"The best tip for saving – ‘pay yourself first’".
"This is a principle that I have always lived by since and always try and instill on my clients to live by."
Money. It's the driving factor behind many life choices, but is it the be-all and end-all?
'Me and My Money' is a regular feature that investigates Kiwi attitudes towards money and what drives the choices they make.
This week Tim Fairbrother, a certified financial planner with RIVAL Wealth, shares his tips on saving money and how to budget.
1. Are you a saver or a spender?
Definitely a saver. From a young age, I have always loved to squirrel away money, but saving is a tight balance between having no disposable income to enjoy or ending up the wealthiest person in the cemetery! As a 12 year old, I sold pinecones to buy my first computer, and at 17, raised calves to buy my first laptop. As a saver, you can still spend on items that enhance your financial future.
2. What's been your biggest financial lesson, success or failure?
I bought shares when I was at University with extra money I had from working part-time in hospo. I didn’t realise, until years after, that if you purchase $500 of shares and there is a minimum fee of $50 to buy and sell, then you need to make $100 or a 20% return just to break even. I couldn’t figure out why I was picking great stocks but my balance wasn’t going up – turns out that fees really matter. Even in strong markets when you don’t notice them.
3. What do you know about money now that you wish you'd known sooner?
I was lucky to figure out pretty early that it is really easy to spend hard earned cash, and really hard to save it. You can have the best intentions to have a great goal, but it is your money systems that will get you long term results. Money doesn’t buy happiness but disposable income gives you options to invest in what you feel is important – family, lifestyle, travel, etc. Spending money on depreciating assets like cars or boats, may give you happiness but may not be the best investment. Unless it is a classic car of course, which may go up in value!
4. A recent purchase you consider was value for money?
I didn’t purchase my kids, but I always consider money spent on them as value for money. Whether it be tennis lessons for Oscar, singing lessons for Olive, or guitar lessons for Monty, this makes them happy and grows them as small humans, giving them confidence. We saw lots of New Zealand when we were kids, camping with my Mum and Dad, so we try show the kids that there are special places in New Zealand out there to explore and this is the most beautiful country in the world to see. Watching them grow gives me great pleasure and I feel is money well spent.
5. What's your preferred form of investment and why?
I don’t think there is one, as they all have different attributes which fulfil different goals in my financial plan. Cash in the bank is great for the rainy day fund as you can get it quickly. Bonds give regular income and capital security if I want less risk. Property gives great returns over the longer term but takes a long time to get out of. Shares over the long term have the best returns, and most are very liquid to get access too, but they can go down fast so they need to be held for 5 years plus. At present, we have all of them to get diversification across all the asset classes.
6. What’s your best saving tip?
When I was at Uni, I read Robert Kiyosaki’s book - Rich Dad’s Guide to Investing. This had hands down, the best tip for saving – ‘pay yourself first’. This is a principle that I have always lived by since and always try and instill on my clients to live by. Most people get paid and spend for the period, trying not to spend all their money, only to have a small amount left at the end of the pay cycle. ‘Pay yourself first’ means when you get paid, always work out what your costs are as soon as you are paid, and put aside into a separate savings account, managed fund, or your mortgage, the amount of money you know should be left at the end of the period first. This way, if you need more, you can dip into it a little, but your habit is already locked in place.
7. What’s the best money advice someone’s ever given you?
We were never shown how to do a budget at Wairarapa College, so I had to work this out for myself. This enabled me to focus on what my spending needed to be, rather than having what I earned as a spending target. There are lots of ideas to save a certain % of your income, but at the end of the day, this comes down the individual needs of each family. If you know what your expenses are, then you can save your surplus when you get paid, which will save on luxuries becoming necessities as your income improves over time. Your money systems will give you the best outcomes.
This information is of a general nature and is not intended as personalised financial advice. RIVAL Wealth is a Financial Advice Provider (FAP) licenced by the Financial Markets Authority to provide financial advice. Our disclosure document is located at rivalwealth.co.nz or a written copy is available on request