Here at Canstar, we talk to a lot of finance professionals. We discuss banking, investing, personal finance, credit cards, insurance, and learn and share some great expert advice. Here we round up and share the top 20 expert money tips we’ve learned from industry pros over recent months:
Every single dollar counts
It’s easy to think that the best way to get ahead is by the big things: high-performing investments, a high-paying salary or clinching the best deal. But, often, it’s the small things – the everyday habits – that get you ahead. Small things such as packing your lunch each day, instead of buying one at work, or wearing extra layers instead of turning up the heating.
This is how you find the money to invest. Plus, you’re more likely to scrutinise the details of investments, including fees, because you understand the value of each dollar.
Lessons come from losses
Some of the best investment lessons come from losing. When it comes to investing, people love to gloat about their wins and returns – but few talk about their losses and what they’ve learned from them.
When looking for somebody to manage your money, your first question should always be: “When have you lost money investing?” Your next one should be: “And what did you learn from it?” The lessons learned from losses and missed opportunities are what separate good investors from the great.
Spend less than you earn and invest the surplus
This seems obvious, but most people don’t get the fact that the single most critical money tip is to just spend less than you earn. Once you do this, you can do your homework and invest the surplus in productive assets, be it shares, property or your own business. It’s not so much what you invest in, it’s that you invest on a regular basis.
Fake rich now equals real poor later
Living lavishly, without the income to fund that lifestyle, will leave future you in a whole world of trouble. Fake rich now equals real poor later.
There is a world of difference between being rich and being wealthy. While being rich may afford you those shiny things that look amazing on social media, sustainable wealth is only created through sensible money strategies.
Don’t be swayed by what others are doing, know your values, establish your goals and work towards them every day.
Do the inconvenient things yourself
Making savings whenever you can should always be a No.1 priority. Never pay somebody else to do something if you’ve the time and ability to do it yourself.
This covers many facets of everyday life: from employing house and window cleaners, to paying extra for the convenience of take away food and home-delivered food kits, to paying tradies for simple DIY jobs.
It also extends to more complicated financial matters. Why pay for an accountant if you can do it yourself online? If possible, do everything you can manage yourself, think of any inconvenience as time spent learning a new skill, and enjoy adding up your savings.
Put a money management system in place
If you want to reach your financial goals, it’s important to have a system in place. The best practice tools for personal money management are the same for everyone, regardless of their income or occupation: one debit card, one credit card and a primary account.
Treat the debit card like cash. Channel all discretionary spending through it and stick to a weekly budget. Use your credit card for bills only, not discretionary spending. And pay off the balance each month automatically.
Offset your primary account against your mortgage, if possible. Set this as the central hub that houses all your money, as it will optimise your surplus cash against your mortgage. If you haven’t got a mortgage set up a savings account.
This simple structure utilises the wisdom of the old flour-jar savings system, while adjusting to a tap-and-go world.
Diversify, diversify, diversify
Many people kick themselves that they didn’t put all their money into that one hot investment. In reality, they should be applauding themselves that they didn’t invest in one that flopped.
You may not end up topping the investment return leaderboard, but if you spread your money over a number of investments, then you’ll sleep well.
Ideally, invest some funds in fixed interest, some in property, NZ shares and overseas shares. And the equity investments need to cover a range of individual companies and sectors – blue chips as well as one or two well-considered but more speculative investments.
It is not your money … you have to pay it back!
In the modern age of digital money, we are constantly prompted to access credit. From our banks offering us credit cards to retailers offering us store cards or buy now pay later services, such as Afterpay.
Clever marketing tactics mean that many people see this money as theirs, when it’s not. Just because you have access to it, it doesn’t make it your money.
Making a purchasing decision using a credit, store, or charge card, or a buy now pay later service, is generating debt. A debt that, depending on how quickly you repay it, is going to incur an interest or service cost to you.
Using credit or borrowings can be beneficial in some limited circumstances. But it can be a dangerous money management habit for everyday living or discretionary spending.
The fee you pay someone to manage your money is not the only thing that you can control, it’s the only thing that you can be certain of, too. Future performance cannot be known. Past performance is known, of course. But past performance is not a guide to future performance.
Investment management is one of the only services where increased fees don’t guarantee increased performance. That’s because the cost detracts from the outcome, so as the cost rises, it tends to result in a worse outcome. Not always, but that’s the tendency.
When it comes to property, old is generally better than new
When it comes to making money in real estate, generally, the best type of property to buy is an old house – the older the better. Even though new homes usually look much better and have brand new appliances, fixtures and fittings, they depreciate very quickly, just like new cars. For example, a new car is worth a lot less in 20 years’ time, but a car that’s 100 years old can be worth a lot more.
Don’t be sucked in by clever marketing and buy a brand-new home – look for an older home that has character that you can add value you to yourself.
A budget can help you reach your goals
Clearing debt and saving for a goal have one thing in common – the need to cut spending, set a budget and then to stick to it.
First, work out where your money is going, where you can cut back, and what you are left with. Put the draft budget away overnight and then trim spending again. This becomes your budget and tells you how much you should transfer to your savings every pay day.
