Letting Go and Starting Over

Photo by      Marina Vitale      on      Unsplash

Photo by Marina Vitale on Unsplash

A new year and new beginnings. The end of a year can often coincide with other endings – the end of a relationship, the end of a job, or a career. Often there are huge financial implications flowing on from these events, and the prospect of dealing with these issues can be rather daunting, especially when the endings do not occur by choice.

A significant drop in income which occurs suddenly is a traumatic experience, and this is even more so if a relationship has ended and assets such as the family home need to be divided. Along with an ending comes emotional turmoil, even for a planned event such as retirement. For couples who are newly separated, one of the major issues to deal with is what should happen to the family home, particularly when there are young children involved. At a time of emotional instability, the family home is a safe haven. It is enough to deal with a relationship breakdown, let alone adding a house move into the picture. The burden for one partner of taking over the ownership can be made easier by taking in a boarder, getting financial help from family members, taking out an interest only mortgage, extending the term of the mortgage or taking a mortgage repayment holiday for a few months. For others who suffer a sudden drop in income, the danger is that spending is more than the new, lower level of income.

Big changes in your financial situation necessitate big changes to your lifestyle to avoid financial difficulty. Delaying the inevitable merely weakens your position, making it even harder to recover. Letting go of a family home, a holiday house, or small luxuries such as TV subscriptions helps to create a stable financial base from which to move forward and rebuild.

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Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.  For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com

Financial Independence, Retire Early

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It seems millennials don’t wish to get sucked into the rat race the way their parents did. The FIRE movement (Financial Independence, Retire Early) is literally setting the world alight.

FIRE is allowing people to retire as early as their mid-thirties. So how does it work? Early retirement is achieved by living life frugally, permanently. This does two things. Firstly, it enables you to pay off debt quicker and save more. Secondly, the fact that you have cut your living costs to the bone means you need less capital to retire. It’s all about living life in a very simple way rather than with all the luxuries and costs of modern living. The internet is clogged with bloggers extolling the virtues of FIRE and young people are avidly reading their posts, learning from those who have ‘FIRED’ successfully.

Being financially independent brings a huge sense of freedom but it doesn’t necessarily bring happiness. It’s important to define what happiness means for you and how much money you need to do or have the things that make you happy. Giving up your job can mean a loss of identity and of a sense of purpose. Think carefully about how you would fill your day if you weren’t working. Early retirees sometimes find the ‘honeymoon’ period of retirement quickly wears off, and boredom sets in if there is nothing meaningful to replace work. For couples or singles looking for a partner, the FIRE mindset needs to be shared, or it can destroy a relationship. Friends and others in society can find it hard to relate to someone who doesn’t fit the norm. Unexpected expenses from the likes of divorce, ill-health and natural disaster can derail someone who has FIRED.

Early retirement is great but it doesn’t solve everything. Think before you FIRE!

LIz Koh

LIz Koh

Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.  For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com

Help for Kids to Buy a House

Photo by Anastasia Dulgier on Unsplash

Photo by Anastasia Dulgier on Unsplash

It’s a natural instinct for parents to want to help their kids get a head start in life. A common goal for young parents is to save money to pay for kids’ tertiary education costs. However, that’s not necessarily the best way to help. For as long as student loans are interest free, it makes better sense for kids to borrow money to pay for study and to take as long as they are given to repay the debt.

The biggest hurdle faced by kids is not paying off a student loan, it is finding the deposit for a first home and being able to make the mortgage repayments. The Ministry for Business, Innovation and Employment (MBIE) has a Housing Affordability Measure (HAM) which shows that around 80% of renting households are not able to comfortably afford a new home. Getting on the property ladder is vital. By the age of retirement, it is essential to own a debt free home, as NZ Superannuation is simply not enough to live in if there is rent or a mortgage to pay. Given that property prices keep going up, the sooner young people are able to get on the property ladder the better.

So for parents, the best way to help kids financially is to help them buy a house. A cash gift is one way to do this, and the lender will usually insist that it is a gift that cannot be repaid until the house is sold. Otherwise, parents can become guarantors for their children’s mortgages. This might mean putting their own home or other assets up as security for the mortgage, or becoming a co-borrower. The guarantors will need to provide financial information to the lender. It is essential to get legal advice before any arrangement is set up.

Liz Koh

Liz Koh

Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.  For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com

Keep Calm and Carry on Investing

It’s easy to invest when markets are running smoothly but when they fall your confidence can be sorely tested. More uncertainty in investment markets means more volatility and a need to review your investment strategy.  

Start with the basics. Focus on your goals and objectives. If you have long term investment goals, remind yourself not to get too distracted with short term changes in the market. Reversing your strategy will cause you to lose value and lose time – both key ingredients for achieving your goals. 

Review your attitude towards risk and reassess whether your investment strategy is a good fit for your risk tolerance. When things are going well in investment markets it is easy to take on more risk than you should. Find the right balance between risk and return so that you can achieve your goals while taking an acceptable level of risk. 

Stay diversified. Markets can change quickly, and moving all your investments into one asset class might work in the short term, but it means you are taking on more risk by having all your eggs in one basket. Don’t sell in a panic or you will crystallise any paper losses. Selling up and putting all your money into very safe investments will lower your return, possibly making your goals harder to achieve.  

Evaluate all the options you have. This might mean getting more information from an expert who you trust. Make sure that any advice you get is from someone with a balanced or independent point of view who can point out the downsides as well as the advantages of different investment options.  

Confident investors have a long-term plan that they stick to, they do their research, they aren’t swayed by emotions such as fear or greed, and they are successful at building wealth.

 

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Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.  For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com

Financial Independence for Women

There is an increasing trend for young couples to manage their money separately, unlike previous generations who pooled their financial resources. Women are becoming more financially independent, which is great, however there are a number of factors which mean that women lag behind men in the wealth creation stakes.

Despite the push for greater pay equity, women still earn on average around 9% less then men. Female-dominated occupations still have lower rates of pay and research has shown that men have a much better track record at negotiating higher starting rates of pay and pay rises. Many women take time out from the work force to look after children, which impacts on career progression and future income as well as their ability to save.

Women tend to be more adversely affected than men when relationships break down. Their lower earnings mean that it is more difficult for them to recover from an asset split and they are more likely to be left with young children, creating a financial burden which is not always fully covered by child support.

Lower earnings and time off work both have a negative effect on KiwiSaver contributions, which are a percentage of earnings. The ANZ bank recently estimated that the average 25 year-old woman is likely to retire with about $125,000 in KiwiSaver compared with $223,000 for a male. While this might not matter so much if couples combine their retirement savings, it is certainly an issue for single women and for women who manage their financial affairs separately from their partner.

In the long term, the issue of pay inequity will hopefully disappear, but for now, women need to plan ahead to make sure their retirement savings are on track. This may mean making additional contributions into KiwiSaver or another long-term savings product.

Liz Koh

Liz Koh

Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847.  For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com