Automating your savings is the smartest financial move you can make in New Zealand. By setting up systems that automatically transfer money from your spending account to your savings or investment accounts, you eliminate the temptation to spend and consistently build your wealth without even thinking about it. This guide provides a comprehensive overview of how to effectively automate your savings journey in the New Zealand context, covering everything from choosing the right accounts to optimizing your automated contributions.
Understanding the Landscape: KiwiSaver, Savings Accounts, and Investment Platforms
New Zealand offers a variety of avenues for saving and investing, making automation accessible to everyone. The most common options include KiwiSaver, high-interest savings accounts, and investment platforms. It is crucial to understand the unique features of each to strategically allocate your automated savings.
KiwiSaver: Your Retirement Cornerstone
KiwiSaver is a voluntary, work-based savings scheme designed to help New Zealanders save for retirement. One of its best features is the employer contribution, which is legally mandated to be at least 3% of your gross salary if you’re also contributing (opt-in). Additionally, the government might contribute up to $521.43 per year if you meet certain eligibility criteria. These contributions, along with your own contributions (you can choose 3%, 4%, 8% or 10% contribution rate), grow tax-advantaged, making it an excellent tool to automate your retirement savings.
Automating KiwiSaver Contributions: Your employer automatically deducts your chosen contribution rate from your salary and sends it directly to your KiwiSaver provider. You are automating part of your retirement, but to fully achieve automation, you need to carefully choose your KiwiSaver fund based on your risk tolerance and how close you are to retirement. Younger individuals may opt for higher-growth funds, while those nearing retirement might prefer more conservative options.
Maximizing Government Contributions: To receive the maximum government contribution, you need to contribute at least $1,042.86 to your KiwiSaver account between 1 July and 30 June each year. Setting up a weekly or monthly automatic payment to top up your KiwiSaver ensures you don’t miss out on this “free money.” For instance, setting up a direct debit of roughly $87 per month will ensure you meet this threshold.
Case Study: Sarah’s Retirement Dream: Sarah, a 28-year-old teacher, started contributing 8% of her salary to a growth-focused KiwiSaver fund. She set up an additional automatic weekly payment of $20 to ensure she received the maximum government contribution. Thanks to the combined effect of her contributions, employer contributions, government contributions, and investment returns, Sarah is well on her way to a comfortable retirement.
High-Interest Savings Accounts: Building Your Emergency Fund and Short-Term Goals
High-interest savings accounts offer a safe and liquid place to park your savings. While interest rates are subject to change and usually don’t outpace inflation significantly over long periods, they are crucial for building an emergency fund or saving for short-term goals like a house deposit, a car, or a vacation, especially while rates are higher than normal.
Finding the Best Rates: Several banks and financial institutions in New Zealand offer high-interest savings accounts, and the offerings change frequently. Websites like interest.co.nz provide up-to-date comparisons of interest rates, making it easier to find the best deals. Be sure to compare not just the interest rate, but also any fees associated with the account.
Setting up Automated Transfers: Once you’ve chosen a high-interest savings account, set up automatic transfers from your everyday spending account immediately after your payday. Even small, consistent amounts can add up over time. A common strategy is the “50/30/20” rule: 50% of your income goes to needs, 30% to wants, and 20% to savings and debt repayment. You can automate that 20% to go straight into your savings account.
Example: Dave’s Emergency Fund: Dave struggled to save consistently until he set up an automatic transfer of $50 per week from his checking account (transaction account) to a high-interest savings account. Within two years, he had established a solid emergency fund, providing him with peace of mind and financial security.
Investment Platforms: Long-Term Wealth Building
For long-term wealth creation, investment platforms provide access to a wide range of investment options, including shares, bonds, and managed funds. Automating your investments through regular contributions, also known as dollar-cost averaging, can help to smooth out market fluctuations and build wealth over time.
Choosing the Right Platform: Several investment platforms operate in New Zealand, each with different fee structures, investment options, and levels of support. Popular options include Kernel, InvestNow, and Sharesies. Research and compare these platforms to find one that matches your investment goals and risk tolerance.
Kernel: Offers a range of index funds with low management fees. It is a good option for beginners who want a simple and cost-effective way to invest in the market. Kernel offers auto-investing, allowing you to set up regular contributions to your chosen funds.
InvestNow: Provides access to a wider range of managed funds from various fund managers. It is suitable for investors who want more choice and are comfortable with a slightly more complex platform. InvestNow also offers auto-investing functions.
Sharesies: Allows you to invest in individual shares and ETFs (Exchange Traded Funds), along with managed funds. The platform is known for its user-friendly interface and fractional ownership. Sharesies also allows automatic purchasing of stocks or ETF using Auto-Invest. However, it is crucial to note that Sharesies levies a transaction fee. Therefore it is better to configure an amount that suits the fees you will need to pay and the number of shares that you will purchase.
Setting up Automated Investments: Most platforms offer the option to set up regular automated investments. Determine how much you can afford to invest each month and choose a diversified portfolio of investments. Consistently investing, regardless of market conditions, is key to long-term success. Keep watch out for the different kind of fees for each broker.