Then set up an auto transfer to your savings account for pay days. Finally, don’t touch it – it’s not your money, it’s your goal’s!
Pay yourself first
The biggest and simplest mistake most people make is that they believe their entire salary belongs to them. Unless they pay themselves first, it never does.
As soon as your salary is earned, your utilities, the council, Netflix, your phone company – they all take their slice. After that, there’s restaurants, holidays and school fees.
The little, if any, that’s left over is the only part that is yours to keep. What you have effectively done is paid everyone else first and yourself last. You need to reverse this.
As soon as you are paid, pay yourself first and then invest it immediately, so that it starts working for you.
Turn down the noise
There’s an explosion in information and opinions about investments in the digital world. But much of this is of poor quality and emphasises the negative. This has gone into hyperdrive through the coronavirus pandemic. Paying too much attention to it risks increasing your uncertainty and throwing you off a well thought out, long-term investment strategy.
The key is to turn down the volume on all this noise. To help do this: try to put current worries in context; recognise that it’s normal for markets to swing between extremes; focus on only a few reliable news services; and don’t check your investments too much – the longer you stretch it out between looking at your investments, the more likely you will get positive news.
Don’t make investment decisions based on paying less tax
This one is obvious when you think about it, but it’s remarkably uncommon. Many people ask their accountant: “How can I pay less tax?” It’s a reasonable question. But do you know the better question? It’s: “How can I improve my after-tax returns?”
You can pay less tax by, for example, borrowing a heap of money to buy a terrible asset. You’ll pay more tax – but also be left with a lot more money – if, instead, you buy a better asset, even if you don’t borrow to do it.
By all means, don’t pay more tax than you have to. But don’t make it an end in itself.
Make reducing debt a priority
When you analyse the law of compounding interest (check out the Rule of 72) there is an obvious benefit to making extra repayments (including fortnightly rather than monthly) to reduce debt as soon as possible.
After all, all debt is bad debt. But if you are forced to have debt, make sure it is tax-deductible and let the taxman help. Pay off your non-deductible debt ASAP (such as personal loans, home loan and credit card) with extra repayments. Once you have paid off all non-deductible debt, then start looking at extinguishing the tax-deductible debt.
Regularly look for better deals
As boring as it may seem, potentially the best money tip is to go back through your credit card, PayPal and Apple/Google accounts and check out your regular expenses – and go back a couple of years.
Review any automatically renewed subscriptions or expenses – think streaming services, apps and video game subscriptions – and cancel all those you can live without.
Count your blessings
Count your blessings, count them one by one. Mindfully acknowledging what we have, rather than what we don’t have, mitigates against a host of cognitive biases. When shares crash, look at what you have left, rather than ruminating over the value you have lost, to make the best investment decision. When buying property, look at your available budget, rather than spending hours researching what more money could buy. Count your blessings.
Develop rich habits
Becoming rich boils down to two things. The first thing you need to do is to accumulate wealth. This isn’t easy and takes time. It requires learning the skill of delayed gratification. In other words, spend less than you earn so you can put your money to work for you.
You can’t become wealthy by saving alone. However investing, reinvesting and growing your financial intelligence are habits that make you rich. Then you need to keep the wealth you have accumulated by developing a wealthy mindset – or rich habits.
Since wealth is the cumulative result of many little things added together and compounded over a lifetime, your daily habits can make or break your financial success.
Unfortunately, sometimes life can conspire to distract you from achieving your financial goals, but practising the rich habits of taking action, being disciplined and showing resilience can help you grow and maintain your wealth.
FOJI can be just as bad as FOMO
The Fear of Jumping In (FOJI) can be just as bad as the Fear of Missing Out (FOMO). FOJI can prevent you from moving your cash from a safe bank account to, say, the share market.
While cash plays a very important role in any investment portfolio, cash in the bank won’t make you rich – and in the long term shares or property could, but because of FOJI you stay put. So flip your thinking around: if you don’t start investing, there’s a risk you won’t reach your money goals.
Another way to curb your FOJI is to understand that small changes can make big gains. By drip-feeding your money into your investment, you may be somewhat protected thanks to dollar cost averaging.
This allows you to buy more when prices are low, and buy less when prices are high. The end result? A better average price. And only ever invest in something that you understand – there’s merit in keeping things simple!
Check your KiwiSaver
If you’ve got KiwiSaver you are already an investor and the responsibility of ensuring you’re getting the best returns is all yours. So take the time to review your KiwiSaver and to compare it with other providers. You’ll soon have a clear picture of whether you’re happy with your choice of KiwiSaver provider and your returns.
Ultimately, the more informed you are as a KiwiSaver investor, the better the decisions you’ll be able to make, which should help you build more funds towards retirement or that all-important first-home deposit.
And this is where Canstar can help. Our KiwiSaver dynamic comparison tables put all the information you need at your fingertips, from average five-year returns to fees.
So if you want to discover if you’re getting true value from your KiwiSaver, start comparing providers today by hitting on the button below.