Rich Enough?: A Laid-back Guide for Every Kiwi

Dedication

To my son Tim (who told me about research that suggests happiness might actually decline beyond a certain income, and came up with some great ideas for this book – including having ‘me days’ as rewards); his partner Dom (who pointed out hard-to-follow sentences and out-of-date words and phrases like ‘piddling’, ‘come a cropper’ and ‘skulduggery’); and to all of their young adult generation. May they understand that money is not what it’s all about.

Contents

Dedication

List of Figures

Author’s note: Is this book for you?

Why do you want to be richer?

Step 1: Start now – it’s easy

Three ways to get more savings

Get going

You don’t need a million

Step 2: Kill off high-interest debt

Are you a lucky one?

Setting a goal

The psychology of spending

What about the unlucky lucky ones?

Be a credit card winner

How do student loans fit into all this?

Step 3: Set up insurance – and a rainy day fund

Shelter from the storm

The emergency fund

Step 4: Join the best KiwiSaver fund for you

Not in KiwiSaver? No excuses!

Why is KiwiSaver so good?

Which fund for you?

Are you on track with your KiwiSaver savings?

Getting the best out of KiwiSaver

KiwiSaver for kids

Don’t delay joining

Step 5: Boost your saving painlessly – how and where

Hot tips on how to become a big saver

Where to save outside KiwiSaver – short-term savings

Where to save outside KiwiSaver – mid-term savings

Where to save outside KiwiSaver – longer-term savings

Not just New Zealand

Other investments – individual shares and rental property

If you have a problem

Steering clear of scams

Step 6: Stay cool

Rule 1: Spread your risk

Rule 2: Largely ignore past performance

Rule 3: Don’t try to time markets

Rule 4: Never be forced to sell

Rule 5: Sit back and relax

Vive la différence: how men and women invest

Step 7: Head confidently towards retirement – and through it

The big picture

Setting a retirement savings goal

Making it easier

Investing during retirement

Step ?: (When it’s the right time – if ever) Buy a home, or sell one

Not planning on home ownership

Saving to buy a first home

Making the purchase of a first or subsequent home

The mortgage maze

Selling a home

One more thing: Do you need personal financial advice?

How to find some possible advisers

Questions to ask advisers

Meet the candidates for the job of advising you

On happiness

Beyond a certain point . . .

What makes New Zealanders happy?

Money, couples and family relationships

Happier than most other countries

Last words on happiness

Useful links and websites

Acknowledgements

Index

About the Author

Copyright

List of figures

Figure 1: Start now!

Figure 2: Increasing credit card payments helps hugely

Figure 3: Why is KiwiSaver so good? The multiplier

Figure 4: The higher the risk, the bigger the balance at the end

Figure 5: Chances of your account balance falling

Figure 6: High fees can clobber your KiwiSaver account

Figure 7: Two years matter in KiwiSaver

Figure 8: Inflation and interest rates

Figure 9: Share markets don’t move together

Figure 10: What happens when you gear

Figure 11: House prices sometimes fall

Figure 12: Different assets take different paths

Figure 13: Which asset did best – and worst?

Figure 14: Every dog has its day – different share markets’ performance over 33 years

Figure 15: Laddering $100,000

Figure 16: Mortgage interest rates

Figure 17: Three clever types of mortgages

Figure 18: Our example of a fairer deal in real estate commission

Figure 19: Age and happiness

Comments from readers of Mary’s Weekend Herald column and books, and from listeners to her RNZ Your Money segment with Jesse Mulligan

‘Thank you for opening my and many others’ eyes to the often confusing world of investment.’ – Ben E, landscape gardener, Whangarei

‘I really love your column and I often discuss it with husband and 19-year-old, who is investing in shares – even though he is a poor student eating a lot of beans, flatting in another city. And yes he has KiwiSaver too! Keep writing and helping us all Mary. NZ needs you!’ – Kim B, blogger, Thames

‘I wanted to say a massive thank you for the effort you put into your column. Not so long ago I was in my early 20s and struggling under a mound of personal debt, but thanks to the advice in your column I managed to pay it all off and get into my first home before I turned 30.’ – Ben S, economist, Auckland

‘I have been listening to – and passing on – your advice to my kids and nieces and nephews for years – and really loved your book Get Rich Slow (which I gave away to someone who needed it more than me!). Keep up the brilliant work.’ – Heather W, manager of her own rental properties, Auckland

