Insight.
Our News

New Parents - 5 Things to Sort Financially

Financially, starting a family means a lot more than just having another mouth to feed. As a new parent you’ll need to do a complete review of your finances so that you can ensure you’ll be able to live within your means, protect your income and assets, and face the future with confidence.

Here’s a checklist to help you reach that goal.

Make your wills
Find a good lawyer, if you don’t already have one, and take along a complete list of your income and assets. Discuss with your lawyer whether a family trust would make sense for you. Putting assets into a family trust has both benefits – including protecting your assets from relationship or business failure – and drawbacks.

Make a budget
A realistic estimate of your outgoings will take into account weekly expenses, such as groceries and petrol, monthly expenses such as your power, water, phone, and broadband bills, and annual expenses such as your car registration and warrant of fitness, subscriptions, and memberships such as AA. It should also include an estimate of personal expenditure, both essential – clothes and haircuts, for example – and the fun stuff, such as eating out, going to the movies, or DIY. On the income side, you’ll need to include any investment income you get from your savings, and investigate any entitlements you may be able to claim, such as paid parental leave or Working for Families payments. Investigate where you can make savings. Energy providers, for example, are constantly jostling for market share and you may be able to make significant savings by switching. Buy in bulk where that’s cheaper – a variety of online nappy services will deliver to your door.

Review your insurance
Insurance costs need to be included in your budget. You’ll need to make sure you have policies that suit your needs and that you’re getting the best deals in the marketplace. Insurance is a complicated area and it’s a good idea to seek specialist advice on whether you need whole-of-life or term insurance, what types of health cover you’ll need (don’t forget to include baby!), and what types of income protection cover make sense. Remember that it’s not only the breadwinner who needs to be insured – if anything happens to the stay-at-home partner, he or she may have to pay for childcare, or stop working altogether. Check whether your mortgage agreement includes mortgage repayment insurance. Asset protection insurances includes home and contents and your vehicles. Some insurers offer almost identical cover, but premiums vary widely. Our experienced Financial Advisers will listen to your needs and advise on an insurance plan and products to suit you and your budget.

Establish an emergency fund
No matter how comprehensive your insurance may be, and how realistic your budget, you’ll need a buffer for when the unexpected strikes. You’ll still need to pay the bills until you receive insurance payments for a redundancy, you’ll need a new vehicle immediately if yours is written off, or you may have to travel to a funeral. If you don’t have a lump sum you can ring-fence straight away, make room in your budget for regular savings, either from your income or from money saved from your review of expenses.

Keep saving
There may not be much wiggle room in your budget, but it’s important to keep saving even modest amounts. Many new parents start a “college fund” for their child’s education – the sooner the better – but retirement savings shouldn’t slip down in priority. It makes sense to harness the maximum benefits available to you from a KiwiSaver scheme – a minimum contribution of around $1000 will entitle each of you to a government contribution of around $500. Make sure your money keeps working hard for you. Like power companies, banks and other deposit-takers jostle for market share – our Financial Advisers can provide you with straightforward, practical investment advice to help you achieve your goals.

The views and opinions expressed in this article are intended to be for general purposes only. To the extent that any of the above content constitutes financial advice, it does not constitute personalised financial advice for an individual client under the Financial Advisers Act 2008.
Before taking any action based on the above information, we recommend seeking advice relevant to your personal circumstances from a qualified financial adviser.
The information provided is done so in good faith. Every effort has been made to ensure the accuracy of this article but AdviceFirst Limited does not assume any responsibility for, and disclaims any liability arising from, use of the information.

A disclosure statement is available, on request and free of charge.

© 2016. AdviceFirst Limited. All Rights Reserved.

First Homebuyers - KiwiSaver Checklist

If you’re buying or thinking about buying a first home, and you’re contributing to a KiwiSaver scheme, you may be able to access financial assistance. But you’ll need to check carefully whether you, and the property, are eligible and establish how much you can get before you make a commitment. Our dedicated Home Loan Advisers can help you do this.

These schemes were intended by the government to be a “hand-up” to help first-time buyers into home ownership, so if you’re a high income earner or you have substantial assets, it’s unlikely you’ll qualify.

If you’re not, here’s a list of five things you’ll need to look for.

What can I get?
You may be able to get a HomeStart grant, administered by Housing New Zealand, and/or make a first-home withdrawal from your KiwiSaver account. HomeStart provides eligible first home buyers with grants of up to $5,000 (for individuals) or $10,000 (couples, or you and another individual or individuals) to buy an existing home. For a brand-new home, land to build a new home, or even buying off-the-plans, an individual may be able to get up to $10,000, or $20,000 for a couple.

Who is eligible?
You have to be at least 18 years old, you have to be a KiwiSaver member, and you have to have earned no more than $80,000 in the last 12 months ($120,000 for couples, or two or more people). You need to have contributed at least the minimum allowable percentage of your total income – currently 3% - to a KiwiSaver scheme for 3 years before you can make an application. For a HomeStart grant you’ll need to be able to come up with at least 10% of the purchase price as a deposit. If you’ve already owned a home, all is not lost; you can apply for a grant provided you are “in a similar financial position to a first home buyer.” That means your “realisable assets” – cash, deposits, shares, even a boat or a caravan – can be worth no more than 20% of the regional “house price cap.” So $110,000 for Auckland, $90,000 for other cities and regional centres, and $70,000 for the rest of New Zealand.
In some situations if you have owned a home before, you may be able to make a withdrawal, if Housing New Zealand accepts that you are in the same financial position as would be expected if you have never owned a property in the past.

