Money Smart

 

I still find it very perplexing to hear that many New Zealanders are either not in kiwisaver or have opted out of it. Some are misinformed, some think it’s a hassle but quite a number of people think investing 3% of one’s pre-tax income is something they cannot afford. What’s your reason?

I mean let’s face it when was the last time the government gave away free money without you the public having to invest even more. Uhmm…. NEVER!!!

So what’s the big deal in signing up and getting an instant $1000 bonus in your kiwisaver account? Furthermore, you can get more money every year from the government in the form of member tax credits. The government will pay 50cents for every dollar you put into kiwisaver up to the maximum amount of $521.43 yearly which breaks down to $20.06 fortnightly. You might be saying to yourself that’s not much, right? Let’s do some calculations first,

So let’s say Person A who is 30 years old joins kiwisaver today:

2016

• First year own contribution $1042.86 ($20.06/weekly)

• Governments contributions $521.43

• Employers contributions $1042.86 (before tax)

• Total $3607.15

 

Ok so you can’t get this money until you are 65 years old but in the meantime, it would still be quite useful. After 5 years you can use some of it as a deposit for a first home. If you for instance lost your job and can’t pay the mortgage payments or feed your family, you may get a withdrawal from your kiwisaver under the financial hardship exemption rule. Because of this, even banks are happier to lend to people with Kiwisaver as mine did for my second rental.

Can’t afford $20/weekly? On minimum income? Let’s see:

Person A is on minimum income of $15.25 an hour which is $610 for a 40 hour week and $31,720 per year before tax.

Between $0 to 14,000 @ 10.5% = $1470 tax charged

Between $14,001 and $31,720 @ 17.5% = $3101 tax charged

Total = $4571 tax deducted per year, $87.90 weekly

Take home pay $27,149 yearly or $522.10 weekly.

Now if Person A joins kiwisaver and decides to contribute $20.06 weekly:

$31,720– $1042.86 = $30,677.14 salary before tax

Between $0 to 14,000 @ 10.5% = $1470 tax charged

Between $14,001 and $30,677.14@ 17.5% = $2918.50 tax charged

Total = $4388.50 tax deducted per year, $84.39 weekly

Take home pay $ 26,288.64 yearly or $505.55 weekly.

So, person A is only paying $16.55 weekly from their pay and $13.48 by the government. Almost a dollar for dollar and remember your employer also has to match your contributions up to 3%. What do you spend $16.55 on weekly that you can go without once a week? Cost of a movie ticket? A takeaway?

So your contribution towards your retirement fund is actually just over $40 weekly. Still not enough?? How much have you saved on your own?

Kiwisaver savings is something and your small contributions will grow over time and by how much depends on what type of fund you invest it in.

If we use Person A’s income and say they joined kiwisaver at age 30 and calculate using Sorted’s Kiwisaver calculator, by age 65 they would have saved over $300,000.

If Person A decides to use that income, that would be around $350 per week until they are 90 years old.

On top of this, everyone who qualifies gets a superannuation from the government after the age of 65, regardless of any other income you may be earning. If Person A was single and living alone at age 65, in today’s date he would get $384.76 after tax weekly. In 35 years, that may not be enough and that kiwisaver contribution of $20/weekly returning $350 weekly may just be what Person A may need to survive. Still not enough?

There are currently debates going around NZ and the parliament whether NZ Super should be scrapped or changed such as raising the minimum age. Kiwisaver government payments were downgraded from $1042 to $521 and $1000 start up was scrapped totally.

I have personally been in Kiwisaver since 2009, at minimum 2% when it started and 3% now which amounts to $68 fortnightly from me, $53 (after tax) from my employer and $20 from government. I am with BNZ growth fund and can see my balance and fund performance anytime. Today there is around $30,000 in my kiwisaver account and if I use Sorted’s Kiwisaver calculator, when I turn 65 I will have $575,272 which will be $633 per week until I turn 90. Add superannuation and I will have a weekly income of $1000 after tax which is more than I earn today. Again this depends on fund performance, so choose wisely. And that my friends is more than enough for me. Your comments and views are welcome.

If you want to know about kiwisaver, you can go to http://www.kiwisaver.govt.nz/, and find out all about kiwisaver and even sign up. If you want to choose a fund and want to see how a certain fund has performed over the last few years, how much it costs, etc., check out http://fundfinder.sorted.org.nz/. For superannuation information go to https://www.workandincome.govt.nz/eligibility/seniors/superannuation/payment-rates.html

 

 

Making a budget seems so simple but it really is not. There are always unforeseen circumstances and the bigger the family, the more it will be. So how can one make the perfect budget? Sorry but there is no such thing. Inflation is always rising and things will cost more so a budget should be fluid. But that does not mean spending more than you earn. My wise grandfather used to say (translation into English), only stretch your legs as much as the blanket is long. To this day, whenever I update my budget, I imagine my twinkly toes getting cold!

So first rule, a budget should work for you and not the other way around.

Second rule, keep updating it. When I started at 19, I updated my budget every week until I was comfortable I had covered every expense and then some. For some people keeping a diary would help. My budget made me realize I was spending more than I was earning, so I either had to earn more or cut costs. As I was only working part time and studying full-time, working more hours was not achievable so I looked at what I can do about expenses. The following is from my diary year 2004, my first year as a student:

Rent                    $150

Groceries           $30

Travel                 $20

Pocket money   $50

Total expense $250/week

Income $9.50hr x 25hrs = $237.50 minus tax = $200/week.

