In Mary Holm's new book, Rich Enough? A laid-back guide for every Kiwi, she writes about eight steps to get your finances sorted.
Mary talks with Jesse about why it's best to do it in steps, why she's put the steps in a particular order, and what each step covers.
She says many people in many stages of life find finances either scary or boring, so don't think much about it.
"They just get on with their lives - which is great - but they could be doing the money … more easily.
"A lot of them are doing more work than they need to … once you get things set up the right way for you then you can forget about it and get on with other things in your life."
She says the book also contains insights about people's psychology around money matters like spending, or problems with financial disputes, as well as a section about how to steer clear of scams.
Step 1: Start now - it's easy
"Stop mucking around and saying this is too hard or too boring or too whatever - get going and set yourself up with a plan."
Step 2: Kill off high-interest debt
"Credit card debt basically, or anything higher interest than a mortgage - so bank overdrafts … then of course you get into the really silly debt like ‘pay days’."
She says finance companies are also included.
"Anything higher than 20 percent ... is very serious stuff, it does huge huge damage to people’s long-term wealth."
She says there’s one example in the book - a true story - of a couple who had $180,000 of credit card debt and got rid of it.
“What a massive amount of debt that was, and so I’m hoping people who’ve got credit card debt they’re not paying off on a regular basis might be inspired by that story, because the guy did outline how he got rid of it."
Step 3: Set up insurance - and a rainy day fund
“If you can get yourself out of credit card debt then you might fall back into it if something goes wrong.
"That's what happens to people, they might be made redundant, or might be running a business and something happens to the business or … a marriage ends."
She says if you can afford to pay for something yourself, however, don’t insure for it.
"With cars and house and all of that I reckon you should have enough to cover the bad stuff - but not the minor stuff because you're just paying the insurance company and, you know, you don’t need to do that.
"You can cover that with your own rainy-day fund really.
"You can perhaps put something on the credit card and the rainy-day fund might be one-month term deposits, and before you have to pay your credit card the term deposit will have matured and so you can pay the credit card off with that money."
She says with health insurance she thinks it's good to have coverage for the really big, bad stuff - and life insurance is essential if people depend on you.
"On the other hand, as a person’s getting older ... if the kids are no longer at home quite often you don’t need life insurance anymore."
Step 4: Join the best KiwiSaver fund for you
"If you’re not on KiwiSaver , get into it. It's really a pity to miss out.
"If you’ve got credit card debt and that, better to put your KiwiSaver on holiday … but you must promise to put that money that was going into KiwiSaver into getting rid of the debt - that’s the only reason I would say to go on a KiwiSaver contributions holiday."
Step 5: Boost your saving painlessly
"This chapter looks at where else you might save outside of KiwiSaver so you’ve still got access to that extra money.
"The painlessly bit is about how you can save extra if your expenses go down or your income goes up.
"If you pay off the mortgage, let’s say - then I say for the first month after that you blow the money that was going on the mortgage on having some fun, but then after that set up a regular transfer from your bank account into some kind of savings product."
Other examples include pay rises or children leaving home, cancelling a subscription, etc.
"If you’re one of those people who can’t keep your little sticky fingers off extra savings and go and blow it on a really big party or something when you're really wanting to save more for retirement, then you could do it on KiwiSaver."
Step 6: Stay cool
"That’s about coping when the markets don't cope - when the sharemarket goes down, or the value of bonds can go down, or people’s KiwiSaver accounts values can and will go down.
"There’s a lot of people in financial circles now who really quite worry because people in KiwiSaver haven't seen this happen yet, they haven’t seen big drops in the market.
Mary's five rules of staying cool when the market goes down:
- Spread your risk, diversify: "Lots of different kinds of shares, lots of different kinds of assets."
- Largely ignore past performance: “Don’t go following whichever KiwiSaver funds [or shares] have done well lately because very often the KiwiSaver funds that have done well will turn around and do badly.
- Don't try to time markets: “People do this all the time, so whether it be property markets or the share market or whatever they say, ‘hmm I think the market’s going to go up so I’m going to buy more' or 'I think the market’s going to go down so I’m going to sell more’ - that doesnt’ work. There’s so much research.
- Never be forced to sell: "You just don’t want to get yourself into a position where you might be forced to sell an investment - because you’ve got into financial trouble or because you can’t cope with the volatility of the market - that’s when people make big losses."
- Sit back and relax: “That’s a sort of theme of the whole book, that there’s a lot of things people are doing that in fact are not only unnecessary but harmful. Go through the steps, do it the easy way and get yourself set up ... Warren Buffett, one of the richest people in the world who made his wealth out of share investing says he just buys shares and doesn’t look at them for years."
Step 7: Head confidently towards retirement - and through it
"A lot of this step about retirement is how to make it easier, because people panic, they think you need a million dollars.
"You absolutely don’t need a million dollars ... or anything like it to have a nice retirement."
"Have some fun early into your retirement while you’re healthy enough to do it," Mary says.
"There’s way too many people worrying too much about how things are going to be into retirement which is a real pity."
She lists several examples of how retirees might raise more money:
Get a reverse mortgage
Get boarders into your house
Subdivide your land
Move to a cheaper town
Set up a bequest to a charity - and if you live past 90 you become the charity
Step 8: Buy a house, or sell one (when it's the right time for you - if ever)
Mary says this final chapter is very dependent on the life people are living.
"Slot that one in where it suits you depending on what else is going on.
"You don’t have to own a home to do well and be comfortably off in retirement.
"If you’re planning to not buy a home you really want to be planning to go into retirement with more money than people with a home.
"Having said that about half of people who are currently retired live on New Zealand Super plus about $100 or less - and do okay on it."