Keep The Change - Blog
Fancy a read? Here is the full list of our weekly emails for you.
In case the contents of this email are topical, it was first sent on 21st May 2020.
Welcome to the first edition of Money Mail,
What an amazing response - thank you!
I want these to be bite sized and easy to consume. Something to look forward to each week.
I can’t promise that you will learn something new every week but I can promise you that it won’t be the worst thing you read on a Friday.
Stick with these lessons and take your learning seriously.
Where did the name ‘Keep The Change’ come from?
One day last year, I was buying breakfast: 2 eggs on toast with salmon.
It cost me $19 so I handed over a $20 note and they went to give me a dollar back.
In autopilot, I said ‘Keep The Change’. Something we’ve all done before no doubt.
I sat down and thought about what made me do that? Part of me wanted the $1 for my car coins.
But I had been studying ‘abundance’ and the theory that there is A LOT of money in the world.
Maybe I had been studying it so closely that it rubbed off on me. I didn't need the dollar, I trusted that I would get another one soon.
That is an important part of learning about money.
Who’s lessons have rubbed off on you? Who’s lessons have you decided to be ‘your truth’?
If you learn about money from people with a scarce mindset to money, do you expect yourself to believe that there is an abundance of money out there?
If you believe money is the ‘root of all evil’ then what’s the story with all the nice people who have quite a bit of money? They still seem pretty helpful and keen to use their money to help.
FACT: If you are a broke a$$hole OR a rich a$$hole...you are still an a$$hole.
Human beings are goal oriented. We are often ‘programmed’ by the information that surrounds us. We make things real, that we think. We need to be careful who we take our lessons from and what we think.
As we grow up, we pick up on the lessons we hear ‘money doesn’t grow on trees’, ‘the Fonterra CEO gets paid too much’, ‘don’t tell people what you get paid’, ‘if I won Lotto, I would…’, ‘rich people are greedy’, ‘a penny saved is a penny earned’ and on and on we go.
NONE of these things actually help us understand money any better or how it works so you need to arm yourself with actual knowledge around money - that is YOUR responsibility.
Activity
Be open minded and sit down and make some notes about who taught you about money and what you learnt from them,
Do you think money is a good or bad thing? Have a think why you believe that.
I think the best teachers of any subject are the people that have been there and done it so look for those people you have access to in your life and ask if they will help you?
Keep The Change is about believing that there is a better way with money. We don’t need to struggle through life and it’s OK to want to be on top of your finances + financial literacy.
Alright, nice and easy this week but get ready because next week we’ve got to get straight into BUDGETING and there is a spreadsheet involved (I know, I know!).
Have a good weekend,
Luke
In case the contents of this email are topical, it was first sent on 28th May 2020.
7am this morning consisted of 2 coffees too many and time with a New Zealand Rich Lister.
Why? I can’t remember half the sh*t i’ve read in text books but like I said last week, I am a big fan of learning from people who have been there and done it before.
They are just ordinary people like you and I. I got home and did a mind dump of lessons so I can revisit them in future.
How? Admittedly I have a connection with them but just sent a message and asked to chew the fat. Easy. Don’t over complicate things. Learn from people you know are smart.
Now here we are...Week two is probably the most homework you’ll need to do {first_name},
Apologies in advance but unlike a calculus class, you already have most of the answers.
In this email you will find a link. Do not approach this link in public. It is extremely practical and will require you to take it seriously.
The link is a folder from within the ‘Keep The Change’ content and has budgeting templates:
https://drive.google.com/drive/u/1/folders/1djmETm-76k4gEwb9EupQ_Hx0x4BtGT0Y
Yup, I know some of you have attention spans shorter than mine so I even made a video explaining how to use the tools.
Now you may think these templates are too simple. Good, that is the whole point. If you are an excel freak then brag to your own mates, not any of us.
The point is to start with these and MAKE THEM YOUR OWN to suit your situation (and brain). OR use the template you already have.
Why?
Part of the budgeting process is taking your money seriously. Businesses are required to do this but individuals don’t often do it. You might have a better budgeting tool, but are you using it regularly to help you plan your month and calculate your ‘net worth’?
Net Worth
Your worth is much more than just dollars in a bank account BUT tell that to the bank when you go for a loan. They want to know what assets you have and what liabilities you have. You’ll find those on the financial position tab of the template.
