She’s a tough year, 2020 – and that’s before you get to the financial implications of Covid’s ever-evolving fallout. Luckily, Financial Personal Trainer Hannah McQueen of Enable Me is here to help you make the best financial decisions possible, pandemic or no pandemic.
Your 30s are often when you want to start making big life decisions like buying a home and having kids, which also have big financial implications. They can also be when you start to become aware that you’re working harder and harder, but not getting ahead any faster.
Buying a home
We all know that it’s got harder to become a home owner than it was for previous generations. The income to house price ratio is out of whack – so how can you get on the housing ladder? Yes, cutting back your expenses to save harder for a deposit is a good idea, but it would take roughly 19 years of skipping avocado on toast every single day to save a deposit on an average house in Auckland – and who eats avocado that often anyway?!
The good news is that interest rates are currently very low which makes servicing debt more affordable. However, given rates are likely to eventually rise during the duration of your mortgage, you still need to be doing your sums based on more ‘normal’ interest rates.
One of the things to consider is that you don’t have to follow the traditional route of your first home being your actual home – and often it’s better if it isn’t. It’s usually more expensive to own the house you live in that it is to rent it, so what many first-home buyers are doing is making their first home an investment property instead, meaning it doesn’t have to be where they want to live and can instead be where they’re likely to get the best capital growth, which can then assist them with their next purchase.
KiwiSaver can be a great help in mustering a deposit for a home – and because you’ve hopefully been in it since your early 20s there might be a decent nest egg in there! There are grants available, too – but they do have conditions attached such as income caps and price caps which depend on your region.
Remember to consider your investment settings when you’re getting close to withdrawing your KiwiSaver for a purchase. At that stage certainty of how much you’ve got to work with is more important than generating returns.
You can’t access your KiwiSaver for a deposit on an investment property, but there are two potential solutions to that. Either be prepared to live in it for six months to justify the withdrawal, (while remembering that it’s an investment which means you view it differently than a home.)
Alternatively, if you’re able to plan further ahead you may be able to have a conversation with your employer where instead of contributing to your KiwiSaver they put the equivalent of their contribution into your pay instead – but then it’s your job to make sure it actually gets saved into your property fund!
Other options to explore include teaming up with your parents to use some of the equity in their home to help you get on the ladder – this could be a joint investment that benefits you both, especially if your parents aren’t sorted for their retirement. You can also team up with friends in what’s called a property syndicate – you just need to make sure that option is supported by legal agreements.
Once you’ve got a property the focus needs to change – how can you put in place a plan that you’ll actually stick to, to get rid of the mortgage as fast as possible?
There’s no two ways about it – kids can be expensive! Often the trickiest time is when the baby first arrives and you have to adjust from two incomes to one. Thankfully nature gives us 9 months warning, and it’s important you use this time to plan. You need to work out what you need to cover the family’s expenses while one of you isn’t working, what you’re entitled to in terms of parental leave or other support payments, and whether there’s a gap between what you need and what you’ll have.
You should be aiming to save the difference before the baby arrives, or you’ll need to be looking for cost savings. The good thing is having a kid often can reduce your outgoings for a while, because nice dinners out and overseas holidays usually go on hold for a bit!
Investing in your future is always a good idea – but how you invest depends on your situation and your goals. Buying shares that you have a hunch might go up in value might not be the best idea if, say, you’ve got short-term debt and you really can’t afford for the reverse to happen.
If you have a mortgage the best return is usually in paying that off as fast as you can. Most people default to 30 years, but doing it faster has the potential to save you hundreds of thousands of dollars in interest costs. While you have a mortgage it’s often not easy to have cash to invest, but what you do build – as you pay down your debt and house prices rise – is equity. You can put that equity to work in an investment property – you just need to make sure you buy one that stacks up as a good investment for your situation, and ensure you have to have a strategy to be able to hold on to it, so you’re able to sell when the market is favourable, and you structure it right to minimise the risk to the family home – so there’s a bit to think about.
KiwiSaver also counts as investing, so if you’re contributing, you’re already an investor! It usually makes sense to contribute to KiwiSaver up to the level your employer matches your contributions, or if you’re self-employed at least put in the minimum amount to receive the Government’s tax credit each year ( $1042.86 to get a tax credit of $521.43)