Building wealth in New Zealand doesn’t have to be a constant uphill battle. A ‘set and forget’ savings strategy, leveraging the tools and opportunities available to Kiwis, can be a powerful and surprisingly simple way to achieve long-term financial security. This approach prioritizes automation, consistency, and smart investment choices that require minimal ongoing effort once established.
KiwiSaver: Your Automatic Wealth-Building Machine
Let’s start with the cornerstone of many Kiwis’ financial futures: KiwiSaver. This retirement savings scheme is designed to be just that – set it and (mostly) forget it. KiwiSaver automatically deducts contributions from your salary or wages, or allows you to make voluntary contributions if you’re self-employed or not currently working. Crucially, it’s not just about your money. The government also contributes, in the form of a member tax credit (MTC), up to $521.43 per year if you contribute at least $1,042.86. This represents a phenomenal 50% return on your contribution, guaranteed. This is arguably the most compelling reason to actively participate in KiwiSaver, even at the minimum contribution rate, as it’s essentially free money from the government.
Understanding the contribution rates is the first step. You can choose from 3%, 4%, 6%, 8% or 10% of your gross (before tax) salary. Employees typically choose a rate that aligns with their budget and long-term goals. If you are an employee, your employer is also required to contribute a minimum of 3% of your gross salary to your KiwiSaver account further boosting your retirement savings. While the employer contribution is subject to employer superannuation contribution tax (ESCT), it’s still an invaluable addition to your retirement nest egg.
Selecting the right KiwiSaver fund is also crucial. There are various fund types, each with different risk profiles and potential returns. Generally, younger individuals with a longer investment horizon might consider growth funds, which invest primarily in shares and property and offer higher potential returns, but also carry a higher risk of short-term fluctuations. As you approach retirement, a more conservative fund, such as a balanced or conservative fund with more exposure to fixed interest assets like bonds, may be more suitable to protect your accumulated savings. Researching different fund managers and their past performance (while still acknowledging that past performance is not indicative of future results) is a critical step in optimizing your KiwiSaver returns. You can use resources like Sorted’s KiwiSaver Fund Finder to compare funds and choose one that aligns with your risk tolerance and investment goals.
Remember that KiwiSaver is primarily designed for retirement, with access typically restricted until age 65. However, there are exceptions, such as first-home withdrawals (for those who have been contributing for at least three years) and cases of significant financial hardship. Understanding these conditions is essential when planning your financial strategies.
Automated Savings Accounts: The Power of Regular Contributions
Beyond KiwiSaver, automating savings into a separate high-interest savings account is a simple yet effective ‘set and forget’ strategy. The key is regularity. Set up an automatic transfer from your everyday transaction account to your savings account each pay period. Even small, consistent contributions can accumulate significantly over time, thanks to the power of compounding interest.
Consider opening a dedicated online savings account, as these often offer higher interest rates than traditional savings accounts at brick-and-mortar banks. Look for accounts with no monthly fees and easy access to your funds if needed. Banks like Rabobank (with its RaboDirect platform) and Heartland Bank frequently offer competitive interest rates on their savings accounts. Regularly compare interest rates offered by different banks to ensure you’re getting the best possible return on your savings. Tools like interest.co.nz’s savings account comparison tool can be invaluable for this research process.
To maximize the effectiveness of automated savings, define a clear savings goal. Are you saving for a down payment on a house, a new car, or a dream vacation? Having a specific target in mind can provide motivation and help you stay on track. Use online calculators to estimate how much you need to save each month to reach your goal within your desired timeframe. Then, automate that amount from each paycheck.
For example, imagine you want to save $10,000 for a house deposit in two years. Using a savings calculator, you might determine that you need to save approximately $417 per month to reach your goal, accounting for interest earned. Setting up an automatic transfer of $417 from your checking account to your high-interest savings account ensures consistent progress towards your goal without requiring constant manual effort.
Micro-Investing Platforms: Small Amounts, Big Potential
Micro-investing platforms have gained immense popularity in New Zealand, providing an accessible way to invest small amounts of money regularly. These platforms often allow you to invest in a range of assets, including shares, ETFs (exchange-traded funds), and managed funds, with minimum investment amounts as low as $5 or $10. This means you don’t need a large lump sum to get started, making it easier to diversify your portfolio and gradually build wealth.