To give ourselves a chance of financial freedom in life, our budget should be mapping towards us increasing our ‘net worth’. That is, having more assets than liabilities (debt).
Tracking this does something for your brain - it helps you recognise your progress regularly, rather than just when the bank asks.
Activity
Budgeting does suck a bit but so does being broke. Did you know that if combined, NZ households spend more than what comes in? Sounds like a lack of budgeting. Household ‘net worth’ goes backwards and we are spending debt to cover the shortfall. Not gooood is it!
Have a budget weekend,
Luke
In case the contents of this email are topical, it was first sent on 4th June 2020. |
Right now, during COVID, people in the US are saving more than they ever have before.
In April, retail spend via credit card in NZ was down $2.6billi (48%) on March. That’s about $520 per Kiwi. Did those people move to online shopping or did they save it?
Kiwi's saved it too, as deposits with bank increased by 7.8% (biggest jump since 2017).
Pre COVID, I found data that 60% of Kiwis don’t have $500 saved. Then data that 60% of Kiwis don’t have $5,000 saved. I believe the first one because most Kiwis live pay cheque to pay cheque. The second one probably factors in KiwiSaver.
BUT what’s the point of saving if interest rates are so low? You could make a case for not saving as much anymore as it's not going to earn you much interest (after tax and inflation).
Just be careful not to accept old methodology here. 'Go to school, get a job, save money, earn interest'. Great when interest rates were 5%. Today, interest is at record lows.
If I taught my children this in 2020 I would knock myself out for not encouraging them to push for more. Interest on deposits is 2%, tax that at 33% and you are left with 1.34% growth on your money. $134 of interest on $10,000 over a year.
Then there is inflation. Stick with me here.
Inflation is the rise in price levels in an economy. Our current 2 percent inflation means $10,000 NZ dollars will be worth $9,800 dollars in one year. You can say an F bomb now.
You yourself can generate a return higher than 2% to protect yourself, but can your money? We'll explore that another time.
It’s all confusing isn’t it. But here’s why we need to think about saving - it creates habit.
Habits create consistency. Consistency creates results.
If you can’t save when you make $50k you can’t save when you earn $80k.
I didn’t choose to believe that because I wanted to get to $80k to prove I could be a saver.
Poor strategy that. I wasted years and missed plenty of opportunities.
As we earn more, the money comes and it goes. You know that feeling don’t you Sam.
Try this. As soon as you get paid, get rid of some money - save it. Out of sight out of mind. Send it off to savings school whilst you learn about creating a good habit.
Now you have less cash to make poor choices with. Your life will adjust to the amount of cash you have access too.
You can’t shout 10 mates jäger bombs if you don’t have access to $180*
I once paid off a $15k credit card using this exact process. Money in, pay down the card (just like saving except instead, paying for a ‘few’ poor life choices).
Every payday this was me - ‘’Hi Westpac it’s Luke here...again. Yeah please decrease my credit card limit by $500. I need to repay my sins. God bless you and talk in a fortnight’’.
That’s 26 fortnights and 26 phone calls. Sh^t it was demoralising. But it was effective and I got to know a few of the phone staff at Westpac (always chase the positives).
Limit your access to cash to discourage stupid habits.
These days when I get paid, savings go straight to my Sister. Seeee ya. No risk of 10 round jäger bombs. No chance she’s sending it back to me without good reason.
I’m building a habit and adjusting to the remaining cash I have available. No matter what income level i’m at, this habit will help me. Repetition is key to most things in life.
Activity
Finally something fun: Have you ever thought about the fact that the IRD apply this same tactic to you? They tax you before you even get paid, they aren’t stupid enough to trust you to hand it over. Gee sus, imagine if they let you pay your rent, bills and latte’s before asking for their tax. The country would be in even more debt than it already is.
BUT it is a bit different for businesses, they pay tax at varying dates - something else business has in its favour - options. More on that another time.
Well there was a lot there this week, I think a lot of you just had your mind blown about inflation and the fact your money is going backward. Sorry about that, but we need to educate ourselves because yesterdays education isn't fit for today's reality.
Have a good weekend,
Luke
In case the contents of this email are topical, it was first sent on 11th June 2020.
