Source: Radio New Zealand
Make sure your goals are clear and achievable. Unsplash
If 2026 is the year you get your money life sorted, you may be wondering where to begin. Our money correspondent Susan Edmunds has 5 areas to focus on.
Set a budget
It is often helpful to start thinking about what you want to achieve and breaking your goals down to things that can be done in the short term, and those that might take a bit longer.
Short-term goals might be things like a holiday in a couple of months, while longer-term might be saving a house deposit or for your retirement.
Make sure your goals are clear and achievable. They need to be measurable so you know when you’ve achieved them or are closer to them. Save $50 a week, for example, rather than “save more”. Celebrate your wins along the way to keep you motivated.
It helps to know why you’ve chosen the goals, too.
Doing something just because you think you should is a lot less motivating than doing it because it’s going to improve your life or make you happier.
Liz Koh, financial coach at Enrich Retirement, says setting goals first and then thinking about making them happen is a useful “top down” approach that is more likely to result in behavioural change.
That’s important because, for lots of us, it’s the behavioural change that needs to happen to help us stick to a budget.
Koh recommends focusing on small steps.
“One of the biggest mistakes people make is trying to get ahead too quickly. Money is an important part of life that serves a multitude of purposes. It is not something you can do without.
“For the same reason that you can’t reach your goal weight on an overnight diet or suddenly become as fit as an Olympic athlete, you can’t go from being broke to being seriously wealthy in a short space of time.
“The first lesson in changing your relationship with money is to set attainable goals that reflect the reality of your current financial situation. It is better to take small steps and be successful than to set unrealistic goals and fail. Achieving small steps may give you the confidence to gradually take bigger steps. If you have never been able to save, trying saving just a small amount each week and increase the amount over time.”
Your budget can be a tool to help you get to the goals, because it’ll give you a clear picture of what’s going on.
This is where you will be able to work out whether you can free up money to put towards your goals.
Tom Hartmann, personal finance spokesperson at Sorted, says people either do a budget to make what they are already doing work, or to try to do something different.
Either way, it often helps to draw up a budget showing your current situation: How much is coming in, what’s going on, what you’re spending money on. Then you can see what can be adjusted.
You can usually get a good idea of what’s been happening by looking at previous bank statements. Some banks have apps that track your spending to do this for you.
“We’re creatures of routine, we keep going back to the same places, spending the same amounts, especially over a given year,” Hartmann said.
“If you download your statements over a year, where you’re spending money is the usual suspects.”
If you want to save money, or find a surplus to start investing, you should be able to use your budget to identify areas that can be trimmed. You could also look at how your budget would work with different levels of KiwiSaver contribution.
If your budget shows money is really tight and there is no surplus to speak of, you might be able to use it to identify the pressure points and areas where change could be most effective.
Don’t rewrite your budget to be overly harsh, though. If you restrict yourself too much, it can be hard to stick to.
Focus on your smallest debts first. Unsplash
How to get rid of your debt
It’s a good idea to start with a realistic idea of how much debt you might be able to clear within what timeframe.
Think about how much money you might have available to put towards debt repayment, and set some targets from there.
Koh said people should start by working out what they owed. Even if it’s uncomfortable reading, it’s a good idea to make a list of all your debts and how much interest is being charged on them.
” If you have many small debts you might be surprised at what they add up to,” she said. “Rank your debts in order of priority for payment. Set up an automatic payment to make additional voluntary payments on the first debt on your list. Leave your other debt payments at their minimum level. When the first debt is paid off, start on the next one on the list and keep working through until all debts are repaid.”
It often makes sense to try to clear the highest-interest debt first because this is costing you the most money. Check that you don’t incur any extra fees or penalties, though – if you do, you might need to shift your focus elsewhere.
Another option is to focus on your smallest debt first. That means you’re likely to clear it relatively quickly and can move on to the next debt. That series of small wins can be quite motivating.
If you have a number of loans and you’re finding it hard to manage them all, consolidation could be an option. This is where you take out one big loan to pay off all the smaller ones.
It usually means you only have to worry about one payment a month instead of several – which can be helpful from a life admin perspective.
But it’s worth checking the terms of your consolidation loan, though. A higher interest rate or longer term can mean you end up paying more overall for your debt overall.
If you’re struggling to pay the debt, longer term and smaller repayments can still be sensible, even if it’s more expensive – as long as you don’t feel that having consolidated the debt gives you a free pass to go and take out more.
If you’re seriously struggling with any of your debt, your first call should be to the lender. They can talk to you about what your options might be.
It’s really important not to just ignore debt that has become a problem. This never makes it go away.
Put money into savings as soon as it arrives in your account. 123RF
How to save money
Saving money is probably near the top of people’s New Year’s resolution lists.
Whether you’re cringing when you look at your bank statements or just want to put aside a bit more next year, there are a few ways you could do it.
Sorted’s personal finance spokesperson Tom Hartmann says people should think about the home organisation guru Marie Kondo if they’re looking for ways to save.
