By Allison Tait
MSN NZ Money writer
Even if you've spent every cent during your 20s, it's not too late to build solid financial foundations for the future. Here's your to-do list for the decade. By Allison Tait
1. About those foundations
There's no doubt that 30 is the new 20 and, frankly, people are at a different stage of their lives during this interesting decade. Some things, however, remain universal. Mortgages
tend to be one of them. Whether you're settling down into marital-plus-kids bliss, or simply sick of sharing with flatmates, debt looms large.
"Be proactive about managing your money by setting a top-down budget," says Liz Koh, certified financial planner at Moneymax Services (Wellington and Paraparaumu) and author of Your Money Personality: Unlock the secret to a rich and happy life (Awa Press).
"Decide how much you want to save; how much you need to cover your financial commitments such as your mortgage, rates and insurance; how much to spend on household running costs such as food, power and phone; and how much you can afford for treats such as entertainment and gifts.
Once you're micro-managing your finances, you'll be in a better position for some macro-thinking.
2. In case of emergency
Above and beyond the mortgage payments, grocery bills, holiday savings, school fees and all the other sundry expenses of life, Brenda Whitehead, financial advisor at Money Managers (Albany) recommends you build an emergency fund. "An easily accessible amount of cash can protect you in case of job loss, accident or other setback where you need money, and fast," she says. "Aim for an amount equal to one week's pay at first; eventually building to a point where you can survive for three months.
3. Pay off the mortgage
It's the biggest debt that most of us will ever (fortunately) owe which can make paying it off look like something to be done much later in life. The sooner you get rid of it, however, the better. Not only will you then be sitting on a 100 percent asset (rather than a big debt), but you'll also have lots of extra cash to invest elsewhere. There are different strategies for getting on top of it number one is to pay fortnightly rather than monthly. It means extra payments you don't even notice, but adding even $20 a week extra to your repayment can make a huge difference to your interest bill.
"Make sure you get rid of expensive (high interest), short-term debt first," says Koh. "Once that's gone, use that money to increase your mortgage payments."
4. So, first pay off your credit cards
"Stop thinking about a credit card limit as being 'your money'," says Whitehead. "It's not 'your money' it's the bank's money! Carrying a credit card balance is bad for so many reasons: you pay unnecessary interest on your purchases; you're vulnerable to all kinds of credit card company schemes. And you're cutting yourself off from a source of funds in an emergency."
5. Take out insurance
Experts agree that under-insuring is a key problem in this age group. Few people think about it and even fewer do something about it. "If you have a mortgage, make sure you're insured," says Whitehead. "Many people will have a partner or a family at this stage and it's important to weigh up the financial effect that a serious, life-changing event could cause."
6. Start saving for school today
It's not as long-term as superannuation, but high school education can seem a long way off when your kids are still in nappies. Unfortunately, school fees, particularly in the private sector, can require a savings plan of their own. The sooner you start putting a bit aside now, the easier it will be down the track. There are several investment options, from managed funds and insurance bonds, to specific savings plans such as those run by the Lombard Education Fund.
7. Think about going to school yourself
"Now is the time to re-examine your qualifications and career," says Sheryl Sutherland, financial planner at Women's Financial Strategies, Christchurch, and author of Girls Just Want to Have Fund$ and Money, Money, Money, Ain't it Funny. "More education and experience will all contribute to a bigger pay packet."
While it might seem that spending a few years at university in your 30s is a long time, consider that you still have another 30-odd years of your working life to go and it brings a whole new perspective.
8. Balance immediate needs and long-term goals
Buying new school shoes, fixing the leaky roof or replacing the hot water system while paying a sizeable mortgage can seem a big enough financial challenge at this stage, but Koh suggests we keep the long-term goals in sight. "Join KiwiSaver to make the most of employer and government subsidies," she says.
Retirement may still seem a long way away, but small steps taken now can make a big difference.
9. Get in touch with neuroeconomics
While it sounds like a disfiguring disease, neuroeconomics is a branch of economics that examines why and how we make financial decisions.
"This is not as esoteric as it sounds," says Sutherland. "Our brains and instincts are our worst enemy when it comes to figuring out the best deal, investing rationally or planning a budget. It's time to do some analysis of your investment behaviour."
10. Take a long look in the mirror
"Check yourself out in the mirror," says Sutherland. "Take a good look does this person have the skills and experience to be your financial planner? If the answer is no, make a few calls and establish a working relationship with an advisor that suits you."
The Institute of Financial Advisors is a great place to start.