Make your resolutions pay off
Susan Edmunds sets out six ways you can improve your financial position this year, ranging from a savings system to a part-time gig that brings in extra income.
It’s the time of year to set resolutions.
Small changes now could set you on a better financial path in 2019.
Here are six goals to strive for, and how much more money you could get in your pocket, should you achieve them.
Switch up your savings
Lots of people resolve to ‘‘save more money’’ each year but fail horribly.
The best way to save is to pay yourself first each payday. Work out what you can afford to save and transfer it into your savings account as soon as it arrives.
Don’t try to cut your spending and put aside whatever is left over, because chances are, there won’t be anything.
If you can save $20 each week until the end of the year, you’ll have $1040 in your bank account.
Increase your mortgage repayments
Small increases to your home loan repayments make a big difference.
If you’ve recently bought a house, head to a calculator such as Sorted’s and work out how much you’d need to tweak your repayments to clear the debt before you turn 50.
If you’re over 50 and still carrying a mortgage, work out what you’d need to do to clear it before you are 60. Being mortgagefree is one of the biggest factors in having a comfortable retirement. Anything you can do now to get there will pay off many times over.
If you increase your mortgage payments by $20 a week on a
$500,000 mortgage at a 5 per cent interest rate, over 25 years you could reduce the term of your mortgage by a year and save
$24,006.
Increase your KiwiSaver contributions
Check in on your KiwiSaver fund to make sure it’s on the right track.
Check the type of fund you are in is right for your circumstances and that you’re contributing enough to reach your goals. This could be a good year to increase your contributions – markets are showing volatility which means there’s a good chance that you’ll get an opportunity to pick up more shares at better prices.
If you are a 25-year-old woman earning $60,000 and contributing 3 per cent plus 3 per cent from your employer, you could expect to end up with $272,749 in KiwiSaver at 65, or $250 a week. If you increased your contribution to 4 per cent of your salary, you’d have $321,592 or $295 a week through retirement.
‘‘KiwiSaver is an investment and, like any investment, people need to take a look at how it’s progressing and what changes they can make to get maximum value,’’ said Joe Bishop, Kiwi Wealth general manager of customer, product and innovation.
He said members should not be in a default fund over the long term.
‘‘These are simple, low-risk funds that act as a holding position while members assess a fund that’s right for them, be it conservative, balanced or growth. Given they are low-risk, returns are – generally – commensurately lower than most other funds. Over time, that can equate to a lot of money an investor might miss out on having come retirement.
‘‘As a general rule, younger KiwiSaver members should opt for growth funds, while those closer to retirement age might look to manage risk or volatility with more conservative options.’’
Clear your credit card debt
A resolution to get rid of highinterest consumer and credit card debt is a good one.
If you’ve been paying off the minimum on your credit card each month, you’ll save significant amounts by increasing that.
If you have $5000 owing on your card and you pay $100 a month, it will take 94 months and $4311 in interest to clear. Increase that to
$200 a month and you’ll clear it in
32 months and pay only $1314 in interest.
Get all the utilities discounts
If your utilities providers offer a prompt payment discount, resolve to schedule your payments to make sure you always get it.
There has been criticism that, particularly in the electricity sector, these are actually a late payment penalty in disguise, which means that people who struggle to pay on time end up forking out up to 20 per cent more.
Take, for example, the low-user fixed daily fee. This is limited at 30c a day, excluding GST – unless the retailer offers a prompt payment discount that would reduce it to this level.
If you aren’t getting the benefit of your provider’s discount, you might get a better deal overall by switching to a provider that doesn’t offer one at all.
Earn more
Resolve to get a pay rise or to start a business on the side to earn some extra income to improve your financial position in 2019.
Over the past year, across the public and private sectors, wage inflation has been running at an annual rate of 1.8 per cent.
A minimum wage increase in April will help those at the bottom of the pay scale – it will rise to $17.70.