Practical Example: Automating ETF Investments: Let’s say you want to invest in a broad market ETF like the Smartshares Total World ETF (TWF). You could set up a monthly automatic purchase of $200 worth of TWF through Sharesies, for example. Over time, this consistent investing, regardless of the market’s ups and downs, can lead to significant wealth creation.
Step-by-Step Guide to Automating Your Savings
Follow these steps to create a robust and effective automated savings system:
- Assess Your Financial Situation: Determine your income, expenses, debts, and financial goals. This will help you understand how much you can realistically save each month. Budgeting apps like PocketSmith or Sorted’s budget tool can provide a clear snapshot of your finances.
- Set Clear Goals: Define your savings goals, both short-term and long-term. This could include building an emergency fund, saving for a down payment on a house, paying off debt, or saving for retirement. Having clear goals will keep you motivated and focused.
- Open the Right Accounts: Choose the appropriate KiwiSaver fund, high-interest savings account, and investment platform based on your goals, risk tolerance, and time horizon. Do your due diligence and compare different options.
- Calculate Your Savings Amount: Based on your goals and financial situation, determine how much you can realistically save each month. Start small if necessary, and gradually increase the amount as your income grows or expenses decrease.
- Automate Your Transfers: Set up automatic transfers from your checking account to your savings and investment accounts. Schedule these transfers to occur immediately after your payday to ensure you prioritize saving.
- Review and Adjust Regularly: Periodically review your automated savings system to ensure it is still aligned with your goals and financial situation. Adjust your contributions and investment allocations as needed.
Tips and Tricks for Maximizing Your Automated Savings
Here are some additional tips to supercharge your automated savings:
- Use Round-Up Savings: Some banks offer a round-up savings feature, where they round up your purchases to the nearest dollar (or higher) and transfer the difference to your savings account. This is a simple and painless way to save small amounts of money without even noticing it.
- Take Advantage of Windfalls: When you receive unexpected income, such as a tax refund or a bonus, immediately allocate a portion of it to your savings or investments. Treat it as an opportunity to boost your progress towards your financial goals.
- Automate Debt Repayments: Automate your debt repayments, including credit card bills and loans. Paying more than the minimum each month can significantly reduce the amount of interest you pay and help you become debt-free sooner.
- Minimize Fees: Be mindful of fees associated with your savings and investment accounts. Choose accounts with low fees to maximize your returns. Actively managed funds usually have a higher fee than passive index funds.
- Stay Disciplined: The key to successful automated savings is consistency. Resist the urge to cancel your automatic transfers, even during periods of financial stress. If necessary, temporarily reduce the amount of your contributions, but don’t stop saving altogether.
- Optimize Your KiwiSaver Contributions: Ensure you’re contributing enough to receive the full government contribution. Consider increasing your contribution rate as your income grows. Review your fund choice regularly to ensure it still aligns with your risk tolerance and time horizon.
Overcoming Common Challenges
While automating your savings is a powerful strategy, you may encounter some challenges along the way:
- Cash Flow Constraints: If you’re struggling to make ends meet, it can be difficult to find money to save. Start small and gradually increase your contributions as your income grows or expenses decrease. Consider finding ways to increase your income through a side hustle or by negotiating a raise at work.
- Lack of Discipline: It can be tempting to cancel your automatic transfers and spend the money instead. Remember your goals and the long-term benefits of saving. Visualize the lifestyle that you want to create for yourself in the future.
- Market Volatility: Investing in the stock market involves risk, and your investments may fluctuate in value. Don’t panic during market downturns. Stay disciplined and continue investing regularly. Dollar-cost averaging can help to smooth out the impact of market volatility.
- Overspending: Review your bank statement regularly and identify areas where you can cut back on spending. Consider adopting a more frugal lifestyle to free up more money for saving.
The Psychology of Automated Savings
Automated savings is not just about setting up systems; it’s also about understanding the psychology of saving. By automating your savings, you’re effectively removing the emotional element. You’re making saving a default behavior, rather than a conscious decision each month. This can be especially helpful for people who struggle with impulse spending or who find it difficult to delay gratification.
Behavioral Economics Insights: The concept of “nudge theory” suggests that subtle changes in the way choices are presented can significantly influence behavior. Automating your savings is a perfect example of a nudge. By making saving the default option, you’re making it more likely that you’ll stick to your savings goals and build wealth over time. Another powerful principle is “pre-commitment.” By setting up automatic transfers, you are pre-committing to saving a certain amount of money each month, making it harder to back out later.
Reframing Your Mindset: Change your mindset from “I can’t afford to save” to “How can I afford to save?”. Look for creative ways to cut back on expenses, increase your income, and prioritize your savings goals. Visualize yourself achieving your financial goals and the positive impact it will have on your life. The more you focus on the positive aspects of saving, the easier it will be to stay motivated and disciplined.
