:off on the right foot
Off on the right foot
The top five money mistakes people make
Start the new financial year by avoiding the five most common mistakes people make with their money:
1. Spending everything you earn.
One of the most important decisions to make
about your income is how much to spend
0
now, how much to spend a little later, and
how much to spend a lot later. Spending everything you earn now leaves you vulnerable
to changes in your income and potentially
unable to achieve significant and important
goals. Saving doesn't mean going without; it
means being able to spend more, later!
2. Not choosing the most
appropriate KiwiSaver fund.
The effects of compound returns can lead
to massive differences in the final value of
a fund at retirement, depending on which
investment strategy is chosen. If retirement
is a long way off, investing too conservatively
may result in disappointing returns; if you are
close to retirement, investing too aggressively
may result in loss. Many KiwiSaver members
have not chosen a provider and have been
enrolled in a default conservative fund. Make
sure you are not one of them!
3. Not insuring your most valuable
asset.
You insure your car, your house, your business, your life, but what about your most
valuable asset – your future income? Most
people earn between $1 million and $2 million during their lifetime. Lose the ability to
earn and you lose the value of those potential
earnings unless you have income protection
insurance.
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4. Not having a financial buffer.
If you have no financial reserves, you may
be forced to choose between borrowing
money at a high rate of interest, selling
assets at a discount for a quick sale, or
taking a big drop in your standard of living
in response to a sudden change in your
circumstances or unexpected expenses. A
financial buffer can be savings, the unused
portion of a line of credit, or the potential to
borrow additional funds at a reasonable rate
of interest.
5. Mixing business finances with
personal finances.
Your business should have separate bank
accounts from your personal accounts so
that you can keep track of how well it is
doing and make sure you have set aside
enough money for your tax liabilities. Business income tends to fluctuate and raiding
your business bank accounts for personal
spending may leave your business short of
funds later on. Try and maintain a constant
regular payment to yourself from your business so you can plan both your personal
and business finances.
Liz Koh
www.moneymax.co.nz/Liz_Koh
Liz Koh is an Authorised Financial Adviser. The
advice given here is general and does not constitute
specific advice to any person. A disclosure statement
can be obtained free of charge by calling 0800 273
847.