‘I’m an avid reader of your column. Thank you very much for your sage advice (and awesome comebacks) and great humour! Please keep educating us and making a difference for all Kiwis!’ – Kai T, executive coach, Wellington

‘As a member of the generation rent cohort I would like to thank you for making me feel that little bit better knowing that there are other ways to invest money other than property! . . . Following your advice on RNZ, we have paid down all our debts, saved up our rainy day money of $15,000, and another $20,000 of savings too.’ – Chloe K, self-employed, Auckland

‘In July 2016 I changed my KiwiSaver investment to 80% balanced and 20% high growth (I was feeling brave after listening to you on the radio and reading your column!). I love your column and really enjoy listening to your spot on Jesse’s program. Had I known in 2012 what I know now from you, I never would switched providers! Thank you for educating us all.’ – Jill F, account manager, Tauranga

‘I always enjoy your column, and your book Get Rich Slow helped us to get started, turning things around some years ago, so thank you.’ – Graham S, self-employed, Auckland

‘Thought I’d travel down memory lane with you. Back around 2001 you provided advice to us as we negotiated the dual pathways of co-parenting and tertiary education. Thanks to your advice, we adults attained many of our education goals, and the children (who are now nearing the end of high school) each have about $1,300 in a KiwiSaver account. My oldest (17) has just started part time work and is contributing 8% of weekly pay to the account. I’m thrilled to have my children so focused on saving for the future early in work life and that this will set them up well for the future.’ – Joanne R, researcher, Auckland

‘The first thing I do on a Saturday morning is read your column . . . Recently my employer’s superannuation fund wound up/paid out and they provided free professional independent financial advice for the beneficiaries. Before I met with the financial adviser I said to my wife, I’m not going to be able to get through this meeting without saying at least once, ‘But Mary Holm says . . . By the end of the session with the adviser even he was saying, Mary says . . .! Your advice is deeply appreciated and has helped us in unexpected ways in uncertain times. Your advice is garnished with kindness and thoughtfulness. Thank you for all you do. It makes a difference to people’s lives.’ – Dr Geoff N, lecturer, Otago

‘Love your section in the Saturday Herald – best section in my opinion!’ – Paula S, typist, Auckland

‘Mary, I would like to thank you for your column. Thirteen years ago I separated from my husband and was left with my two young children to care for most of the time. I left with enough money for a deposit for my house and it is almost mortgage-free. Your column has educated me about sound financial decisions and all sorts of unexpected things I wouldn’t have thought about. It’s one of the reasons I buy the Saturday Herald!’ – Anonymous

‘I’ve lost count of the number of currency swings, economic downtowns, property slumps (and booms), even global financial meltdowns I’ve navigated thanks to your advice.’ – Richard L, creative director, Auckland

‘Thank you, Mary, your columns bring me confidence and comfort.’ – Sherry C, Raglan

‘When I was younger (I’m 27 now), I gave very little thought to how much I spent. If there was money in my bank account, then it was there to be spent – and it was! Thankfully, my money habits and financial decisions have become a bit more sensible in the past couple of years, in no small part due to the advice you have provided in your column.’ – Marcus B, Wellington

‘Keep up the great work. I know a lot of people who read your column and practice what you preach.’ – Jacqui P, Auckland

‘I moved to NZ nearly 16 years ago. Your columns, which are compulsive reading for me, are well researched and makes lot of sense all the time. I have followed your advice and have started investing in KiwiSaver for family and also started to look for local share market investment. I would like to thank you for your ongoing help through your columns and books.’ – Pragnesh P, project manager, Auckland

‘I wanted to write to say I am finding your booklet Upside, Downside absolutely brilliant! I am not business savvy or a financial guru, and you have explained everything so clearly and concisely that It’s all making sense. I feel so enlightened! Thank you so much for sharing all your knowledge. It is very greatly appreciated.’ – Greta H, radiographer, Christchurch

‘My wife and I read your column every week and we very much appreciate the advice (as well as your sense of humour!)’ – Anonymous, part retired, Auckland

AUTHOR’S NOTE: IS THIS BOOK FOR YOU?

You’re worrying about your credit card debt, but hey, life’s for living.

You’ve given up on ever owning a home.

You’re wondering whether to wipe out your student loan.

You want to buy a car, but it’s so hard to save for it.

Your mortgage is weighing you down – when will it ever be paid off?

You’ve heard about this low-risk investment that pays 20% – maybe you should try it?

