How many times have you enthusiastically set your New Year’s resolutions over a cold glass with friends and family? For many of us, these plans won’t last longer than the traffic jam we sit in to get back home from our beach holiday. But when we look at the resolutions we stick to and the ones that we forget there is usually one key difference – and that is having a plan.
We all have our ambitions, big or small, and many of these ambitions either involve or require money. The beginning of a new year is a great time to take a look at your investments and set yourself up for success.
Here are some tips to get you started:
1. Set your destination
What is your ambition? The more specific you can make your goals the more efficiently you will be able to set a plan and measure your progress. Rather than setting a vague goal like, “I want to save money to buy a house one day”, consider setting goals using the S.M.A.R.T framework. That is, a goal that is Specific, Measurable, Achievable, Relevant and Time-Based.
The SMART goal in this instance might sound more like, “I want to save $100,000 towards a deposit on my first home. This is achievable if I set up a savings plan and reduce unnecessary expenses. It is worth doing because I want to have my own space for a family without a landlord. I will take 5 years to save the deposit.”
2. Consider your current challenges
Now is the time to do some reflection to try to figure out what is and isn’t working when it comes to your finances. It can be useful to do an audit of the money you have coming in, the money you are paying out, and where it is going. This is a great opportunity to consider how much value you’re getting from the way you spend money. It’s likely you’ll discover some easy wins – like those app subscriptions you no longer use. The impact of making small, positive changes to your spending habits can really add up over time.
3. Review your investments
It’s worthwhile looking at your investments annually – from term deposits to your KiwiSaver to ensure they remain well aligned with your goals. Chances are you have worked hard to set money aside, so it makes sense to make sure your money is working hard too. Here are some tips to help maximise the potential of your investments:
First off, make sure you’re making the most of the benefits of KiwSaver. Are you contributing enough to KiwiSaver to get the full government contribution? To get the full contribution of $521.43 each year you must have contributed at least $1,042.86 to your KiwiSaver account between 1 July to 30 June each year (and meet other eligibility criteria). If you can, it’s a good idea to make at least this minimum contribution even if you are self-employed, unemployed or taking time out for childcare.
Next, take a look at the way you’re handling your cash. Do you have a habit of keeping more money than you need in bank accounts that pay no interest? In today’s higher interest rate environment, it is especially important not to miss out on the opportunity to earn interest on your savings. If your savings and term deposits have grown well beyond your shorter-term needs consider whether it is time to invest a portion into a longer term strategy that offers potentially better growth and inflation protection.
Review the strategy of your investments to ensure they remain best placed to meet your goals. In general, if you have a long-term investment goal, investing in a growth focused strategy may be appropriate. If you have a shorter-term goal, then a more conservative or income focused strategy may be better suited. This is because the value of growth assets can vary widely over shorter periods, but they are also likely to achieve a better return when averaged over a number of years. If you have identified your SMART goals it could be helpful to think of each goal as its own bucket – whether it’s a short term goal or long term goal, that might need its own strategy.
Use the resources out there to help you make better decisions. You can log in to your online account and use our retirement projector to see the future impact of making different investment choices or complete our investor profile questionnaire to help you decide on an appropriate strategy. The Sorted website is also a great place for tools, such as mortgage calculators to help with budgeting. If you’re confused, or need advice, reach out to a Fisher Funds adviser who will be happy to help.
Once you’ve set up a plan, automate as much of it as possible. For example, you could set up automatic payments from your salary to a bills account, to another account to save for your short-term goals, and then directly to any investments you may have. Not only does this help keep you on track but strategies where you are saving and investing small amounts regularly can have a huge impact over time.
4. Celebrate your successes
Setting up smart habits and strategies to meet your goals is important, but it doesn’t mean that you can’t enjoy yourself along the way! Acknowledging your progress and celebrating the small wins along the way will help keep your investing plans motivating and sustainable. The future is never certain, but when it comes to investing time is your friend. Thanks to the power of compounding returns even incremental progress can have a huge impact – so make sure to celebrate the efforts you are making towards your ambitions. Cheers to that!
Need some help?
If you’d like to talk with someone about setting your investments up for the coming year, our team are happy to help. You can chat with us online, email us, or call us on 0508 347 437.
