1. Buy expensive, sell cheap.
DALBAR has been publishing annual studies for 23 years showing how investors always get a lower performance than the relative index – and it is entirely based on emotional buying and selling.
The best process with investing – whether in KiwiSaver, multi asset funds, shares or property – is to determine a smart plan to set up a robust, diversified portfolio for a set length of time – and stick with it. If you find yourself second guessing things, get financial advice.
2. Throw good money after bad
Be very careful with buying into foreign exchange trading programmes or gambling investments. These are speculative and often have high underlying costs, so only put money into these if you can afford to lose all of it.
Don’t pay for things that you don’t need or don’t use. Look at how much money are you spending on subscriptions or memberships that you don’t use i.e. the gym, Netflix etc.
Review the insurance that you have in place – are you over insured or paying for the wrong type of insurance?
3. Book up unsecured debt
The interest rates on unsecured debt are eye watering. The average annual interest rate on credit cards is still 19.95% despite the fact that mortgage rates are at almost record low levels.
Unsecured personal debt interest rates are lower, but are still crippling.
Try and avoid this type of debt at all costs.
4. Not sign up for KiwiSaver
If you are a salaried wage earner, by NOT having KiwiSaver, you have taken a 3% pay cut. You are also missing out on the Government member tax credits if you are aged between 18 and 65. If you are not in KiwiSaver, get some advice about whether it is right for you or not. In all my years as a financial adviser, I have only advised one person that KiwiSaver wasn’t right for them!
5. Pay day loans
These are short term unsecured cash advances against your wages. The amounts that you can borrow are small, so the fees make the cost very high. The effective interest rate on this type of loans is around 400% because the fees are so high for a small loan (usually a maximum pay day loan is around $600). The Government is cracking down on these types of short term debt and capping the amount of interest that people are paying on these so that a borrower can repay a maximum amount of twice what they borrow.
If you feel that you need to use a pay day loan, please seek budgeting advice. Another way to avoid having to access this high interest debt is to set up an emergency savings account and transfer some money – even a small amount – into it each pay day. This will build up a financial reserve for you, so that if something drastic happens, you will have some money that you can access.
Janet Natta is a financial adviser and director of Smart Money Advice, offering investment portfolio construction and management services to clients throughout NZ, as well as comprehensive financial planning advice to assist clients to build and protect wealth to achieve their dreams.
DISCLAIMER: The information contained in this article represents the views of the author. It is based on information believed but not warranted to be correct. Any views or information, whilst given in good faith, are given with an express disclaimer of responsibility and no right shall rise against any of the authors or Smart Money Advice or their employees either directly or indirectly out of any views, advice or information.