You know bank term deposit interest is pathetic, but other investments seem too risky.

You’ve heard you need to save a million for retirement and that’s just impossible.

You’re dabbling in shares and seem to be pretty good at picking winners.

You’ve put all your savings in rentals because you can’t go wrong with property.

You’re retired and scared to put your savings in anything except the bank.

You’ve given KiwiSaver a miss, OR you’re in but on a contributions holiday, OR you haven’t got a clue if you’re doing KiwiSaver right.

I’m here to help.

In many cases, I’ve been there myself. I’ve been poor (full-time student); somewhat richer (working); poor again (full-time student in the US); somewhat richer (working); poorish again (assets halved in divorce); somewhat richer again (working) . . .

I’ve been employed – by an oil company (for two days), a government department, big and little newspapers, big and little magazines; lost my job twice when newspapers folded; self-employed for 20 years . . .

I’ve lived and worked in New Zealand, London, small-town Michigan, Chicago, Sydney, New Zealand . . .

I’ve been married, divorced, a solo mum, a single middle-ager, single with a partner . . .

I’ve been a tenant, homeowner, landlord, tenant, homeowner, landlord again briefly . . . and a long-time investor in share funds.

And if I haven’t done it myself, I’ve learnt about it from other New Zealanders.

Over the years I’ve received thousands – yes, literally thousands – of emails from readers of my Weekend Herald Q&A column and from listeners to my RNZ personal finance segment. I’ve discussed money issues with thousands of employees at workplace seminars, and thousands more students in university lectures. And I’m a voice for ordinary investors and consumers on the boards of the Financial Markets Authority and Financial Services Complaints Ltd.

I feel as if I know what worries New Zealanders about money, what they misunderstand, the mistakes they make – and their hopes and dreams.

And I know what I’m talking about – I hope! I hold a master of business administration degree in finance from one of the world’s top business schools (the University of Chicago).

Most important of all, unlike many writers of finance books, I’m not selling any products or services (except this book!). I don’t want to sign you up for costly advice or courses or investments. I just want you to do well.

I’m on your side.

At a party given by a billionaire – so the story goes – author Kurt Vonnegut tells his friend Joseph Heller that their host, a hedge-fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history. Heller responds, ‘Yes, but I have something he will never have – enough.’

WHY DO YOU WANT TO BE RICHER?

Books about money and investing are full of info on how to boost your wealth. But I’ve never seen one that also asks ‘why?’.

At first that might seem a silly question. More money buys us more things and more experiences, and that adds up to more happiness, right?

Not necessarily. Lots of research shows that once we have a certain amount of money – enough to easily cover the basics and have some fun – having more doesn’t necessarily make us happier. In fact, one recent study suggests that beyond a certain point, people with more money are less happy. More on this later in the book.

For five years I taught a course on financial literacy to non-Business School students at the University of Auckland. Worried that students might think my main message was ‘the more money, the better’, I asked every student to attend a discussion group where we looked into what made people happy, and the role of wealth in that.

Before coming to the class, the students were asked to do the following (which I dreamt up one day on a long drive). You might want to try it.

1.Write a list of eight individuals or couples you know well.

2.Give each one a score of 1 to 5 for wealth, with at least one getting a 1 and one getting a 5.

3.Give each one a score of 1 to 5 for happiness – again with at least one 1 and one 5.

4.See if the high scorers for wealth are also the high scorers for happiness.

Some students found the two were correlated – that wealthier people tended to be more content. But many saw no clear correlation, and every now and then someone saw the opposite – their poorer friends and relations tended to have a better time.

On balance, though, the students did tend to know more happy rich people than happy poor people. So is the research wrong?

Nick Powdthavee, a UK professor of behavioural science who looked at a great deal of research for his book The Happiness Equation, raises an intriguing question: Does wealth make us happier, or do happy people get wealthier? He found that happy people:

•tend to be more creative and productive

•have better health – which tends to lead to more wealth

•are more likely to be financially successful

It seems that happiness is more likely to lead to wealth than the other way around.

As Nobel Peace Prize winner Albert Schweitzer put it: ‘Success is not the key to happiness. Happiness is the key to success. If you love what you are doing, you will be successful.’

If you start out with a happy disposition, there’s a good chance you’ll end up well off. If you start out grumpy, you’re less likely to do well financially. Of course, you might get lucky with money, but it’s unlikely to change your outlook on life.

