Finance

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

Financial Statements of the Government of New Zealand for the three months ended 30 September 2018

The Financial Statements of the Government of New Zealand for the three months ended 30 September 2018 were released by the Treasury today. The statements are compared against forecasts based on the 2018 Budget Economic and Fiscal Update (BEFU 2018) published on 17 May 2018.

Core Crown tax revenue at $19.0 billion was in line with the BEFU 2018 forecast. Corporate tax revenue was below forecast by $0.3 billion (12.3%), mainly due to 2018 income tax assessments lodged since June, indicating taxable profits in the 2018 tax year were lower than forecast. The corporate tax revenue result should not be an indicator of growth or otherwise in recent corporate profitability. The less-volatile receipts measure of corporate tax is on forecast and 8.2% up on the same period last year.

Core Crown expenses of $21.2 billion were $0.2 billion (1.0%) below budget. This variance was largely due to the Working for Family Tax Credit being lower than expected and a lower than forecast sovereign receivables impairment.

The operating balance before gains and losses (OBEGAL) was close to forecast, at a $0.3 billion deficit. Tax revenue in the first quarter of the year tends to be less than what is recognised over the rest of the year, while expenses are generally more evenly spread across the year. As a result we expect the deficit reported in the September Financial Statements to reverse in the coming months.

When gains and losses are added to the OBEGAL result, the operating balance was a $1.1 billion deficit, $1.6 billion less than forecast. Net investment gains of $1.5 billion were recorded offset by net losses on non-financial instruments of $2.3 billion.

Core Crown residual cash was a deficit of $2.4 billion, $0.3 billion higher than the deficit forecast.

Net core Crown debt was $60.4 billion (20.9% of GDP) at the end of September 2018, $2.2 billion less than forecast. The lower than expected net debt is largely due to a stronger opening position, from the 30 June 2018 result (which was $2.9 billion less than forecast). This was partially offset by the residual cash variance of $0.3 billion.

Net worth attributable to the Crown (NWAC) was $129.3 billion, $10.6 billion higher than forecast at BEFU 2018. The majority of this variance relates to property, plant and equipment revaluations increasing NWAC by $10.7 billion at 30 June 2018.

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The Treasury - ENDS

Share Investing for Kids

One of the greatest gifts you can give your kids is to teach them about money. It has been shown many times over that while academic success can lead to higher paying jobs, it is financial capability that gives young people the ability to create wealth. The earlier you start teaching kids about money the better. It just got easier to do that with the launch of Sharesies Kids Accounts.

Sharesies  (www.sharesies.nz) is an App that makes investing in managed funds as easy as internet banking. For as little as $5 your kids can make their first investment, choosing from a range of funds. To begin with, the account needs to be attached to one operated by an adult, but you can arrange to transfer the account to the child when they reach a certain age. There are two main reasons why you might want to set up an account for your child. The first is to build up an investment fund they can use later in life to help them through university or to buy a house. The second is to use it as a means to teach them how to make investments.

Some of the lessons kids will learn from this are:

  1. How quickly money can grow with regular saving and compound returns. For example, if you had invested $10 a week in the Sharesies NZ Top 50 Fund for the last five years, you would by now have $4,117
  2. The difference in investment return and volatility between bonds, shares and property
  3. The impact of market cycles on investments

Above all, kids will learn that investing is easy and it’s fun. For young adults over the age of 18, you can set up an account as a gift – a great idea for Christmas and birthdays.

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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

What Young People Need to Know

The basic principles of financial success do not change over time. Despite this, younger generations don’t always take on board the lessons learned by their parents and grandparents. With age comes the benefit of hindsight and an understanding of the consequences of choices made early in life. These are the timeless principles that young people need to know:

  • Get into the habit, right from your very first pay, of not spending everything you earn. Saving is not the only way to build wealth, but spending more than you earn is a fast way to lose what you have. A habit formed early in life will last a lifetime.
  • Have clear goals for how you want to use your money and manage it proactively. You can choose how and when you want to spend your money, so do it in a way that will achieve your goals. Money can only be spent once, so make sure you spend it on things that are important to you.
  • Don’t be greedy. Take your time to enjoy life and build wealth. Those who acquire wealth slowly and spend it slowly do better in the long run because they don’t take unnecessary risks.
  • Avoid going into debt to buy things that don’t increase in value. Taking on debt means high outgoings and less ability to create wealth.

People can make choices when young that they later regret. These include:

·         Not taking out life and health insurance before health issues arise

·         Taking on debt to buy an expensive car when a cheaper one will do

·         Waiting too long to purchase a property, or not buying one at all

There is never a right or wrong with any financial decision, but it is important to think long term and keep in mind the consequences of choices made.

Liz-Koh-new.jpg

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

Money When You Need It

There is nothing complicated about money; you either spend it or save it. Over the course of a lifetime it mostly gets spent, so saving is just money to be set aside for spending at some point in the future. This is a really important point, because in setting it aside there are two key considerations. The first is how to get the best rate of return on the money while it is being held aside, and the second is how to make sure it is available when it is required for spending. The latter consideration is what is called liquidity – that is, the ease with which an investment can be turned into cash for spending.

The shorter the investment time frame, the more liquid an investment needs to be. Liquidity, rate of return and investment risk can work against each other. Generally speaking, if you are looking for a high level of liquidity with a low level of risk, you will receive a low level of return. In the very short term, liquidity takes precedence over return.

Investment time frame is a key driver of investment strategy. The starting point for any strategy is to work out how much money you need and when. For the very short term, savings accounts are the best option. If you have a mortgage, savings can be kept in a line of credit or offset account to reduce the amount of mortgage interest you pay. If you don’t have a mortgage, use an online savings account for your emergency funds or money you plan to spend in the next year. If you are reliant on money from investments to top up your income, have a series of term deposits maturing six months apart so there is always money available when you need it.

Liz-Koh-new.jpg

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