Written: 05 August 2022

Author: Kirsty O’Hara

3 min read

The following article is shared out of goodwill, for the sole purpose of fostering financial empowerment in New Zealand. Flint has no financial affiliations with Sorted. Any tools or resources mentioned are intended for the purpose of guidance only. If you are unsure, always seek financial advice.

Possibly the most frustrating thing about money is that as we move through the various ages and stages of life, we need to occasionally check in to see how things are tracking financially. Not in a competitive way, but just to see if we are on the right pathway towards our own personal cashflow, savings and investment goals.

Money habits and goals we establish in our 20’s, 30’s, 40’s, 50’s, 60’s, and beyond will all require small tweaks and adjustments. Financial capability studies conducted by the Commission for Financial Capability (CFFC) indicate that reviewing financial achievements and goals can help to reduce anxiety around money, and bolster confidence.

The CFFC also highlighted the fact that we may move back and forwards between feeling ‘ok for now’ and thinking ‘I could do better’ – which are two key categories in their studies around money mindsets. They highlight that as we transition from one life stage to another it’s not uncommon to think ‘I could do better’. This is especially common when moving from your twenties to having a family; or again when adult kids fly the nest and it’s time to re-review your savings plans and potential retirement nest egg.

Sorted comment that “Financial capability is about giving people choices. It’s having the skills, knowledge, confidence, and motivation to make informed financial decisions. It supports individual wellbeing as well as contributing to the efficiency and prosperity of the national economy.”

So, heads out of the sand folks - next week is Money Week over at Sorted. Let’s all pencil in some time to explore how these easy online tools can help us feel better about our financial trajectory.

What is Sorted?

Sorted is a free online service that is provided by the New Zealand Te Ara Ahunga Ora Retirement Commission. They champion the ethos that “Any money question is a good question, and we’re all chasing answers”.

The online tools are designed to help us fine-tune our finances and get ahead moneywise.

The theme of their educational Money Week is ‘Just Wondering?’.

If you are ‘Just Wondering?’ about any of the following areas, then you may like to head across to Sorted’s Money Week calendar, to explore opportunities to get your money questions answered across the following key topics:

• Budgeting
• Investing & Saving
• Debt and Loans
• Kiwisaver
• Money Mindsets
• Retirement Planning

We share a brief overview on some of these key tools and resources further down this article.

When to use Sorted?

For those with a growth mindset, you’re sure to find at least one tool worthy of exploration for your age and stage (even if it just reassures you that you’re totally rocking it!).

It’s likely you may find a need for different tools, at different times in your life. Some of the Flint staff credit the Sorted budgeting tools, as a pivotal sidekick towards saving for a house deposit. And the investment profiler tools offer great insights into which investments are most appropriate for your age and stage.

To avoid being overwhelmed, maybe think about one key area that might be most useful for you to explore.

Why use Sorted?

With rising costs, and lots of people wondering how they will get on financially, we believe Sorted’s annual Money Week couldn’t fall at a better time.

Ayesha Scott, Senior lecturer in Finance at the Auckland University of Technology , agrees - commenting that the “Cost of living is – and should be – on everyone’s mind”. She continues by stating: “How we are managing increasing costs could impact us well into retirement.”

When Flint spoke with the Sorted team, they commented that they ‘anticipate that the budgeting tools will likely be the most popular resources this year, given current inflationary pressures. Likely followed by the investment resources which were the most popular features in 2021’.

Where should I use Sorted?

You can set aside time to review your finances at home; or if you’re an employer you may be curious to check out Sorted’s workplace initiatives. Sorted highlight the key benefits of workplace engagements, commenting that:

“Personal financial wellbeing and organisational performance are connected.

• 72% of organisations believe employee financial education will benefit them
• 46% of employees worry about their finances
• 83% of employers say money problems interfere with productivity
• 20hrs a month lost to sorting personal finance worries
• 58% of employers report “financial illness” drives absenteeism.”

If you’re curious to empower your colleagues, or employee’s, you can book a Sorted Workplace programme here.

Sorted Case Studies

If you’re not quite ready to explore Sorted, we will also be sharing some case studies next week on how the retirement planning and risk profiling tools can be valuable for both emerging and mature investors (ourselves included).

You may find it hard to believe that people who work in finance would benefit from these free government resources - however we believe our willingness to learn about money, review our financial habits, and annually review our savings goals, are valuable principals for anyone who wishes to establish future wealth and build a resilient money mindset.

If you’re more of the ‘doing type’ you may prefer to create your own case study and hit the ground running by exploring one (or all) of the following five areas:

1. Budgeting

Sorted point out that “everyone benefits from having a budget – they’re not just for people who have trouble making ends meet”. Knowing where your money is going is great for peace of mind, and by reducing any unwanted spending, you can free up cashflow to invest or save.

We love the concept that a budget helps to ‘steer our money’ suggested by Sorted:

“A budget is a great tool to make sure we’re getting ahead by steering our money where we want it to be. To build a budget we simply add up how much money is coming into our household (our income), then add up how much money is going out (our spending). Then we work out the difference. A budget lets us see whether we have money left over (a surplus) or not enough money to cover our spending (a deficit). The aim is to make as much surplus as possible so we have spare money to pay off debt and save and invest towards our goals.”

Check out the Sorted budgeting guide here, and the budgeting calculators here.

2. Investing & Saving

With interest rates rising, there are plenty of people questioning where they should put their surplus cash. While a term deposit may sound appealing, the interest rates are unlikely to meet the returns proven by managed funds over the long term. Of course the saying holds true that ‘past earnings, don’t guarantee future returns’ - so we can’t guarantee that any managed funds you invest in will outperform traditional savings accounts. Only time will tell.

