker. Structuring your lending in such a way that spreads your risk over different interest rates, and paying your debts off faster by applying your surplus income, are two essential elements in saving years of interest payments and dollars. Utilising the above advice on budgeting will enable you to know exactly how much surplus income you have to apply to debt. Become debt free faster!
Insurance
New Zealanders are amongst the most under-insured in the OECD. This ‘she’ll be right mate’ attitude is actually very scary. In nations like the USA, insurance is standard practice. Simply ask yourself: If I passed away or was unable to work for an extended period of time, would my family have the means to survive? Protecting your family and your lifestyle is a necessity, not a gamble.
More useful resources
www.sorted.co.nz has a wealth of free information about saving and managing your finances. Check out our family finance section for more great articles.
Tip number 6: Don’t trust people who rely heavily on their credentials, put profit ahead of people, choose to ignore bad data, don’t disclose risks, gamble with other peoples futures, have no track record and are super positive.