Kondo talks about only holding on to things that “spark joy”.
“We can do the same thing with the things we spend money on,” Hartmann said. “For example with your subscriptions – there’s no way you get the same level of happiness from all the things you subscribe to. For me Spotify is up the top, I’d rate that a five out of five but Netflix is lower down.”
He recommends rating the things you spend your money on between one and five out of five and cutting or reducing the things that are a two or a one.
“It makes it easier to cut things back and you don’t end up feeling deprived because you keep the things that really give you joy – ice creams for the kids, for me that’s way up high.
“Often it’s the cheap and cheerful things that end up staying in the budget.”
Match your spending with saving – this requires a bit more money, but can be really effective.
The idea is that if you spot something you want to buy, you only make the purchase if you can put the same amount of money into investments or savings.
If you want some jeans for $200, you have to also put $200 into Sharesies, for example.
Don’t decide you’ll wait until the end of your pay cycle and save whatever is left over. Put the money into savings as soon as it arrives in your account.
“Set up an automatic transfer to take money out of your account each payday and put it in an account that is not shown on your internet banking. Send it to an account in a different bank to keep it even more out of sight. You will be surprised at how even a small amount saved each week will quickly grow,” Koh said.
It’s that aspect of paying yourself first that makes KiwiSaver so successful. If you can channel that same “out of sight, out of mind” approach into other savings, you might be surprised at how fast the balance can grow.
Your bank might also offer you the ability to round up your transactions and put the difference into savings.
You can often choose how much you want to round up, whether that’s to the nearest $1, $2 or more. That might mean if you buy a coffee for $5.50, for example, the transaction is rounded to $6 and the difference saved. Even small amounts add up this way.
There are other apps, such as Feijoa, which automate “rounding up” by sending the difference to your KiwiSaver account.
If you’re feeling really motivated you might choose to have a “no spend” month, week or even day of the week. This means that for that period of time, you resolve to not spend anything. This could take some planning – but it’s not effective if it just means you shift your spending to other times.
Don’t forget to track your success and celebrate milestones along the way – it can help you stay motivated.
If you make bigger repayments, you’ll be able to clear your home loan faster. Unsplash/ Artful Homes
Manage your mortgage
If you’ve got a mortgage, one of your priorities might be to try to get rid of it as soon as possible.
The past few years of higher interest rates have been tough going for lots of people. As interest rates come down, many borrowers have more options.
There are a few changes you can make that could get you closer to that goal.
Increase your repayments
First up, the most obvious one.
If you make bigger repayments, you’ll be able to clear your home loan faster. What surprises some people is how much of a difference even a small increase in your home loan repayments can make, particularly if you haven’t had your home loan for a long time.
Interest rates have fallen over the past couple of years from more than 7 percent to less than 4.5 percent.
If you have a $500,000 loan at 4.5 percent, you’ll pay about $585 a week over a 30-year term including $411,413 of interest. If you can increase your payment to $600 a week, you’ll only pay $385,836 of interest and clear it about a year-and-a-half sooner.
You can increase your repayments by opting for a higher level when your loan comes up to refix. Sometimes you can ask your bank to increase them during the term, too, or make additional lump sum payments. There is generally a limit on how much extra you can pay back during a fixed term before you have to pay a fee.
When your loan rolls off its fixed term, you could also make an additional one-off payment before you refix again at whatever repayment rate suits.
Anything you can do to pay the balance off faster will save you a lot in the long run because it means the principal will be smaller and there won’t be so much to attract interest – which compounds – over the life of the loan.
Split your loan
You can split your loan into a number of smaller loans. This allows you to take advantage of different interest rates.
At the moment, longer fixes are more expensive than shorter ones but are still relatively low by historical standards.
You might choose to fix part for a longer rate for some security and have some on a shorter term to save money in the short term.
It also means you can choose to make higher repayments on one of the loans, and maybe aim to clear that before switching your attention to the other.
Ask for low-equity margin to be removed, or for special rate access
If you bought your house a while ago with a small deposit, you might be paying a low-equity margin on your interest rate.
You might also be paying higher rates than the “specials” banks advertise for borrowers with more deposit.
You could ask your bank to reassess your situation – if your property has improved in value or you’ve paid off your loan a bit, you could have improved your equity position, or you might find the bank is willing to negotiate.
Shop around for a sharper rate
If you don’t think you’re getting a good deal from your lender, you could look at what else is available in the market. A mortgage broker could help with this.
Banks have also been competing hard with cash back offers that can be worth quite a significant amount of money if you’re willing to shift.
Consider off-set
If you have savings that you want to keep separate from your mortgage, you could set up an offset facility.
That means you forgo the interest on your savings but also reduce your mortgage interest bill. It’s sometimes possible to do this by linking with family members’ accounts, too.
Consider revolving credit
If you have the discipline, a revolving credit facility can work well. This means you section off part of your home loan into what is basically a large overdraft and usually becomes your main transaction account.
You then aim to put your spending on your credit card each month and have your income going into your new revolving credit account.
