The A to Z of financial knowledge

COLUMN Deborah Carlyon

Recently I was interviewed for a newspaper article on the 10 biggest money blunders made by people in their 40s and 50s. It reminded me that most mistakes can be avoided by learning about financial matters early on – it’s as easy as ABC.
Advice. Well-meaning friends and family provide informal advice, but it may not suit your situation. Talking to a professional is usually best.
Budgeting. Work out where your income goes. Only then can you redirect money for other goals.
Credit Cards. Great tools to amass points, use free money, and track your spending. But it’s only interest free if you repay the full balance each month.
Deposits. Yes, bank investment rates are low but term deposits are a safe place to accumulate for short term goals.
Employment. Your earning power is a huge component of financial success. Keep your skills up to date and know your worth.
Funds. Known as Portfolio Investment Entities, managed funds provide diversification into cash, bonds, property and shares, local and offshore. Tax is capped at 28%.
Goal Setting. Without a written target and timeframe, it’s hard to be motivated. Know your goal or it’s too easy to fritter away money.
Home. Owning a house provides security and renovations add value.
Insurance. Cover yourself for potential loss. House, contents, car and medical insurance are common but how will your dependants manage if you die or can’t work again because of illness. Use life and income protection insurance too.
Joint Ownership. Owning a home jointly with your partner means they will own it 100% if you die. Owning as “tenants in common” means you can leave your share to someone else.
KiwiSaver. Join and your employer deposits 3% of your earnings plus the Government adds $500 per year. It’s locked in to 65 so a high risk fund is appropriate, unless you intend withdrawing sooner for a first home deposit or you are near retirement age.
Loans. Student loans are interest free and education equals self-improvement. Personal loans incur high interest rates, usually for purchasing depreciating goods. Make sure you repay hire purchase within any interest free period.
Mortgage. Home loan interest rates of 4.5% are historically low. If you borrow more to renovate, or to buy an investment property, repay as much as affordable before rates go up again.
Net Worth. The sum of assets less debts is the measure of financial worth. Saving money or reducing debt will improve your bottom line.
Online Tools. As well as online shopping, go online to manage your finances. There are great retirement calculators and budgeting tools. Try your bank website or sorted.org.nz; financial.me; pocketsmith.com
Power of Attorney. Name some people you trust to look after your health and financial affairs if you ever become incapable of handling things yourself. Talk to your lawyer.
Questions. When seeking advice, don’t be afraid to ask how it will help you, what could go wrong, are there alternatives and what does it cost?
Retirement Planning. How much will you need to live on when you retire? NZ Super provides $30,000 net per year for a couple. Will your KiwiSaver bridge the gap or do you need to save more? (see Online tools)
Shares. Owning companies listed on share markets provides dividend income that increases over the years plus share prices go up. Loss in value can occur at times, so be diversified via a range of fund types (see Funds).
Trust. Family trusts protect wealth from personal liability and keep assets separate from relationship property. Useful if you are in business or in a second relationship.
Unexpected Events. Keep an emergency fund of at least 2 months expenses should you change jobs or get sick.
Volatility. Share prices and currency rates change frequently, driven by economic conditions, company profits and losses, and investor sentiment. Understand that volatility happens, reweight your asset mix if necessary, and stick to your long term plan.
Wills. Think about who you want to pass on assets to. Don’t leave it for your family to squabble over or the Courts to decide.
X-rated. Understand the financial credit ratings scale. A bond rated “C” is as far removed from an “AAA” bond as an X-rated movie is from a G one.
You. Understand your financial personality, risk tolerance, risk capacity and timeframe. Couples need to agree a joint investment strategy.
ZZZ… To sleep well at night, know your financial position, write down your goals, cover your risks and plan accordingly.  
Deborah Carlyon is an Authorised Financial Adviser. This column does not provide personalised advice. Her Disclosure Statement is available on request and free of charge by emailing deborah@stuartcarlyon.co.nz

You might be interested in reading: How well can KiwiSaver provide for both a first home and retirement?

 

This column by Deobrah Carlyon featured on page 24 in Issue 018 of Renovate Magazine. Renovate Magazine is an easy to use resource providing fresh inspiration and motivation at every turn of the page.

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*All information is believed to be true at time of publishing and is subject to change.
Deborah is a Certified Financial Planner (CFPCM), a member of the Institute of Financial Advisers (IFA) and an Authorised Financial Adviser (AFA). She is a principal of independent advisory company Stuart + Carlyon. This column does not provide personalised advice. Deborah’s Disclosure Statement is available on request and free of charge by emailing deborah@stuartcarlyon.co.nz.