Platforms such as Sharesies, Hatch, and InvestNow offer various investment options and cater to different levels of investment experience. Sharesies, for example, is particularly popular among beginners due to its user-friendly interface and ability to buy fractional shares. Hatch provides access to the US stock market, allowing Kiwis to invest in well-known companies like Apple, Google, and Amazon. InvestNow offers a selection of low-fee index funds and managed funds, which can be an excellent option for those seeking diversified, passive investment strategies.
The ‘set and forget’ aspect of micro-investing comes into play through regular, automated investments. Most platforms allow you to set up automatic payments – a fixed amount deducted from your bank account and invested according to your chosen allocations. This eliminates the need to manually execute trades each week or month, making investing effortless and consistent.
Before investing, it’s crucial to understand the fees associated with each platform. These can include brokerage fees, account fees, and foreign exchange fees (if investing in overseas markets). Choose a platform with a fee structure that aligns with your investment strategy and frequency of trading. Also, remember that all investments carry risk, and there’s no guarantee of positive returns. Diversify your investments across different asset classes and sectors to mitigate risk.
Consider a scenario where you set up an automatic investment of $20 per week through Sharesies, allocating it to a diversified ETF that tracks the New Zealand stock market. Over time, even small consistent investments can grow substantially, especially when combined with the power of compounding returns. This strategy allows you to participate in the market’s growth without requiring significant initial capital or active management.
Debt Management: Prioritizing Repayments and Automating Bills
While building wealth is essential, managing debt effectively is equally crucial. High-interest debt, such as credit card debt or personal loans, can significantly hinder your financial progress. Prioritizing debt repayment and automating bill payments is a key component of a ‘set and forget’ financial strategy.
Start by identifying all your outstanding debts and their respective interest rates. Focus on repaying the debt with the highest interest rate first, as this will save you the most money in the long run. Consider using the debt snowball or debt avalanche method to accelerate your debt repayment. The debt snowball method involves paying off the smallest debt first, regardless of the interest rate, to build momentum and motivation. The debt avalanche method focuses on paying off the debt with the highest interest rate first, regardless of the balance.
Automating bill payments will ensure you never miss a due date, avoiding late fees and potential damage to your credit score. Most banks offer online bill payment services that allow you to set up automatic payments for your utilities, insurance premiums, and other recurring expenses. Ensure you have sufficient funds in your account to cover these payments each month. To streamline the process, consolidate all your recurring payments onto a single credit card (if you can reliably pay it off in full each month) to earn rewards and simplify tracking. If not, consider setting up automatic payments directly from your checking account.
Consider debt consolidation loans if you have multiple high-interest debts. A debt consolidation loan combines all your existing debts into a single loan with a lower interest rate, potentially saving you money and simplifying your repayments. However, carefully evaluate the terms and conditions of the loan to ensure it’s a better option than your current repayment plan.
For example, imagine you have a credit card debt of $5,000 with an 18% interest rate and a personal loan of $3,000 with a 12% interest rate. By consolidating these debts into a single loan with a 9% interest rate, you could significantly reduce your monthly repayments and save hundreds of dollars in interest over the life of the loan. Setting up automatic payments for this consolidated loan ensures consistent and timely repayments, accelerating your debt repayment journey.
Regular Financial Check-ups: Fine-Tuning Your System
While the goal is to ‘set it and forget it,’ it’s essential to conduct regular financial check-ups to ensure your strategy remains aligned with your goals and circumstances. This involves reviewing your KiwiSaver fund, savings accounts, investment portfolio, and debt repayment plans to identify any adjustments that may be necessary.
Schedule a financial review at least once a year, or more frequently if there are significant changes in your life, such as a new job, marriage, or the birth of a child. During your review, assess your progress towards your savings goals, evaluate the performance of your investments, and reassess your risk tolerance. Adjust your contribution rates, asset allocations, or investment strategies as needed.
Consider seeking advice from a qualified financial advisor, especially if you have complex financial needs or are unsure about how to optimize your strategy. A financial advisor can provide personalized guidance based on your unique circumstances and help you develop a comprehensive financial plan. Platforms like Sorted.org.nz offer resources and tools to help you find a suitable financial advisor and understand the different types of financial advice available.
Stay informed about changes in tax laws, interest rates, and investment markets that could affect your financial situation. Subscribe to financial newsletters, follow reputable finance bloggers, and attend financial literacy workshops to enhance your knowledge and make informed decisions.
