as published in Hawke's Bay Today. Canny View by Nick Stewart, Authorised Financial Adviser.
In the first part, we talked about millennials (if you were born between 1980 and 2000, you’re a millennial) and their financial planning behavior.
This week, I’ll talk about opportunities for millennials who want to take further steps to create a brighter financial future.
In New Zealand, trend pieces often depict millennials in the context of young urban professionals spending too much money on avocado-based brunches and too little time saving for a deposit on a house.
In a marketing and advertising context, it is a generalised term for a young, cool person.
If you’re in your 30s, odds are your financial situation is a mixed bag.
On the one hand, maybe you’ve settled into your career and built a little nest egg. At the same time, you might be juggling student loans, a mortgage, and childcare.
Look at the bright side. You still have time on your side (albeit not as much as you had in your 20s). So even small moves can make a huge difference long-term.
1. Getting out of debt: If you earn a salary and have a student loan, use the tax code that’s right for you. This lets your employer know how much to deduct for your student loan. If you want to make extra repayments through your employer, let them know how much extra you want to pay along with your standard deductions each month.
It is also concerning to see the level of credit-card debt New Zealanders rack up, particularly when credit cards tend to have high interest rates.
Millennials are most likely to default on a credit-card payment; the generation accounts for half of such defaults, according to Credit Simple.
It is advised to keep your expenses under control and pay off your credit card on time – and in full – each month.
2. Embrace stocks: The financial crisis took its toll on many 30-somethings. Nearly 40 percent of millennials say they’ll never feel okay investing in shares (equities), MFS Investment Management has reported. Take note: since 1926, a portfolio mostly in equities has never lost money in any 20-year period while averaging gains of more than 10.8 percent a year, versus 4 percent for bonds.
At age 30, you should have most of your portfolio in equities.
3. KiwiSaver: Firstly, if you’re not in KiwiSaver then enroll as soon as you can, as you are leaving a significant amount of money on the table, namely Government and employer contributions.
Secondly, take a passing interest in your KiwiSaver fund, look more towards growth funds and less toward conservative (and default) funds and if a possible bump up your contributions. These small adjustments now can make a remarkable difference in 30 years’ time.
As an example, if you were to invest the cost of a latte every work day for the next 30 years at a 5 percent return you would have amassed more than $80,000. Now that’s a lot of soy trim double-shot mocha lattes.
4. Buying a house when you can afford: As housing prices continue to soar, especially in Hawke’s Bay, millennials are coming to the stark realisation they may have to rent forever.
A house is typically seen as a measurement of success, but if buying one means never taking a vacation, working well into your elderly years and being in debt when you’re retired, perhaps that measurement needs to change and prioritise other long-term personal goals.
How to get ahead:
- Starting small and early, millennials can have a rewarding financial future. Here are my best strategies for success:
- Get an unbiased third party to review your finances – not Dr Google, family or friends – a financial adviser.
- Prioritise goals. It will help determine what can and needs to be done to achieve them.
- Automate savings. When you budget for savings, you learn to do without that money.
- Don’t over-save. Be realistic so you can accomplish your goals and live at the same time.
- Check-in and realign. A lot happens in a short time when you’re young. Just because you’ve planned once doesn’t mean you’re done for life.
Nick Stewart is an authorised financial adviser and executive director of Stewart Financial Group. Stewart Group is a Hawke’s Bay-owned and operated independent financial planning firm based in Hastings. This represents general information only.
Before making any financial or investment decisions, we recommend you consult a financial planner to consider your investment objectives, financial situation, and individual needs. A disclosure statement can be obtained free by calling 0800 878 961.