Create a budget to help save money
For people not already enrolled in KiwiSaver, the thought of signing up can seem a little daunting at first, particularly if the idea of investing money is new to you. Similarly, if you enrolled by default when you last started a new job you might not have paid any attention to it since. Either way, because of how KiwiSaver is structured, it pays (literally) if you spend at least a little time considering your options to ensure you’re getting as much bang for your buck as possible. The following five tips will get you off to a great start in terms of securing your financial future.
1. Find the right fund
KiwiSaver is more than just a fancy savings account, it’s a genuine investment scheme. Your KiwiSaver scheme provider takes your money and invests it on your behalf in different investments such as cash, bonds, gold, or company shares - all going well, by the time you’re eligible to withdrawal your savings you’ll have some extra money on top of what you contributed. It’s up to you to choose the type of investment fund you want your money to go into.
KiwiSaver scheme providers typically have a range of ‘funds’ for customers to choose from. Each fund comes with a different level of risk – the higher risk an investment carries, the higher the potential return. A ‘growth’ fund will generally offer better returns over time but carries more risk. A ‘conservative’ fund has less risk but offers a lower return over time, so you need to choose the right one for your particular circumstances. Your KiwiSaver scheme provider should clearly spell out the differences between the funds and can offer advice on how to decide which is a best fit.
Tip: Investments can go up and down over the short term, it’s entirely possible for your balance to go down depending on how the investment is performing. Remember, it’s a long game and don’t panic if you see such fluctuations in your KiwiSaver account balance from time to time.
2. Check your benefits
KiwiSaver brings with it a number of entitlements that can really pay off if you know about them. The government will actually contribute up to $521 to your KiwiSaver savings each year provided you make a minimum contribution yourself of $1042. This is called the Member Tax Credit (MTC) and it applies even if you make a lump sum contribution of that $1042 just before the annual cut-off on 30 June of each year. However, you need to be eligible for the whole MTC year which runs from 1 July – 30 June each year.
Tip: Did you know your employer contributes the equivalent of 3% of your pay to your KiwiSaver account on top of what you pay? This is called the compulsory employer contribution.
3. Ensure you’re contributing enough
KiwiSavers can choose one of three contribution rates - 3%, 4% or 8% - choose the amount that ensures you at least get your Member Tax Credit each year, and then whatever you think you can spare from your pay packet. Remember that the more you contribute now, the more you’ll have to retire on when the time comes. Even small increases can really add up over time and you can make lump sum contributions on top of what you usually pay, at any time.
Tip: If you’re not working or self-employed you can choose how much you want to contribute to KiwiSaver. Each KiwiSaver provider will have its own rules on how much this needs to be.
4. Check the tax rate
Income that is generated in your KiwiSaver account is subject to tax. When you sign up you must choose which PIR (prescribed investor rate) will apply - get this wrong and it’s possible you might be paying too much tax.
Tip: There are plenty of online calculators that can help figure this out for you, you can find the BNZ PIR guide by clicking this link.
5. Avoid a hands-off approach
Once your KiwiSaver account is set up and ticking over nicely, it’s important to check in from time to time to ensure you are on the right track (we recommend doing these quick check-up’s annually – but it’s up to you). Many providers have online portals to keep track of the balance - BNZ, for example, shows your KiwiSaver account balance within internet banking. At certain stages of your life you might want to take on some more risk to increase possible returns, while at other times you could be better off in a conservative fund.
Tip: You can change the type of fund your KiwiSaver account is invested in at any time. Simply get in touch with your provider, explore the options and make the change.
BNZ Investment Services Limited, a wholly owned subsidiary of BNZ, is the Issuer and Manager of the [BNZ KiwiSaver Scheme].
A Product Disclosure Statement is available [on www.bnz.co.nz or at BNZ stores].