From the above one can see I was spending outside my means. So I made a few changes. First of all the biggest expense was rent, I was living in a big room in a fancy house and everything except food was included. Since I was studying and working, I was hardly at home only coming in to sleep, shower and cook. Spare time was spent at the library studying. So I looked around for cheaper housing. I found that renting as a boarder with a family or in an existing flat with flat mates would save me $50/week. So I checked online ads, talked with other students and looked at noticeboards at supermarkets and on campus. Finally I found a small room offered by a nice couple in their house for $100/week inclusive of everything except food. Plus it had the added bonus of being 25 minutes walking distance from both work and university so I saved most weeks on travel expenses. There were compromises. The room was small, and I had to make the best use of space. Also I had to get up early to be able to walk to uni for an 8am lecture and be home late from work. But to save money I had to make it work. Furthermore, since I worked at a takeaway place I got to take leftovers home so I saved on groceries as well. I also found that if I was diligent and did most of coursework during the week in between lectures, I was able to pull an extra shift at work during the weekend and still have a day off to relax or socialize. I kept updating my budget as I made these changes over a period of a year. At the end of my first year my fortnightly budget looked like this:

Rent     $200

Groceries $50

Pocket Money $50

Total       $300/fortnightly

Income $10/hr. x 60hrs/fortnight = $600 minus tax = $500

Savings $200/fortnight = $5200/yr.

I know pay rate was low at that time and so were costs and one has not kept with the other but even in this day and age one can save money on  a minimum income. Yes this budget is for a single person and everyone’s situation will be different.

Furthermore, during holidays I picked up holiday jobs everything from cleaning houses to working in a factory. One summer holiday I worked mornings at a factory, evenings at takeaway place and weekends at a retail store. I saved $1000/ weekly. Thus I would save enough  which would enable me to pay next year’s fees, second hand books (or use the free ones in library), clothes, insurance and  other emergency costs.

For entertainment, I went to free concerts, movie nights on campus and hanged with friends at their flats and shared the cost of rental DVDs. Over the 4 years of my study, my budget increased to $450 while income was $600. I had to move twice but I always found room for rent for $100/week. Travelling costs, mobile phone plan, increase in groceries and two short holidays abroad were taken. But they were all paid for by cash and I did not own a credit card during these four years. I also had savings of around $10,000.

End of 2007 I graduated with a degree and got a job paying starting rate of $19.50/hr. and after a year with my savings bought a house but that is another story.

Today as of 2016, I am renting in Auckland with flat mates and have a double room to myself close to work. I own a car and my two rental houses pretty much pay for themselves. So today my budget is:

Auckland Budget 2016	Fortnightly
Rent	$270
Income insurance	$43.10           $313.10
Groceries ·         Meat $30 ·         Vegetables n fruit  $30 ·         Supermarket staples $20	$80
Petrol	$50
Pocket money	$40
Lotto	$20
Mobile	$10
	$513.10

 

Some of you may express disbelief at surviving on such a lean budget but let me assure you it is doable, although there have been weeks where I have indulge a little too much. Let’s break it down.

Rent: The more people you live with the cheaper the accommodation as you are sharing the cost of living. I used to live in a 2 bedroom apartment but had to share a room with one other person and space was pretty tight among other things. I moved to suburbs and found a 5 bedroom house near work $135/week for a room all to myself. There are compromises but I have lived here for over 4 years and utilities are included.

Income Insurance: Say you have some savings saved up. You lose your job, it’s possible I resigned one job and it took two months of applying and interviews to find my current job. I had $4000 saved up and expenses were $500/fortnight, which means I could only survive 8 fortnights on it. Look at your savings, divide it by your budget, how many weeks can you survive?

Groceries: There are many supermarket chains and the local fruit and vege shops in NZ. Every week a different shop will have different items on sale. I usually load up my fridge with meat when on specials and save the money on next few weeks they are not. Vegetables are cheaper and easier frozen but I do buy some fresh ones for salads. I also grow a few herbs on the window stands. Other staples such as washing powder, canned or dried foods, etc. I buy in bulk so they last me many months. Good place to find specials are on flyers and online supermarket sites to decide what and where you are going to shop this week.

Petrol: Find a car with less fuel consumption, do your regular 6 monthly maintenance on it, keep tires pumped up, clear any excess junk from inside your car as they add to the weight thus more fuel consumption and look for deals on fuel and fill up. I have found keeping the car filled more than half tank seems to use less fuel. Carpool or live close to work.

Lotto: I like the odd flutter and usually chose my own numbers.

Pocket money: can get cheap haircuts from home run saloons or free ones from student trainees. $11 movie tickets per week, cheap takeaways, a top or shirt from warehouse, etc.

Mobile: $19 mobile plan monthly

We all learn from each other’s experiences so please do write about your achievements or any tips other readers can learn from.

 

 

Kia Ora, NZ.

Welcome to my first blog. I decided to start a blog on the insistence of a friend I had been helping to become more money savvy. I am a common person like many of you holding a middle class 40 hour a week job. I was 19 when I came to this lovely country to study with dreams of big 3 bedroom houses with big outside space, a nice big car and savings in the bank allowing me to travel once every year. Reality shook me to the core. I realised that living on my own meant expenses like rent, groceries, travel expenses, etc. My weekly income disappeared pretty fast. Out of my depth and struggling, I went to a free workshop offered by the university I was attending at that time on budgeting.

Wow! That one hour workshop made me realise there was more to money and saving. I was hooked and went to several other free workshops and learnt more especially about taxes. I started reading books and later following financial blogs online. Although these were mostly based on US laws, they still had some good information.  I still follow some to this day. Today I am 30years old, have 2 rental properties, a good share portfolio and kiwisaver.

And all of it started from a workshop on budgeting, so that’s going to be my first topic also.