Expert guidance on some common money questions.

Whether you’re a first-time homebuyer, preparing for retirement, or wanting to improve your financial decision-making, you’re likely to have a few questions about money. At Blue Canoe, we receive all kinds of money-related questions from our clients, so we’ve curated a list of the most frequently asked, and have shared expert answers to each of them. Read on for valuable insights and guidance on some common money questions to set you on the right course.

1. How can I save money on my bills and expenses?

For starters, understand where your money is going. Go through your bank and credit card statements so you’re able to pinpoint where savings can be made. Maintain a monthly spreadsheet or use a budgeting tool or app to assist in planning and monitoring your spending. As qualified financial advisers, we can help you understand where your money is going by assessing your banking structure, spending and saving habits. Remember to add a ‘flexible spending’ category to your budget as this provides some wiggle room to help you stay on track.

Next, spend a bit of time shopping around to find a better deal on your fixed expenses such as power, insurance, internet and phone charges. Consider switching to a different provider or negotiating a better rate for your current plan. And when it comes to those non-essential items, we suggest you quit spending over a designated period of time, rather than apply a general rule of ‘spend less, save more.’

At Blue Canoe, we work with you to streamline your financial management using smart tech, making it faster and easier to budget and stay on track.

2. How much money should I put into savings each month?

The key to saving is to prioritise saving, so establish a budget that enables you to save regularly. What you choose to save depends on your income and expenses. But as a rule of thumb, we recommend saving at least 20% of your income. You might need to save more if you have debt or other significant financial obligations. You also should aim to have about three months’ worth of expenses saved in an emergency fund. This will help you cover unexpected expenses such as maintenance costs, without finding yourself in debt.

As financial advisers, we’re here to help you work out the right savings goal for you and keep you on track to reach it.

3. Should I pay off my debt, or save and invest?

This depends on the type of debt you have and the interest rates that apply. If you have high-interest credit card debt for example, you should prioritise paying it off as quickly as possible. High interest rates typically apply if credit cards aren’t made in full each month, and the longer that debt goes unpaid, the more it costs you! If you have lower interest debt, such as a mortgage or a student loan, you might be better off focusing on increasing your savings for retirement or investing in shares for long-term growth.

Everyone’s situation is different, so it’s best to chat with a financial adviser. At Blue Canoe, we’ll sit down with you to develop a tailored plan that limits debt and builds wealth in a way that works for you.

4. What’s the best way to manage debt?

The most effective way to manage debt is to prioritise paying off high-interest debts and make regular payments towards all debts. To tackle your debts more efficiently, try eliminating one debt at a time before moving on to the next. Consolidating your debts into a single loan or negotiating a lower interest rate with your creditors may also be helpful.

Managing debt can be stressful. At Blue Canoe, we’re here to answer any questions you have around debt so you feel more confident and in control of your finances.

5. What’s the best way to invest?

Savings accounts and some term deposits are usually more appropriate for achieving short-term financial goals of less than five years where you need the money to be easily accessible and less susceptible to market fluctuations. Investing, on the other hand, involves putting your money into financial assets with the goal of earning a return on your investment over the long term. Investing allows you to take advantage of compound interest and potentially earn higher returns than saving, but it involves more risk as the value of your investments can fluctuate.

Some popular investment options in New Zealand are shared below. These options are more appropriate for long-term financial goals such as saving for your retirement.

• Managed funds and Exchange Traded Funds (ETFs) – A portfolio of assets (kinds of investments) that are chosen by a fund manager. These funds are typically diversified which makes it much easier to spread your risk compared to picking individual shares.

• KiwiSaver – NZ’s voluntary savings scheme set up by the government to help New Zealanders to save for their first home and for their retirement. KiwiSaver contributions are invested on your behalf and your savings earn returns over time. KiwiSaver is a type of managed fund.

• Investment property – Returns from investing in property come from rental income and capital gains. Buying property in NZ is typically aimed at making long-term profits due to the bright-line property rule, and because there may be little to no profit from rent in the short term after mortgage repayments, rates and insurance come out.

• Shares – A share (sometimes called a stock, equity or security) is a slice of a company. Owning these units means that you own part of that company and can enjoy a portion of the profits it makes.

• Bonds – When buying a bond, you lend money to a government, council or company, and you’re paid a certain interest rate in return. Bonds are different from term deposits because you can sell them.

There is no single “best” investment option that works for everyone because it depends on your individual goals and risk tolerance. With so many choices, it’s important to do your homework, and consult a financial adviser. At Blue Canoe, we’re here to give you unbiased investment advice and to be a sounding board for your thoughts and concerns around investing.