As always the conundrum remains: we can’t expect returns without some risk. And the more risk we are able to tolerate, the higher potential returns we would hope to receive. If you are nearing retirement it is understandable that your risk tolerance will be different from an emerging investor who has time on their side.

Because Sorted understand this essential rule of thumb they launched a new Investor Profiler tool, that helps to identify your risk profile. You can check it out here – or pop back next week for our case study about this tool.

The Sorted Smart Investor is another useful tool for investors who are getting started, or revising their investment strategy. Check it out by clicking here.

3. Debt & Loans

In many people’s mind this is the somewhat evil twin to investing & saving. And while we have likely heard the saying that there is good debt and bad debt, many people love the idea of having no debt.

Being aware of your debts and loans, understanding the interest rates and repayments, and making a plan to tackle debt in the right order is admirable and can help with peace of mind.

We won’t deep dive into the Sorted tips for conquering debt and loans, but if you have debt you want to tackle then check out this useful guide here and mortgage specific tool here.

4. KiwiSaver

Ayesha Scott identifies that “According to last September’s Financial Market Authority’s KiwiSaver Annual Report, financial hardship withdrawals were up 42.8% from 2020. For New Zealanders struggling to survive in 2022, saving for retirement is likely far from their minds.” This seems staggering, but not unbelievable given the current financial climate.

Ayesha has identified the age group most at risk of falling short in retirement, as being those currently in their 40’s. A big reason for this is that a 41 year old today, was aged 27 back in 2007 when Kiwisaver was launched. And while Kiwisaver is proving to be an effective retirement savings tool, those in their 40’s have less time for their contributions to compound than younger demographics who have adopted the scheme earlier in life.

Ayesha highlights that: “The average KiwiSaver balance for a 40-something is $36,833 ($32,987 for women, $43,068 for men). Assuming the average wage (to be conservative, let’s use figures from 2017) and investment in a balanced fund, a 43-year-old with a current average balance of $33,331 is projected to have $151,820 by 65. For a 48-year-old with current average balance of $40,335 in a balanced fund, Sorted projects $121,350 by 65.”

When asked if this will be enough, without accounting for other savings or investments people may have tucked away, the commentary from Ayesha concludes that:

“After the weekly (singles) NZ Super payment of $463 combined with KiwiSaver funds, our 43-year-old is projected to be $392 per week short of the $1,029 they’ll need per week in retirement. Our 48-year-old is projected to be $427 per week short.

Those considering a more frugal lifestyle ($726/week) are still short after NZ Super and KiwiSaver: $89/week for our 43-year-old and $124/week for those currently aged 48.”

What we found interesting about these observations, is that it is essential to have money conversations in our twenties and learn as much as possible about taking advantage of the compounding benefits for KiwiSaver, savings and investments. And for those of us nearing or exiting middle age, it is essential to prioritise the allocation of surplus cashflow into investments (be that KiwiSaver or other investments such as managed funds or ETF’s) that will provide compounding benefits and capital gains before we reach retirement.

Retirement Planning

This really is the million dollar question that underpins a lot of savings goals.

People often wonder ‘am I on track, to have enough money saved in retirement?’. When they should also be asking ‘What do I want my lifestyle to be like when I’m retired?’. 

If you know that you will be happy leading a very simple lifestyle, then you will have a different savings goal from someone who enjoys and aims for a more lavish retirement. By acknowledging this early, you can set tangible savings and investment goals - by working backwards from the dollar amount you think you will need - and making regular contributions every payday towards investments that support this goal. You may choose to split the way you contribute across KiwiSaver, Savings, and investments such as managed funds – to ensure some flexibility. That said, if you have very little willpower and want to reduce temptation, then you may contribute more heavily to your KiwiSaver (which is unable to be accessed prior to age 65).

Next week we will share some case studies of the Flint team testing out the Sorted retirement tool, wearing the hats of both emerging and mature investors; however, if you want to get a head start to see if you are on track – then you can find the Retirement Calculator here.

Time Poor? Make it a family activity.

If you’re about to play the ‘I’m too busy’ card - please consider the fact that talking about money is a skill we should all model for our children. The CFFC acknowledge that early interactions that children may potentially overhear can contribute to future financial attitudes. We echo this sentiment here at Flint and applaud parents who discuss money in a positive and constructive manner around their children.

Keen to learn more?

From August 8^th – 14^th you can enjoy Money Week conversations, webinars, events, quizzes and more over at Sorted.org.nz/justwondering.

If you find it hard to talk about money, the Financial Services Council have released some cards (available here) that create some great conversation starter to share with friends, colleagues and family.

You can also check back here next week, as Flint release some case studies for both emerging and mature investors using the Sorted tools.

Happy Money Week!

Flint

IMPORTANT NOTICE AND DISCLAIMER:

All content shared is of a general nature, current to the time it was penned, and is not financial advice. Before making any investment decisions, please be sure you have completed full due diligence. This should include reading the product disclosure statement (PDS), considering fees and taxation, identifying your time horizons, and understanding the performance history and reputation of the investments you are considering.

Please note: When investing you are not guaranteed to make money (and on occasion you may lose some or all of the money you began with). Seek independent advice to establish if an investment is suitable for your financial situation and long-term wealth generation goals.

References

SORTED TOOLS: Budgeting; Mortgage Calculator; Debt Calculator; Retirement Calculator; Investor Profiler Tool

ARTICLES: Retirement Commission commentary; Financial Capability; Retirement Commission : Financial Capability Report 2021; Ayesha Scott commentary and KiwiSaver stats; Money Conversations, also with Ayesha Scott; FSC Money Talk : Conversation Cards; FSC Money & You Study 2022; FSC Financial Resilience Report; CFFC : Financial Capability & Behaviour Change report