Gamification: Consider making saving more fun by gamifying the process. Use a savings app that tracks your progress and rewards you for reaching milestones. Set challenges for yourself, such as saving a certain amount of money in a month or cutting a certain expense. Celebrate your achievements along the way to stay motivated.
Advanced Automation Techniques
Once you have mastered the basics of automated savings, you can explore more advanced techniques to optimize your system:
- Use a Savings Ladder: A savings ladder involves allocating your savings to different accounts based on your goals and time horizon. For example, you might have a high-interest savings account for your emergency fund, a term deposit for a short-term goal like a house deposit, and an investment account for long-term wealth building.
- Automate Your Budgeting: Use budgeting apps like PocketSmith to automatically track your income and expenses. This will give you a clear picture of your financial situation and help you identify areas where you can save more money.
- Set Up Rules-Based Investing: Some investment platforms allow you to set up rules-based investing, where your investments are automatically adjusted based on certain criteria. For example, you might set a rule to automatically rebalance your portfolio when certain asset classes become over- or under-weighted.
- Tax Optimization: Understand the tax implications of your savings and investments. Take advantage of tax-advantaged accounts like KiwiSaver to minimize your tax burden. Consider consulting with a financial advisor to develop a tax-efficient investment strategy.
The Role of Technology
Technology plays a crucial role in automating your savings. Numerous apps and tools can help you track your spending, set savings goals, and automate your transfers. Here are some popular options in New Zealand:
- PocketSmith: A comprehensive budgeting app that allows you to connect to your bank accounts, track your spending, and forecast your future cash flow.
- Sorted: A free online resource provided by the Commission for Financial Capability. It offers a range of tools and resources to help you manage your finances, including budget planner, a savings calculator, and an investment calculator.
- Your Bank’s Mobile App: Most New Zealand banks offer mobile apps that allow you to easily set up automatic transfers, track your account balances, and monitor your spending.
- Investment Platform Apps: Investment platforms like Sharesies, InvestNow, and Kernel have their own apps that make it easy to manage your investments on the go.
These tools can significantly simplify the process of automating your savings and help you stay on track toward your financial goals. Experiment with different apps and find the ones that work best for you.
Real-Life Success Stories
Here are a few more examples of how automating savings has helped New Zealanders achieve their financial goals:
- The Jones Family’s Dream Home: The Jones family had always dreamed of owning their own home, but they struggled to save enough for a down payment. They decided to automate their savings by setting up automatic transfers of $500 per month to a term deposit account. Within three years, they had saved enough for a 20% down payment on a modest home.
- Michael’s Debt Freedom: Michael found himself drowning in debt after racking up credit card bills and student loans. He decided to automate his debt repayments by setting up automatic transfers of more than the minimum payment each month. He also consolidated his debts and transferred them to a lower-interest loan. Within five years, he was completely debt-free.
- The Retiree’s Peace of Mind: Mary was approaching retirement age and realized she hadn’t saved enough for a comfortable retirement. She decided to automate her savings by increasing her KiwiSaver contributions and investing in a diversified portfolio of stocks and bonds. She also consulted with a financial advisor to develop a plan for drawing down her savings in retirement.
Frequently Asked Questions
Q: How much should I automate each month?
A: This depends on your income, expenses, and financial goals. A good starting point is 10-15% of your income, but you may need to adjust this based on your circumstances. Start small and gradually increase the amount as you become more comfortable.
Q: What if I can’t afford to automate my savings?
A: Even small amounts can add up over time. Start with whatever you can afford, even if it’s only $5 or $10 per week. Look for creative ways to cut back on expenses or increase your income to free up more money for saving.
Q: What if I need to access my savings?
A: Keep your emergency fund in a readily accessible account, such as a high-interest savings account. For other savings goals, consider using term deposits that allow you to access your money with a penalty. For long-term investments, be prepared to ride out market fluctuations and avoid withdrawing your money unless absolutely necessary.
Q: How often should I review my automated savings system?
A: Review your system at least once a year, or more frequently if your circumstances change. Make sure your savings goals are still aligned with your priorities, and adjust your contributions and investment allocations as needed.
Q: Is it safe to automate my savings?
A: Automating your savings is generally very safe, as long as you use reputable financial institutions and secure platforms. However, it’s important to be aware of the risks involved, such as fraud and cybercrime. Use strong passwords and monitor your accounts regularly for any suspicious activity.
References
Commission for Financial Capability. (n.d.). Sorted website.
Interest.co.nz. (n.d.). Savings account comparison.
Kernel Wealth. (n.d.). Kernel website.
InvestNow. (n.d.). InvestNow website.
Sharesies. (n.d.). Sharesies website.
Ready to transform your financial future? Start automating your savings today! Don’t let another month go by without taking control of your money and building wealth automatically. Choose one tip from this guide – it could be setting up a small direct debit to your savings account or finally enrolling and contributing enough to KiwiSaver to get the government’s contribution—and implement it this week. The sooner you start, the sooner you’ll be on your way to achieving your financial goals.
