Cover image: Shutterstock – Naruedom Yaempongsa
Just the word “finances” can be enough for many of us to tune out the conversation and instead think of the next exciting event or festival. That is, until our next bill comes in and we fall into a panic of: “Oh shoot, I didn’t think about this.” Sound like you or someone you know?
At 22, I am in the Gen Z demographic. Gen Zs are those of us born between 1995 and 2015. Many of us have no idea what our life will look like in a year’s time, let alone where to invest our money, so that in ten years’ time we are living a comfortable lifestyle. And that’s alright, you’re not supposed to instantly have an understanding of the wonderful, intricate and confusing world that is finance.
While I may be a Gen Z, as a true “nana” at heart, I’ve spent my life planning and prepping, so that my $20 now can turn into hundreds of dollars in years to come (a perk of interest rates on savings). Working at financial comparison site Canstar also helps a tad. So,I thought I’d help out my fellow Gen Zs to save more money. Because, who doesn’t like seeing more money in their bank account?
Budget advice from a Gen Z
With youth, often comes the natural ability to wing it at life. You could have this approach to your personal finances but, trust me, you’re going to be a lot worse off – thousands of dollars worse off. You should have a budget in place, with a buffer, so you can determine how much you can put aside for savings. After calculating your weekly bills and choosing an amount for leisure, you’ll have a sum that can be put into your savings. While some weeks you may spend less, this amount might be offset by spending more during other weeks. And, if you have a spending spree, the buffer is in place to save the stress. Check out Canstar’s tips on how to budget, here. And, try our budget planner calculator, to help you visualise how your budget could look.
KiwiSaver Fund: Why you should join
The main purpose of KiwiSaver is to save for retirement, however, you can make a KiwiSaver withdrawal for your first-home deposit. While this may seem like something of a distant goal, funds can build up fast with years of contributing. And, if everything works in your favour, KiwiSaver may offer a better return in the long-term than had you put it in another form of savings account.
KiwiSaver fund types vary in return, risk, fees and what they invest in. Once you find your perfect match, and make ongoing KiwiSaver contributions, you essentially just sit back and let your funds grow. However, it is worth reviewing your fund from time to time, to check it still works for you. For this reason, it’s always worth comparing KiwiSavers and making the switch, if you’re better off in a different fund or with a different provider.
Switching KiwiSaver providers is easier than one may first think. I recently changed mine by creating an online application with a new KiwiSaver provider, all within a matter of minutes. From there, the new KiwiSaver takes care of it by requesting your KiwiSaver funds from your old provider. Compare KiwiSavers with Canstar’s comparison tool, below.
When it comes to suitability, consider these two major factors – when you are planning on taking out the funds and the level of risk you are willing to opt for. If you are planning on using your KiwiSaver for your first home then a Conservative or Balanced fund type might be more suitable for you. This is because balances in higher risk funds often fluctuate more, with the idea that it grows more over time. This could make it difficult for you to determine exactly how much you will have in KiwiSaver that you can use towards a first home deposit. Check out Canstar’s guide to KiwiSaver funds for more on this.
Once you’ve chosen your type, you should look into the provider options. Like with any financial products, return rates vary between providers. With KiwiSaver, there is no sure-fire way of knowing how your investments will look in the future but you can look at past return rates as guidance. For instance, in Canstar’s database, with an $8000 balanced fund, the five-year historic performance shows varying return rates of between 4.43% and 8.2%, depending on the provider.
The more money you have in a savings account, the more money you will earn in interest. You have two options when it comes to savings – a general savings account or a term deposit. With general savings accounts, there is a range of options on the market, which is dependent on your spending profile.
Accounts with a base and bonus rate requires you to meet certain conditions in order to earn the bonus rate, such as contributing to the savings account each month and not withdrawing funds more than once a month. If you know you will struggle meeting these conditions then you’ll benefit more from a savings account with just a base rate. Whereas, the regular savers would earn more in interest from a base and bonus rate, as they are more likely to meet requirements.
If you prefer flexibility, you can opt for an on-call account which is an everyday account and savings account hybrid, of sorts. You will likely be able to access your funds more readily without penalty – while still earning interest on the remaining savings, however, this rate is usually lower.
Term deposits are something I’d never heard of before working in finance – but it’s a type of savings I wish I’d known about earlier. Term deposits give you a higher interest rate, due to the fact that your funds are locked away for a certain period of time, called a term. You can choose the length of the term but, in general, the longer the period, the higher the interest rate. Terms can be as shortas one month so if you aren’t going to be using the funds for a period of time, you may as well see whether a term deposit rate will offer a higher rate than a savings account and earn more interest. https://www.canstar.co.nz/term-deposits/Use Canstar’s term deposit rates calculator to see how much you could earn with different providers.
I have both a savings account and a term deposit. This is because once you’ve locked in your term deposit, you can’t add more funds to it. However, you can still continue transferring funds into a savings account, and get the best of both worlds.
Keep an eye on the economy
Once you have a basic understanding of how money works, you’ll notice everything is ultimately linked and events happen as a result of other events. From here, you can make savvy financial decisions and your back pocket will significantly benefit from those decisions.
The New Zealand economy revolves around the Official Cash Rate (OCR) set by the central bank – the Reserve Bank of New Zealand. The OCR often affects the interest rates on savings accounts and home loans. In the current low rate environment, home owners are benefiting with low home loan rates. On the other hand, Gen Z’ers and retirees who are saving, aren’t so much.
RBNZ reviews the OCR quarterly.RBNZ decides whether to change the cash rate based on a number of factors: from inflation, to employment statistics, to imports and the New Zealand dollar. .Using recent OCR cuts as an example, the impact of rate movements isn’t always exactly as expected – but you should be prepared, regardless.
For instance, if there is an expected OCR cut, then you may be better off depositing funds into a term deposit as the interest rate remains the same for the lifetime of the term, whereas savings accounts interest rates can fluctuate while your funds are in the account.
However, this highlights the importance of finding a high-value savings account. It’s crucial that you shop around to get more bang for your buck.
Don’t impulse buy
I know, this one is easier said than done. This is a habit that is tricky to get out of but, once you’ve mastered it, you’ll be eternally grateful. Here I am, about to trigger your memory of buyer’s remorse; remember that item of clothing you bought on the spot because there was a sale, or it made you feel good at the time and it’s now sat in your wardrobe gathering dust. All of these items add up and all you’re left with is wasted time, money and space. A way to avoid this is to put the item on hold for a few days and, if you can’t stop thinking about it, go back into the store and make the purchase. I can guarantee a majority of the time, you’ll forget about it or feel it’s not worth making the journey. Or, you could go cold turkey and only go into stores if you actually need something.
What worked for me is a change of mentality. I think to myself – there’s always going to be nice things, there’s always going to be sales but if you constantly buy, buy, buy, not only will you not use each purchase, you’ll lose gratitude and you’ll never stop wanting more. It’s a heck of a lot more satisfying waiting and only purchasing items you absolutely adore. Try instead to , find gratitude in things that aren’t physical and your satisfaction in life in general will increase ten-fold.
I’ve found incorporating these small tricks into my daily life doesn’t take much effort, but results in huge differences to your savings and available everyday expenses. With these basic tips in hand, I hope you’ll be well on your way to a lifetime of better money management!
As with all our guides, this is designed to provide some helpful advice on what to consider when thinking about your finances. Please seek independent financial advice before signing up to/breaking financial contracts, as Canstar is not a financial advisor.