6. How much should I save for retirement?

First and foremost, focus on your own goals and what you want your lifestyle to be when you retire. Are you looking for a no-frills retirement, a lavish retirement, or something in between?

Here’s a handy savings calculation: for every $100,000 you save (through KiwiSaver or other means), you’ll receive around $100 a week throughout your retirement. If you plan to retire early or would prefer to have more disposable income in your golden years, you’ll probably need to save more. A financial adviser will be able to help you plan for your retirement and work out what you need to save now and as you get closer to retirement.

7. Should I rent or buy a home?

In New Zealand, home ownership is deeply ingrained in our culture, traditions, and collective psyche. But that doesn’t necessarily mean it’s right for you. The decision to rent or buy a home depends on your personal circumstances, and it’s typically an emotional decision as well as a financial one. If you’re looking for stability, plan to stay in one place for a long time and can afford the deposit and mortgage repayments (current and future), then buying a home is a good option. But if you prefer flexibility or can’t afford the costs of homeownership (e.g. mortgage, rates, insurance, maintenance), then renting might be the way to go.

If you’re on the fence, think about what you value most to help you decide – Security vs flexibility? Varied expenses vs more predictable expenses? Building equity vs no equity?

Whatever your decision is, the most important thing is to put your money into a high-quality asset that will give you good returns, whether that’s a home, managed fund, shares, or something else is up to you.

8. What types of insurance should I get?

By obtaining insurance for the things that are important to us – our homes, vehicles, health, and even ourselves – we can have peace of mind knowing that we’re protected against unexpected events. But it’s important to recognise that not everyone needs the same cover. The type of insurance that suits you is reliant on your individual attitudes and situation. When shopping for insurance, assess the risks of being without cover against the costs of having it. Ask yourself “What risks am I insuring against? How likely is it that these risks will occur? What impact would it have on myself and my family – to our finances, lifestyle and wellbeing?”

Insurance becomes more important when the potential loss is substantial, even if it’s not very likely, and is less important when the loss can be managed. To make a decision on what type of insurance is for you, it’s worth a conversation with a financial advisor.

At Blue Canoe, we’ll take the time to understand you and your situation, and will make recommendations based on independent research to personalise a package for your requirements.

9. What’s the best way to save for my child’s/grandchild’s education?

Although student loans are currently interest-free for borrowers who remain in NZ, the average student loan balance in 2021/22 was almost $24,000. A student loan can affect a borrower’s ability to start saving for their retirement or buy their first home, so helping your child or grandchild avoid student debt is one of the best things you can do to give them a head-start in life. However, before investing in your child’s education, we recommend paying yourself first. Clear any of your own high-interest consumer debt (e.g. credit cards, personal loans, car loans) – and ensure you’re making regular contributions to your retirement.

There are a number of ways to save for your child or grandchild’s education. If you’re saving for 10 years or more, putting money aside in a managed fund can be a good option so there’s potential for higher returns over the long term. If you have less of a tolerance for risk or you need the money sooner, then term deposits or a high-interest savings account might be better for you.

It can be tempting to maximise your own savings and investments while planning to pay off your child’s or grandchild’s interest-free student loans later on. But we advise against this because an interest-free option might not be available when your child reaches tertiary-level education.

10. How do I plan my estate?

A good estate plan means that, when the time comes, your health and assets can be effectively managed by someone you’ve chosen (your designated executor), and your assets end up going where you want them to go. A good estate plan also protects your loved ones from lengthy and costly legal proceedings.

When planning your estate, first make a list of everything you own – this includes your sentimental, physical and financial assets. If you have children, pets or other dependents, choose who will become their guardian. Also, consider designating an enduring power of attorney who you want to make medical and/or financial decisions for you on your behalf should you no longer be able to do so yourself. Next, decide whether you have enough life and disability insurance, savings and/or investments to leave your family in a comfortable position, and whether funeral insurance might be required.

If you die without a will, the government will use a formula to divide up your assets. So if you want to leave certain assets to a specific person, you should include them in your Will or Trust. This includes any charities or organisations you may want to leave money to.

You can create a will yourself using an online platform such as Public Trust and LawHawk, but it pays to seek expert financial advice as part of the process. By taking a comprehensive approach to estate planning, a financial adviser can help you minimise taxes, protect your assets, and provide for your loved ones’ financial well-being.

Everyone’s situation and goals are different, so whatever your money question is, it’s always best to get personalised advice from a trusted financial adviser. At Blue Canoe, our aim is to have you earning, saving and investing more to give you greater options in life, more freedom and less financial stress. We use sophisticated financial planning and analytics software to create customised financial plans for our clients, forecast results and track progress.

Got a money question? Get in touch to ask us today.