What can I buy?
The property itself has eligibility criteria. The ownership form has to be “fee simple”, “stratum estate” (freehold or leasehold), “cross-lease” (freehold or leasehold), or multiple-owned Maori land. In addition you have to live, or intend to live, in the property for at least 6 months after settlement. And there are maximum valuation criteria, or “house price caps.” These are currently $550,000 for Auckland; $450,000 for Wellington, Christchurch, Hamilton, Tauranga and other provincial centres, and $350,000 for the rest of New Zealand. If you’re buying land to build on, or off-the-plans from a developer, you’ll need to check, as some specific criteria apply.

How much can I get?
For HomeStart grants, see above for the maximums. For the first-home withdrawal scheme you’ll need to ask your KiwiSaver scheme provider how much you can get. The amount you can withdraw includes your own KiwiSaver contributions, your employer’s contributions, member tax credits, and any investment gains your scheme has made since you started contributing.
How much deposit will I need? As mentioned, you’ll need at least 10% of the purchase price. But that includes the HomeStart grant itself, and any amount you can withdraw from your KiwiSaver scheme as a first home withdrawal.

You must leave at least $1000 in your AMP KiwiSaver Scheme account after the withdrawal, even if you have not received a $1000 kick-start contribution.

If this fits the bill you can move onto the next step and make your application/s. But do check the small print. The Insurance & Savings Ombudsman has reported, for example, some complaints from applicants turned down because their applications were received after the purchase was settled – so it make sense to get your application in as soon as possible after the relevant sale documents have been signed.

The views and opinions expressed in this article are intended to be for general purposes only. To the extent that any of the above content constitutes financial advice, it does not constitute personalised financial advice for an individual client under the Financial Advisers Act 2008.
Before taking any action based on the above information, we recommend seeking advice relevant to your personal circumstances from a qualified financial adviser.
The information provided is done so in good faith. Every effort has been made to ensure the accuracy of this article but AdviceFirst Limited does not assume any responsibility for, and disclaims any liability arising from, use of the information.

A disclosure statement is available, on request and free of charge.

© 2016. AdviceFirst Limited. All Rights Reserved.

 

Newlyweds - 5 Ways to Save Together

There are many obvious ways in which the old adage, “two can live cheaper than one” is true. If you live in one household, you don’t pay double mortgage or rent; people living together use less power, water etc; you can make do with one microwave, or TV. And married couples – or so they say – tend to stay home more and spend less money on eating and entertainment.

But there are also ways couples can choose to organise their financial affairs to make savings, or to maximise their joint income, which aren’t available to singles.

Pay less tax
If you both have income from investments – bank deposits, dividends from shares and managed funds, etc – think about transferring some or all of them to the partner with the lower effective income tax rate. This works only up until both partners’ taxable income reaches the same effective rate, but the savings can be significant.

Pay less interest
Similarly, if one partner has debt – on credit cards or hire purchase agreements, for example – and the other has cash earning interest, it will generally make sense as a couple to use the cash to pay off debt. That’s because banks and other deposit takers/lenders pay a lesser interest rate to the people they borrow money from than they charge on loans, so the saved interest costs will be greater than the interest forgone on cash deposits.

Access higher interest
Banks and other deposit-takers are willing to pay higher rates of interest on larger deposits than on smaller ones, so consider pooling your savings to access higher rates. Again, there could be an advantage in concentrating deposits in the name of the partner on a lower effective tax rate. Do take tax treatment into consideration if you’re making joint deposits.

Review your insurance
Many insurers offer discounted rates to couples who have the same type of insurance with them. AA members, for example, will add a spouse at a discounted “associate member” rate. Insurers can also offer “couple” rates across a range of insurances – vehicles, and home & contents, for example. It’s also worth asking your AdviceFirst Adviser to find out what life insurers and health insurers can offer to you as a couple.

Working for Families
If you have kids, check whether you are entitled to Working for Families tax credits. The more kids you have, the higher the income cut-off, and it’s surprising how many couples on relatively high incomes assume they earn too much to qualify.

There are many other ways you can save money, and it’s worth going through your finances and spending item-by-item. If you both have the same online subscription, consider accessing it through one account. Link your loyalty cards to give yourselves greater spending power. Ask yourselves whether the cost of owning and running two vehicles is really worth the convenience.

The views and opinions expressed in this article are intended to be for general purposes only. To the extent that any of the above content constitutes financial advice, it does not constitute personalised financial advice for an individual client under the Financial Advisers Act 2008. 
Before taking any action based on the above information, we recommend seeking advice relevant to your personal circumstances from a qualified financial adviser.
The information provided is done so in good faith.  Every effort has been made to ensure the accuracy of this article but AdviceFirst Limited does not assume any responsibility for, and disclaims any liability arising from, use of the information.

A disclosure statement is available, on request and free of charge.

© 2016. AdviceFirst Limited. All Rights Reserved.

 

Previous Editions

Let's talk