There are a few basic things that immediately make me more prepared and happier to face the day: drink a cup of coffee (or two!), have a tidy desk, and create a "to-do" list. It's nice to know that I can establish a good start to the day with such simple tasks.
It got me thinking that people rarely take this approach with their finances. So often, financial matters are treated like an overstuffed, messy closet that needs to be dealt with but remains closed and put off for another time.
But we all know that putting things off makes it more difficult to enjoy "down time" because there is this nagging sense that something important needs to be addressed.
The good news is that a few simple changes can immediately get your finances moving in the right direction. I have intentionally picked one thing that you can and should do right away. Tackle this one thing, and you might just become motivated to do more.
Review your KiwiSaver
For most of us, KiwiSaver is the primary vehicle that will help us reach our retirement goals. And, as with our cars, it's important to ensure that our KiwiSaver meets our requirements and runs properly and efficiently.
Many KiwiSaver members continue to contribute at minimal levels and not receive the Government's full annual contribution or take lengthy contributions holidays when other financial priorities arise.
These members are typically sitting in lower-risk funds, are not taking an active interest in growing their KiwiSaver accounts and potentially do not know who manages their KiwiSaver savings.
As a result, KiwiSaver member balances remain relatively low, and despite having an exemplary model in place, as a nation, we continue to have the lowest rate of retirement savings.
This week Financial Markets Authority (FMA) New Zealand published a review of KiwiSaver member behaviour in response to Covid-19. The research focused on the increased switching behaviour observed during the period of heightened market volatility in February-April 2020.
One particular story caught our attention. Anna (name changed for privacy reasons), a 24-year-old interviewed by FMA for their research study, said: "I got scared because I didn't understand how KiwiSaver really works, so I thought I had lost a whole bunch of money, and I would never get it back so then I switched immediately to conservative to keep the money that I had and hopefully not lose any more."
She joined thousands of other young KiwiSaver members and opted to switch out of her KiwiSaver growth fund and into a conservative fund.
Anna said she wishes her KiwiSaver provider had put out more comms about what was going on during the Covid market volatility. She has been with her bank for 14 years and never really had any comms from them about it.
According to FMA's research, the value of switches made into lower-risk funds during this time was $1.2b. But just $121 million was then moved back to higher risk funds — meaning over $1 billion of KiwiSaver funds missed out on the subsequent market rebound.
Gillian Boyes, FMA Manager Investor Capability, said: "These raw numbers, along with our associated case study interviews with people like Anna, shine a light on some of the problems faced when it comes to engaging with younger people in KiwiSaver."
Unlike a traditional savings account, KiwiSaver introduces members to both the habit of saving and the concept of market volatility. A member chooses a fund, accepts a certain level of risk and hopes to reap the benefits of positive returns. As markets do well, so too do KiwiSaver balances. However, as political or economic events cause markets to wobble, the opposite is bound to happen.
For many, this see-saw effect was a complete surprise, and some react to adverse market events by switching to more conservative funds. Data shows that KiwiSaver members who work with advisers, as opposed to going it alone or via a bank, have more allocation to growth assets throughout their lives.
So it is a good idea to spend some time reviewing your KiwiSaver with the help of a financial adviser and make sure you are maximising your returns.
A financial adviser will check whether the fund you're invested in is appropriate for your needs and tolerance to risk and ensure you are contributing enough to take advantage of the full KiwiSaver annual government contributions ($521.43).
For every dollar that you put into your KiwiSaver account, the Government will put in 50 cents, up to a maximum of $521.43 per KiwiSaver year (the period between 1 July to 30 June).
Suppose you are currently contributing the 3 per cent minimum employee contribution from your salary. In that case, an adviser will be able to determine the impact of increasing your contribution rate to 4 per cent, 6 per cent, 8 per cent or 10 per cent and enhance your future savings.
Also, paying too much tax won't help you reach your retirement savings goal, so it's important to have an adviser who will check if your Prescribed Investor Rate (PIR) is correct.
According to the data released in 2020, the Australian Taxation Office (ATO) holds over A$20 billion of unclaimed super money, a significant chunk of which would belong to New Zealanders who have worked in Australia over the last three decades. So if you worked in Australia after 1992 and contributed to an Australian complying superannuation scheme, with the help of an adviser you can bring your super money home and give a boost to your KiwiSaver savings. Simply put, it means choosing to invest your money in a KiwiSaver fund that align with your personal values.
As you can understand by now, strengthening your finances shouldn't require a complete overhaul of your life; one simple step can set you on the right path and, more importantly, help ease that nagging feeling that you are neglecting something important.
As a financial adviser, the key thing for me is advice. I believe the quality of the advice is as relevant as the choice of your KiwiSaver provider, and we encourage our clients to seek tailored advice on contribution rates and fund choice to track their progress towards retirement.
Sometimes the simplest of actions can give you the greatest peace of mind.
Nick Stewart is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver solutions. Stewart Group Asset Management is the Asset Consultant of three Asset Class Funds, utilising investment strategies underpinned by over six decades of financial market research by Nobel prize-winning economists.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz