Save your money! Kia ora, Welcome, Talofa. What are savings? The Wilsons. A resource to help you save your money. Income. Ruby & Johnny.

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1 Save your money! A resource to help you save your money. Information given is of a general nature only and does not constitute personalised financial advice. While BNZ has made every effort to ensure that the information provided is accurate, individuals should not rely on this information to make any financial decision without first having sought advice from their financial adviser, or make an investment without first having read the relevant investment statement. Kia ora, Welcome, Talofa. With savings skills, you ll be able to afford more of your goals. This course will help you: start saving get around some of the road blocks to effective savings recognise what saving options are right for you write your own savings plan. What are savings? After we pay our expenses whatever is left in the bank is savings. What are savings? After we pay our expenses whatever is left in the bank is savings. Income = Expenses Savings The Wilsons We ll use the Wilsons as an example of some of the situations we re going to learn about in this resource. The Wilson family all have different savings goals. Ruby & Johnny 25 & 29 years Ruby and Johnny save some of their money each week to cope with emergencies and big payments. They re also putting money aside to buy a house with in a few years. Mike 19 years Mike is saving to go on an OE once he finishes getting a qualification. Annie 54 years Annie is saving for her retirement. She has some money put away, but she d like to get a better interest rate, and she d like to know how much more she can put away before she retires. 1

2 What stops you from saving? Sometimes it s hard to sacrifice daily costs to put money aside for later. Do any of these apply to you? It s not a priority for me I have better things to concentrate on right now. I have all the time in the world. I want to enjoy life while I m still young. My other commitments take up all my time and my income. I have other plans I know I ll make millions one of these days, so why bother with saving a few thousand? My partner is loaded. I know how to play the currency and stock markets just waiting for a good run. I have a set of collectibles that s going to be worth serious money. Life has other plans I always have lunch with my workmates; bringing lunch from home will upset them. The World Cup doesn t happen every year; I ll start saving after the games. Painting the house is more important right now; I ll start saving next month. I just don t have the money I don t get paid a lot; I barely make the rent. I might as well live it up now; I might not have a job next year. I just have too much debt to start saving. There is a recession on, so saving is a luxury right now. While it s never too late to start saving, if we delay saving too much or don t save at all, that decision can reduce our quality of life in the future. How can you deal with your reasons for not saving? 2

3 Reasons to save Why do you save money? Which reasons here help you save? Do you have any other reasons to save? You are better able to handle emergencies with a full bank account. You are able to meet lifestyle goals with confidence (like buying a house or planning a big wedding). You can have a comfortable retirement. When a need arises, you re in a comfortable position to deal with it. Savings makes things cheaper to get. You won t have to pay interest and having money can get you a cash discount. Reason 1: Reason 2: Saving something beats spending everything. Save now; spend later. Live for today but save for tomorrow. 3

4 How can you help your savings grow? Look for ways to earn interest! When you put money into a bank account, the bank holds the money for you and may pay you interest. No or low interest Low interest Higher interest High interest Current account For your income and paying your expenses Easy to get your money out Savings account Save money in these as you go Easy to open Easy to get your money out Fixed term deposit Locks your money away for a fixed length of time Limits your access to the money Investment account Invest in bonds and shares Needs a minimum balance Limits your access to the money All the Wilsons have current accounts. Ruby and Johnny share one, to make their joint budget easier to manage. Annie, Ruby and Johnny use these to put money aside for emergencies and big payments. Mike is saving to go overseas. He won t need the money for two or three years, though, so he uses fixed term deposits. Ruby and Johnny are planning to put their house deposit savings in one of these soon. Annie uses one of these for her retirement savings. Do you have one of these accounts? What do you use it for? (For specific advice regarding your own savings and investment situation, speak to an authorised Financial advisor). 4

5 Savings add up! Let s look at Annie and her friends Jonathan and Meretiana. They met on a course five years ago, and they ve been putting aside money for a group trip to Europe since then. How much will they each have after five years? Jonathon Annie Meretiana You! Weekly savings How much can you afford each week? Saved for 5 years 5 years 5 years 5 years Value of savings 50 x 5 years x 52 weeks each year = 13, x 5 x 52 = 19, x 5 x 52 = 26,000 How much will you have in five years? Remember, you ll have even more if you re earning interest! Planning is the easiest path to living a hassle-free life. This applies to our finances too. The more we plan, the better our future financial security will be. The first step is to think of goals we can save for. Goals can be a big ticket item or a lifestyle event. Let s look at Ruby and Johnny They are saving for a house in five years. The deposit for a house would be 30,000. Ruby also wants to save some money for her daughter s future. She s hoping to put away 20,000 by the time baby Marama is 21. They decided to open separate bank high-interest saving accounts to achieve this goal. Goal Target amount Deadline Weekly saving target House deposit 30,000 5 years Marama s education fund 20, years Total 50,

6 Your goals What are your goals? Fill in your own deadlines and targets, and work out your weekly targets. Goal Target amount Deadline Weekly saving target Be realistic, set goals and stick to your plans. 6

7 Saving for retirement You have worked hard and you deserve to enjoy retirement without worrying about money. Often the government superannuation is not enough to live the lifestyle you expect. A lot of things affect how much you should save Use the spaces here for your own notes about what you re expecting. How long do you expect to be retired for? What weekly income could you live on comfortably? Tip! KiwiSaver is available to New Zealand citizens and permanent residents. You can choose to contribute 3%, 4% or 8% of your income and your employer has to match the minimum 3% contribution. If you are self-employed, the government will contribute up to per year. A lump sum payment will be available when you turn 65. Tip! How many years do you have before you plan to retire? Now you know what you want for your retirement, you can talk with your bank about setting up retirement savings or you could use an online tool, like Let s look at Jonathon, Annie and Mere After their round-the-world trip, all three decided to take another look at their retirements. (Annie already has some money put aside, but we ll just look at her new savings, to see how the retirement incomes compare, depending on how young you are when you start saving.) Mere Jonathon Annie Age started Weekly savings Retirement income in today s 39,624 32,084 24,856 dollars (each year for 25 years) * * This figure includes superannuation, interest, and inflation, and is given in today s dollars, to allow us to understand the real buying power of the total retirement income. 7

8 Match a savings plan Let s see how Ruby and Johnny do this for their house savings. They need 30,000 in five years. Identify savings goals What do I want to save for? When do I need it? How much will I need per week? Ruby and Johnny need 30,000 for a deposit in 5 years 30,000 5 years = 6,000 a year 6, = a week Make a budget What can you give up for your goal? What expenses can you reduce? They made a budget to save 52 a week They decided to give up drinking coffee at the café and Johnny thought he d try walking to work instead of driving. Reduce your expenses and debt Put the money towards your savings plan. Put off buying things on credit. They reduced their expenses Savings from their new budget plan allowed them to save the 52 a week. Open a dedicated savings account Choose a high-interest account. Set up an automatic payment on payday. They opened a high-interest savings account They created an automatic payment for 52 every week. Watch your money grow! They are on track to save for a deposit on a place of their own in 5 years. 8

9 Make your own savings plan I need in years years = a year 52 = a week I need to save a week What can I reduce weekly? Item 1: a week, Item 2: a week What big expense can I give up this year? I m going to reduce expenses because my goal is important I can save a week and a lump sum I m going to put in a high-interest savings account I won t touch it for the next years. (But if I get good interest, it might be even less time!) I m on track to save for in years Note: There are more resources in this series to help you be good with money... 9