For instance, if you notice that your KiwiSaver fund’s performance is consistently lagging behind its peers, you might consider switching to a different fund with a better track record. Or, if your risk tolerance has decreased as you approach retirement, you could adjust your asset allocation to include more conservative investments. Regular monitoring and adjustments are crucial to maximizing the effectiveness of your ‘set and forget’ financial strategy.
Budgeting with Apps: Automating Awareness and Control
While the focus is on automating savings, understanding where your money goes is crucial. Budgeting apps have transformed how Kiwis manage their finances, providing a seamless and efficient way to track spending, set budgets, and identify areas for savings. Many budgeting apps offer automatic bank syncing, categorizing transactions, and generating insightful reports, enabling you to gain a clear picture of your financial health.
Popular budgeting apps in New Zealand include PocketSmith, YNAB (You Need A Budget), and Sorted’s Budgeting Tool. These apps offer a range of features, from basic expense tracking to advanced financial forecasting, catering to different levels of financial literacy and needs. PocketSmith, for example, allows you to connect multiple bank accounts and credit cards, automatically import transactions, and create detailed budgets based on your spending habits. YNAB follows a zero-based budgeting philosophy, where every dollar is assigned a specific purpose, helping you prioritize your spending and achieve your financial goals. Sorted’s Budgeting Tool is a free and user-friendly online tool that provides simple yet effective budgeting and tracking capabilities.
To maximize the benefits of budgeting apps, link all your bank accounts and credit cards to the app, enabling automatic transaction importing and categorization. Set realistic budget categories based on your spending patterns and financial goals. Regularly review your spending reports to identify areas where you can cut back expenses. Use the app’s features to set savings goals, track your progress, and stay motivated. Consider setting up alerts or notifications to remind you to stay within your budget and avoid overspending.
For example, if you notice that you’re spending a significant portion of your income on dining out, you could set a budget for this category and commit to cooking more meals at home. Or, if you’re consistently exceeding your budget for entertainment, you could explore free or low-cost activities, such as hiking, visiting museums on free admission days, or hosting movie nights with friends. By using budgeting apps to track and manage your spending, you can gain greater control over your finances and free up more money for savings and investments.
Side Hustles: Accelerating Your Savings Journey
While automating your core savings and investments is crucial, consider supplementing your income with a side hustle to accelerate your wealth-building journey. A side hustle is any additional source of income you generate outside of your primary job, and it can be a powerful way to boost your savings, pay off debt, or achieve other financial goals.
There are numerous side hustle opportunities available to Kiwis, ranging from online freelancing to gig economy work. Consider your skills, interests, and available time when choosing a side hustle. Online freelancing platforms like Upwork and Fiverr connect freelancers with clients seeking various services, such as writing, editing, graphic design, web development, and marketing. Gig economy platforms like Uber and Deliveroo offer flexible work opportunities in transportation and food delivery. Other popular side hustles include selling crafts on Etsy, tutoring students online, and providing virtual assistant services.
The key to maximizing the benefits of a side hustle is to treat it like a business. Set clear goals, track your income and expenses, and dedicate consistent time and effort to your side hustle. Consider automating your side hustle income by setting up automatic transfers to your savings or investment accounts. Also, be aware of any tax obligations associated with your side hustle income and ensure you’re complying with all relevant regulations.
For example, if you’re a skilled writer, you could offer your services as a freelance writer on Upwork, setting your own rates and working on projects that align with your interests. By dedicating a few hours each week to this side hustle, you could generate an extra $500 to $1,000 per month, which could be used to accelerate your debt repayment or boost your savings.
Insurance: Protecting Your Assets, Automating Peace of Mind
Protecting your assets and financial well-being is a crucial component of any sound ‘set and forget’ financial strategy. Insurance provides a safety net against unexpected events, such as illness, accidents, or property damage, which can derail your financial progress. Automating your insurance premiums ensures you have continuous coverage without the hassle of manual payments.
Assess your insurance needs based on your individual circumstances and assets. Consider the following types of insurance: life insurance (to protect your family in the event of your death), health insurance (to cover medical expenses), income protection insurance (to provide income replacement if you’re unable to work due to illness or injury), house insurance (to protect your home from damage or loss), and contents insurance (to protect your personal belongings from theft or damage). Look for reputable insurance providers and compare policies to find the best coverage at a competitive price. Resources like MoneyHub can help you compare insurance policies.