This means you reduce the interest you pay on that portion of the loan for the period that income is sitting there. Hopefully when you pay your credit cards at the end of the month, there’s a bit left over to reduce what you owe. You need to be a bit careful with this, though, because over time the idea is that you’ll build up money in that account as you pay it down and you don’t want to be tempted to spend it again.
Advice from a mortgage adviser or a home loan specialist from your bank can really help you to set a strategy and stick with it.
There are online tools that can help you work through what your risk profile might be. RNZ / REECE BAKER
Maximise your KiwiSaver
KiwiSaver is an increasingly important part of many New Zealanders’ financial lives. We pull millions of dollars out of the scheme each year to buy first homes, as well as helping out in financial emergencies, and it is a big part of lots of people’s retirement planning.
The nature of long-term investment means that decisions that you make at the outset can have a big impact over time, so it’s important to get things set up well as early as possible.
A great first place to start is to think about your risk profile. This refers to your willingness to take risk with your investment.
Someone who needs to withdraw money in three months’ time to buy a house won’t have much appetite for risk at all, because they will need to know exactly how much money they have available.
But someone who is thinking about making a withdrawal in 40 years will have much more appetite for risk because they have many years to ride out any turbulence in the market.
There are online tools that can help you work through what your risk profile might be.
You might think: Why bother to take any risk at all?
In investing, risk can be a positive because it should boost your returns.
“The theory goes that the higher the return you are after, the more risk you are willing and will have to take. The more volatility you can accept in the short term, the greater the expected return in the long term,” said Dean Anderson, founder of Kernel KiwiSaver.
Once you know what sort of risk you should be taking with your investment, you can choose the right KiwiSaver fund for you.
Most KiwiSaver funds can be described as either cash, conservative, balanced, growth or aggressive. You can find variations on this, and some providers offer single-asset funds that you can add to your portfolio, investing in things like property and cryptocurrency. Some providers also allow an element of DIY and stockpicking for individual investors.
If you can take more risk, a growth or aggressive fund is likely to be the best option for you.
“These funds typically offer higher returns over time, but with more volatility. Given your horizon, you can handle those fluctuations in value and expect to benefit as a result,” Anderson said.
“As an example, if you’re in your late 30s and already have your first home, opting for a high growth fund could allow compound returns to maximize your savings by the time you retire.”
But if you might buy a first home within three years, a conservative or cash fund might be better. Many people have had the experience in recent years of going to withdraw their money and finding the market had dropped at just that moment.
Cash and conservative funds focus on preserving your balance but generally deliver lower returns.
When it comes to adding in things like pure portfolio funds or investments in cryptocurrency, it could be a good idea to do this with some personalised advice.
“Cash has the lowest risk, therefore the lowest expected return. Of the four major asset classes (cash, bonds, property, shares), shares have the highest risk and the highest expected return. Share funds are lower risk than individual shares, and crypto assets, commodities and “private investments” are even higher risk,” Anderson said.
You’ll also need to think about which provider is right for you. You can go with your bank, or another major fund manager, or one of the smaller providers.
Fees vary, as do investment management styles. You might think a low-fee manager that tracks a market index is a good option, or you might be looking for a manager who can beat the market, or one who delivers a responsible investment strategy that aligns with your beliefs.
There are lots of options so it’s worth taking the time to find one that’s a good fit. Tools like the Sorted Smart Investor can be handy here. Mindful Money is a great platform for anyone wanting to check what their fund might be invested in.
You’ll need to choose how much you want to contribute. If you’re an employee, you can choose to automatically contribute 3 percent, 4 percent, 6 percent, 8 percent or 10 percent of your gross salary. Your employer will match your contribution at 3 percent and some offer higher rates. Those default contribution rates are slowly increasing over time and could increase further if National is successful at the next election.
The right contribution for you will probably depend on your goals. A 10 percent contribution rate will boost your balance much faster. But the money is locked in until you buy a first home or turn 65.
If you’re a while away from doing either of those things, you might only contribute what your employer will match and invest the rest of what you have available somewhere else (provided you are sure you will actually so this).
Some providers suggest working out how much of a lump sum you want at retirement, and then working backwards to determine what you need to save now to get there.
It can be really hard to think clearly about something that’s a long time in the future, though, so my advice if you’re still decades away from retirement is just to save and invest as much as you can while meeting other financial goals such as paying off a mortgage and enjoying your life.
Don’t set and forget your KiwiSaver. Check on it every year to see whether it’s doing what you’d expect, given the market movements. Even if you’re not working for a while, try to contribute at least $1042 so you get the full Government contribution each year. It’s not as big as it was but it’s still worth having!
When you get to 65, you can withdraw all the money in your KiwiSaver account. But you don’t have to. You might still have 30 years of living costs to fund, so you might choose to leave some or all of it invested and earning returns for a while. Personalised advice can help here too, to come up with a plan to draw down your money over time in a way that works for you.
The Society of Actuaries have some rules of thumb and Sorted also offers a tool to help.
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