So where does this leave you, as you’re starting to read a book about investing? Why try to get richer if it probably won’t make you happier?

Check back to what I said above. While wealth and happiness don’t seem to be highly correlated after you’ve got the basics well covered, many of you will feel you haven’t covered all the basics yet.

Nobody would argue that if you’re struggling to cut credit card debt, or to get together a deposit for a modest first home, or to save up enough to do some fun things in retirement, having a few more bucks wouldn’t be welcome.

Even if you’re financially comfortable, more money gives you more choices. These might include supporting others, from family members to charities.

So, while it may not make sense to put lots of time, effort and worry into absolutely maximising your wealth, it does make sense to take a few straightforward steps to make your money work better for you.

Read this book, take the steps that apply to you, and you’ll have the money stuff sorted. You can then spend less time working and more time getting on with things that will really improve your wellbeing.

What might that be? At the end of the book, we’ll look a little further into some of the fascinating research about what makes people happy. But for now, let’s get on with making you financially strong enough to make the most of your life.

Step

1

START NOW – IT’S EASY

In which we . . .

•Observe that laid-back investing is good

•Compare savvy Sally and slow Suzy

•Also compare the apprentice and the graduate

•See that you’ll have a lot more than twice as much if you save for 40 years instead of 20

•Learn that compounding is a friend for savers, a foe for those in debt

•Discard those ‘You need a million dollars’ messages

People often ask me if I’ve read the latest book about the share market or investing. ‘No’, I reply. ‘There are too many good novels to read. Besides, a lot of what’s written about investing isn’t much good, and sometimes it’s actually a big worry. It can persuade readers to take steps that will do them more harm than good.’

When it comes to investing, laziness is good.

That might sound crazy. In pretty much everything else we do – from running marathons to getting promoted fast at work to mastering the piano to creating a magical garden – the more work we put into it the better we’ll do.

But investing is different.

We all know people who put hours into their investments. They read the financial pages, and listen to the economists who tell them – more like guess, actually – what’s likely to happen in the next year. Then they read about which investments have done well lately. On the strength of that they choose which shares or bonds to buy or sell, and when to buy or sell them.

And guess what? Most of them end up with less than you will after you’ve read this book, set up your investments and got on with other things. It’s sometimes called ‘Set and forget’.

Let’s not be misleading here. I’m not saying you should never do anything after the initial set-up. Every few years it’s a good idea to do a quick review of your investments. But the changes you might make are easy – half-hour sort of stuff. There’ll be more about this in Step 6: ‘Stay cool’, but for now, let’s look at the basics.

Three ways to get more savings

It’s quite simple, really. The three ways to get more savings are:

1.Earn more.

2.Save more.

3.Be smarter with what you do with your savings.

Of course, it’s also great to get a pay rise – either in your current job or by starting a new job.

During my extended OE in the United States, I still recall the excitement of moving from a small-town Michigan newspaper, the wonderfully named Jackson Citizen Patriot, to the Chicago Daily News. The pay rise meant less than the thrill of knowing I would work with some great journalists. But still, my pay went from something like $US14,000 to $US21,000 a year – not to be sneezed at back then when a dollar was worth a dollar.

Chances are you will get at least one huge pay jump in your life. Fantastic! But that’s not what this book is about. It’s not what you earn, but how much you save that matters. And, perhaps more importantly, what really matters is how you save.

Get going

I know the feeling. Practical friends tell me I should get the runners on the sliding door to my deck fixed. I don’t understand much about things like that, and I don’t know who to ask, and it all gets too hard and doesn’t happen.

Maybe you feel that way about your finances. The ‘Don’t Know and Don’t Know Who to Trust’ syndrome finds us doing nothing, week after week, year after year.

With my house, it might matter if it all starts falling apart. With your money, there are no ‘ifs’. It will matter. Muck around for a year or two and you can end up retiring with much, much less.

But don’t panic! This book will teach you how to invest your money. It’s not hard – I promise.

Okay, let’s get on with it. Sure, you’re allowed to read this book right through first. (Kind, aren’t I!) But please don’t delay after that. Sitting on the sidelines for just a couple of years can make a surprisingly big difference. Think world trip in retirement versus the South Island. Oops! The Mainlanders are grumbling. I’ve got nothing against the South Island – I have done some wonderful tramps there – but it’s not quite Venice.

Let’s look at Sally and Suzy, 22-year-old twins earning $40,000 each. Sally