Once you’ve selected your insurance policies, set up automatic premium payments to ensure continuous coverage. Most insurance providers offer direct debit options, which allow you to have premiums automatically deducted from your bank account each month or year. Review your insurance coverage periodically, especially after significant life events, such as getting married, buying a house, or having children. Adjust your coverage as needed to ensure it adequately protects your assets and financial well-being.
For example, if you own a home, having comprehensive house insurance is essential to protect your investment against fire, earthquake, or other covered perils. Setting up automatic premium payments ensures you have continuous coverage without having to remember to make manual payments each month. By protecting your assets with adequate insurance, you can enjoy greater peace of mind and avoid potentially devastating financial losses.
Long-Term Investing: Building Generational Wealth
Beyond KiwiSaver and micro-investing, consider long-term investment strategies to build generational wealth that can benefit both you and your future generations. This involves investing in assets that have the potential to grow significantly over time, such as shares, property, and managed funds.
Property investment can be a powerful tool for wealth creation, particularly in New Zealand’s historically strong property market. Consider investing in residential or commercial properties, either directly or through property funds. Diversify your investment portfolio by including a mix of growth assets (such as shares and property) and defensive assets (such as bonds and cash). Invest in assets that align with your risk tolerance and investment goals. Seeking professional advice from financial advisors and property managers may be required.
If you intend to leave inheritance to your children by way of assets, seek professional advice with a lawyer. Consider estate planning options and set up a trust. Get sufficient information about gift duty tax laws, and understand the implication and steps required. Having a well structured plan provides clarity to your next-of-kin and saves time for distribution.
FAQ Section
What are the main advantages of a “set and forget” savings strategy?
The primary advantages include consistency, discipline, and reduced emotional decision-making. By automating savings and investments, you eliminate the temptation to skip contributions or make impulsive investment choices. Over time, this consistency leads to significant wealth accumulation, thanks to the power of compounding.
How much should I contribute to KiwiSaver to get the full government contribution?
To receive the maximum member tax credit of $521.43 per year, you need to contribute at least $1,042.86 to your KiwiSaver account. This equates to approximately $20 per week.
What is the best type of KiwiSaver fund for me?
The best KiwiSaver fund depends on your age, risk tolerance, and investment goals. Generally, younger individuals with a longer investment horizon may consider growth funds, while those closer to retirement may prefer more conservative funds. Research different fund options and consider seeking professional advice to determine the most suitable fund for your circumstances.
How often should I review my financial strategy?
Aim to review your financial strategy at least once a year, or more frequently if there are significant changes in your life. This includes reviewing your KiwiSaver fund, savings accounts, investment portfolio, and debt repayment plans.
Are micro-investing platforms safe?
Micro-investing platforms in New Zealand are generally regulated by the Financial Markets Authority (FMA), which provides a level of investor protection. However, it’s essential to carefully research each platform, understand its fees, and be aware of the risks associated with investing in the financial markets.
Where can I find reliable financial information and resources in New Zealand?
Reliable sources of financial information in New Zealand include Sorted.org.nz (a government-funded website providing free financial guidance), MoneyHub (a consumer finance website), and reputable financial news outlets and blogs. You can find a financial advisor via Sorted.org.
What are the tax implications of investing in New Zealand?
Investment income in New Zealand is generally subject to tax, including interest income, dividend income, and capital gains (although New Zealand does not have a general capital gains tax, certain types of gains may be taxable). Understand your tax obligations and seek professional advice from a tax advisor if needed.
References List
Sorted. (n.d.). Sorted Website. Retrieved from sorted.org.nz
Interest.co.nz. (n.d.). Interest Website. Retrieved from interest.co.nz
MoneyHub. (n.d.). MoneyHub Website. Retrieved from moneyhub.co.nz
Ready to take control of your financial future and build wealth the Kiwi way? Start today by implementing just one or two of these ‘set and forget’ strategies. Automate your KiwiSaver contributions, set up a regular transfer to a high-interest savings account, or start micro-investing with a small weekly amount. The key is to take action, no matter how small, and let the power of automation and compounding work its magic over time. Don’t wait – your future self will thank you for it. Make saving easier, not harder. Start today, set the plan, and forget the stress of financial insecurities to welcome your financial freedom in the long run.
