This article was first published in NZ Herald on 21 Jun 2024
Investing in your 20s, 30s and 40s – what you need to know.
Money is an emotional topic for us all – and for good reason. You work hard for it in the first place, and your hopes and dreams for your future, and that of your family, are inherently linked to it.
Retirement savings don’t just appear out of nowhere on your last day of work. There are several actions you can take early in your life to help ensure you are set up to enjoy your later years.
Imagine your retirement fund is a tree that you plant at a young age and tend to over the years so that, by the time you finally retire, there’s plenty of shade to relax under and lots of delicious fruit to pick.
With the ups and downs of the current market, it’s more important now than ever to put a sound plan in place to get you to where you want to go. Below are our top tips for those in their 20s, 30s and 40s, to help set you up to retire comfortably at the end of your working life.
20s
Cash in on compound growth
Your 20s bring great potential and opportunity for getting yourself on the path to financial security.
Invest in yourself: Now is the time to build strong foundations. Take advantage of personal growth opportunities, professional development courses and skills training. Whether you attended university or learn a trade, improving your skills and knowledge can increase your earning potential for the years to come.
Start an emergency fund: Set aside enough to live on for 3-6 months as an emergency fund in case of unexpected bills or a period of not being able to work. It’s great to avoid those high interest costs if you have to borrow to fund an emergency.
Open a KiwiSaver account: You can choose to contribute 3 per cent, 4 per cent, 6 per cent, 8 per cent or 10 per cent of your pay. If you’re looking to buy your first home, now is a great time to increase your contributions as much as you can. This can be just from your pay or from a mix of your pay and your employer’s contributions. Starting now will ensure you benefit from the powerful effects of compounding interest over your lifetime.
Milford has excellent digital advice tools available to help you choose the right Milford KiwiSaver Plan fund for your goals.
Avoid consumer debt: Even if you love it, only buy what you can afford to pay for in full. Set up a savings account for those items you can’t yet afford rather than using a credit card or a loan to finance it. Avoiding interest on top of the original purchase price is one of the best gifts you can give your future self.
Budget: Complete a budget and allocate money to each of your expenses so that you know exactly where you are with your finances. There are great tools to help with this such as those available at sorted.org.nz.
30s
Stay (or get) focused
Eliminate debt: Aside from your mortgage, your 30s are your chance to finish paying off any student loans and personal debt. Start by picking off the debt with the highest interest first to achieve the biggest gains.
House purchase: While renting may be a good housing solution for many people, owning a home and paying down a mortgage can have long-term benefits. Many people consider buying their first home in their 30s. Having a KiwiSaver account can help with this major life step. In some circumstances, you can withdraw your KiwiSaver savings for a first home purchase.
Save for your children: If you have, or plan to have children, now is a good time to put some money aside for their future. An Investment Fund with a long-term time horizon can be a good way to save for this. With a little more financial stability under your feet, your 30s are your time to shine and to really set yourself up for your future.
40s
Broadening your investments
Pay down your mortgage: Your mortgage is likely to be your largest debt. As you earn more, consider increasing the repayments or reducing the term remaining on the mortgage. Sometimes small adjustments in the amount or frequency of payments can reduce the length of the mortgage, and the interest to pay, significantly.
Grow your investment portfolio: Consider your own tolerance for risk and, if you’re comfortable taking on more risk for potentially higher long-term returns, consider adding growth investments such as property or share investments which can help boost your retirement funds.
Ramp up KiwiSaver contributions: You may now be in a position where you can increase your KiwiSaver contributions – even a small increase will make a difference to your retirement savings. Consider whether the fund you’re in will meet your needs, particularly if there’s been a shift in your savings goals.
Start money conversations with your children: Setting up an Investment Fund or KiwiSaver Plan for your young ones is one of the best ways to ensure they start planning for a healthy financial future and develop a positive relationship with money. You can start an Investment Fund with Milford for as little as $1,000.
Discuss finances with your parents: It’s important to make sure your parents have a financial plan in place. While not an easy conversation to have, getting things in place now will pay off in the long run.
Want more investment insights? Check out Milford’s The Investing Place for exclusive masterclass content, news, and opinion pieces.
Disclaimer: This article is intended to provide you with general information only. It does not take into account your objectives, financial situation or needs. Milford Funds Limited is the issuer of the Milford KiwiSaver Plan and Milford Investment Funds. Please read the relevant Milford Product Disclosure Statement at milfordasset.com. Before investing you may wish to seek financial advice. For more information about our financial advice services, visit milfordasset.com/getting-advice. Past performance is not a reliable indicator of future performance.