Having it all
Posted by Faith 18th March 2009
An excited new client bounced into my office this week. She had phoned earlier to make an appointment.
As soon as she came face to face with me she said, “I’ve got it. I’ve really got it this time, Faith!”
I wondered if she’d won lotto and invited her to tell me all.
Her name was Elise. While she hadn’t won lotto, she said that she felt she had.
Elise was a twenty-something graphic designer, who had been reading my website blogs for some time. She wanted to travel, save for her own home and build her own business. Down the track a bit, she said she hoped she’d meet someone special and that they would start a family together. She didn’t know how she could have it all and had been trawling the net for ideas. She found my site a year ago and had signed up for my newsletter.
While I love to hear that people enjoy what I write, I couldn’t let all this go to my head. After all, she had been reading my blogs for over year and didn’t “get it” until now.
I asked what in particular had her so thrilled.
“The fact that I could have it all, as long as I start saving early enough. A small amount saved each week can add up to lots of money, given enough time. With money, I will be able to make the choices I want.”
It’s true, I often did go on about this as it is one of the golden rules of wealth. But, I was interested in what in particular had helped Elise to “get it”.
“It was your latest series of blogs about winning a free trip to Europe, where you had a table showing how $15 per week could add up to over $26,000. I was blown away! Then, there was your newsletter about the 50-year-old who couldn’t make up his mind about KiwiSaver and who just ended up doing nothing.”
I nodded to show I was listening.
“I don’t want to end up with nothing at 50. I don’t even want to be like that at 30. I knew I had to do something now.”
“So, what did you decide?”
“I signed up for KiwiSaver.”
“There’s lots of benefits of KiwiSaver. Was it one in particular that you liked?”
“Yes, the one about home ownership. Do you know that, after 3 years in KiwiSaver, the government gives you money towards buying your first home?”
I added, “And, if you are in KiwiSaver for 5 years, they give you more money.”
“Yep, I found that out and more. I can withdraw my own and my employer’s contributions to KiwiSaver for a house deposit. So, my employer helps me buy a house as well as the government.”
“That’s great, Elise. Sounds like you’re well on your way to owning your own home.”
Elise leaned forward, as if she was about to tell me a secret.
“You know, Faith, I’ve discovered something really amazing.”
“What’s that?”
“You opened my eyes to how money can grow given enough time. Well, KiwiSaver is the No.1 thing that will help me with that right now.”
She flashed me a bigger smile and continued. “As well as a contribution for my house deposit, the government puts more money into my KiwiSaver account. I get a $1000 kick-start not long after I sign up for KiwiSaver and then another $1040 per year, as long as I contribute at least the same amount each year. I can’t withdraw that money for my house and I have to leave it in my KiwiSaver account. But what happens to it is terrific.”
“Go on,” I said.
“The money just keeps on growing, even if I don’t add in any more.”
I could see that Elise had worked out what financial planners call the eighth wonder of the world, sometimes known by its more technical term of the miracle of compounding interest.
This is how Elise’s plan will work:
Elise is 25 and she plans to buy her first house at 30. At that time she can withdraw her own KiwiSaver contributions and those of her employer for her home deposit. The government will also provide a contribution towards a house deposit.
In addition, she would have received her KiwiSaver lump sum kick-start of $1,000 and an annual dollar-for-dollar extra contribution from the government (to a maximum of $1,040 per annum) into her KiwiSaver account, but she cannot access any of this until she is aged 65.
At aged 30, these government contributions to Elise’s KiwiSaver account, plus a very conservative interest of 2.5%, will total nearly $6600. If Elise leaves this amount in her account until she is 65, even if she doesn’t add one more dollar herself, it will grow to around $15,600 (using a 2.5% rate after tax and inflation). This is because the return earned on this money helps it to grow.
If you’re thinking that $15,600 doesn’t sound much, then think again. It’s pretty terrific (to use Elise’s word) when you realise that the government gave Elise this money in the first 5 years she was contributing to KiwiSaver. She withdrew her own contributions to put towards the house and, as required, the government’s contribution remained in her KiwiSaver account. Over the 35 years until she is 65, Elise will see her KiwiSaver money grow as it generates more money from interest, dividends and an overall increase in the value of her investment. The amount of growth will depend on how she has it invested inside KiwiSaver.
For a very small top-up each year, Elise can make even more terrific things happen in her KiwiSaver account. With the pressures of building a business, having a family and reaching her travel dreams, Elise might only have a limited sum of money available to contribute each year, from aged 30 upwards. However, if she adds just a small amount per week to her KiwiSaver account, which will be matched by the government (to a maximum of $1040 per year), the growth will be spectacular.
It’s best to show this in a table (from when Elise is 30 to 65) and starting with the $6600 as a lump sum.
$10/week from Elise and $10/week from the government = |
$72,784 |
$20/week from Elise and $20/week from the government = |
$129,909 |
$25 /week from Elise and $20/week (maximum) from the government = |
$144,190 |
While $144,190 might not be enough to retire on, it is a great start. It is very probable that Elise will be able to add more to her KiwiSaver account once she has built her business or, later again in life, when her mortgage is cleared and her children are financially independent.
I could see that Elise was just the sort of client I liked working with. While most people had dreams, very few had actual goals with time frames attached. Elise was in the latter category.
She was also determined enough to consider all the options available to achieve her goals, and then make a choice without procrastinating. And, because she was so focussed, she was unlikely to drop her long-term plans for short-term gratification.
Together we worked on a full financial plan to help her aim for everything she wanted in life.
---ends---
Click here to find out how KiwiSaver will help you to buy and pay for your home. Please note that special conditions apply.
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Win an all-expenses-paid trip for two to Europe (Part 2)
Win an all-expenses-paid trip for two to Europe (Part 3)
Always set goals and work towards them, but never make New Year resolutions. Want to know why? Read more...
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See previous blogs:
Don't sweat the small stuff.
Can you grow a money tree?
What's holding you back?
Money or your life - which has more value?
The seven secret thieves
Five questions to change your life
Find that spark
Switching lives - what would you choose?
Who can I trust to help grow my money?
How to swim in a sea of money
Life can be unfair
The rule of happiness
No way to live
Anyone can be good with money
Best ways to warm up winter
Who wants to be a millionaire?
The secret of wealth
Keeping your money safe
Having it all
Win an all-expenses-paid trip for two to Europe (Part 3)
Win an all-expenses-paid trip for two to Europe (Part 2)
Win an all-expenses-paid trip for two to Europe (Part 1)
Make a change for good
A recipe for a happy Christmas
Nothing else matters
Rage, rage against the dying of the light
Make a wish come true
Buying or Selling a House – Those that care least, usually succeed
When is a good time to buy a house?
Sleepless Nights in a War Zone
Transitions - more life or more of the “same old, same old” boring stuff?