Financial advisor Travis Hamilton gives us some tips on how to save for our retirement.
Let’s face it, for the millennial generation there will be no guarantee a future government will pay them a pension and it’s likely that the retirement age will go up. These warnings are coming loud and clear. There remain many opportunities for millennials who want to take steps to create a brighter financial future.
NINE THINGS ANY MILLENNIAL CAN DO:
KNOW YOUR GOALS
What do your 40s, 50s, 60s and retirement look like? If you’re going to be that 70-year-old Kiwi that travels a lot, or wants income from property investment, plan backwards from that and work out what you need to do and how much money will be required.
MAKE KIWISAVER WORK FOR YOU
Negative attitudes around KiwiSaver benefits need to change. Balances are getting higher and it’s becoming a significant asset for many people. It’s worth noting that the minimum amount you should be putting into KiwiSaver is $1,086 so you receive the government’s tax credit of $543. This is a 50% return that you’ll struggle to find elsewhere. Consider the risk level, too. If you’re saving for your first property, you might want to be in a more conservative (or low-risk) fund, but if retirement is your goal, a high-growth fund will likely deliver you the best return, but at higher risk.
BUY A HOUSE WHERE YOU CAN AFFORD TO – NOW!
They say that the best time to buy a property was yesterday, but hat’s no use to millennials earning a decent wage but spending it on high rents in New Zealand’s major cities. Forget about where you can’t afford, carry on renting where you are and buy what you can afford to rent it out. If where you can afford is the “next big thing”, then the gains you make should be enough to kick-start a property search in your preferred area.
TEAM UP WITH MATES FOR PROPERTY GAINS
If you can’t borrow your deposit from the equity gains in your parents’ or grandparents’ properties, unite with your fellow millennials. Consider owning a property together, either to rent or for one couple to part-own and part-rent. At least this gets you onto the ladder. Lawyers can draft up all the necessary paperwork to make sure the ownership arrangement is fully understood.
REALISE YOUR MORTGAGE IS NOT SET IN STONE
The contract between you and your lender isn’t a rigid one and mortgages should reflect the best aspects of your financial situation and interest rates, bank lending and your goals changes. Ultimately, the goal is to pay your mortgage off quickly, meaning you’ll repay less over time. Split your mortgage into manageable chunks to achieve a series of short-term goals. A five-per-cent chunk sits aside from the total and can have current best interest rates applied to it – it’s an easy way to make a dent in your debt.
USE INVESTMENTS TO CREATE CASH FLOW
Allocating some money to investments (which can be made on your behalf by a funds manager) can give you enough returns to pay off another debt. Cash flow can also be created from a property you’ve bought and rented out.
MAKE TINY SACRIFICES NOW TO SAVE EXPONENTIALLY LATER
For your mortgage, by making an increase in payments of around the price of a flat white a day, you could reduce your mortgage term by more than four years. That’s a huge saving when you consider that the average total repayment is more than two and half times the original loan amount.
WORK ON YOUR FINANCIAL LITERACY
Stop thinking you’re just one of those people that is “bad with money”. You can change that. There are a vast number of books and online resources that can
help, but in New Zealand most financial advisers will give you free financial advice – you’ve just got to ask.
GET INSURANCE EARLY AND LEVEL YOUR PREMIUMS
Your health and ability to earn an income are your biggest assets. To lose either would be a major financial set-back, which could put your life goals out of reach.
The younger you sign up for health insurance, trauma, life and income protection, the more likely you’re to be covered without exclusions and the cheaper your premiums will be if you level them. By levelling the premium (whereby you pay a higher amount initially but the amount stays the same and doesn’t escalate with age), you’ll save tens of thousands over a lifetime.
WHAT IS A ‘MILLENNIAL’?
Someone born in the 1980s to early 2000s, reaching adulthood in the 21st century.