Last year I broke a girl’s heart.
Her name was Sarah and she came to work at nextAdvisory (accounting business) during a placement to finish her study.
In week one instead of teaching her about how an abacus works I took a whiteboard marker and said watch and learn.
I wanted to teach her what I wish I learnt at my Summer internship. But I knew it was going to hurt.
I wrote down $52,000 on one side of the whiteboard and $100,000 on the other.
The average New Zealand income is $52,000 so let’s work through that:
Income
$52,000
Less: Tax + ACC
$9,343
Less: Kiwisaver 4%
$2,080
Leaves You
$40,577
$40.5k to last you 52 weeks.
Costs
For most people this includes things like: rent, power, phone, internet and insurance, food, miscellaneous items, kids' activities, school fees and daycare, vehicle and pets.
What about
Savings, holidays, birthday’s, Christmas, doctor and dentist visits. We haven’t even factored in the 12% on the student loan to get the degree.
Oh and clothing, we can’t do life nude anymore apparently.
How the hell is one supposed to get ahead with that level of income?
But this is where we get taught not to be greedy and to be satisfied with average otherwise you get accused of being ‘money hungry’ or all the bullsh*t terms people come up with to make sense of average.
Gee we’d hate to be ungrateful and expect a bit more from life wouldn’t we? Be horrible to have a goal of $100,000 a year, contribute more to society through tax and then be able to donate to some causes you care about too?
Surely that will solve everything? Next week we’ll work through what the elusive 6 FIGURES looks like.
Back to poor ole Sarah, she joined us to finish her degree and in week one got smacked with a money lesson that they weren’t dishing out at university.
I wanted to wake her up so that she didn’t get caught in the 6 figure trap that if you get through the accounting levels to finally reach $100,000 you have clocked life. Hey, if you are happy, that is more important and maybe you have clocked life.
Whilst with us, Sarah started an amazing podcast called ‘The OneUp Project’ which shares finance tips and tricks, interviews with business owners and understanding things like Sharsies. Check it out.
We also taught her about side hustles and learning early about challenging the status quo.
She’ a bright, smart young lady who deserves more from life than 'average' & so do you.
Activity
Have a think about what A LOT of money is
Tax is going to crush one third of that in some way shape or form
What is your income goal and has today’s Money Mail made you question it?
Start to think about how you might be able to add income to your life - we’ll explore that together another time
Happiness: These emails will often be confronting and challenge what we’ve learnt about money. Happiness should always be at the heart of your goals.
AND don’t forget in week one we said if you are a broke a$$hole or a rich a$$hole, you are still an a$$hole...the same thing for happiness.
Don’t have an average weekend!
Luke
In case the contents of this email are topical, it was first sent on 18th June 2020.
Last week we looked at average. This week we look at making it to 6 figures of income.
This is roughly about a 1 in 10 chance for Kiwi’s. Like anything money related, it is hard to find quality data so 10% is probably being kind.
My goal was to hit $100,000 by 30. Surely you can coast to retirement from there?
I used to think that was the figure to target. Move to Auckland and you learn pretty quickly about the cost of living in a city where transport crushes a good portion of your income (and time) let alone having a roof over your head, visiting rainbows end, or watching Beauden Barreeet slot a few at Eden Park with you.
Anyway, let’s work through $100,000:
Income
$100,000
Less: Tax + ACC
$25,310
Less: Kiwisaver 4%
$4,000
Leaves You
$70,690
$1,359.42 in your hand per week of the year. Seems pretty decent!
10% Savings
Let’s say you take on the rule of saving 10% of that $70,690. You’ll save $7,069 per year. Ignoring interest, growth and inflation, that will give you $70,690 after 10 years +$40,000 in Kiwisaver.
Would you be happy with that? That’s for you to decide. You should certainly be grateful at least. Because you are in the top 10% of earners in New Zealand.
There are no right or wrong answers here. There are no silver bullets either.
1 in 5 households earning $150,001 or more said they had only just enough, or not enough, money to live on.
About 1 in 3 households in the $100,001 to $150,000 bracket felt the same.
This highlights that we can’t rely on small thinking or simple ‘Save 10%’ rules to give us financial freedom in the long run.
Times have changed and we need to learn how we fit into all of these income brackets and spending situations.
If we can’t get our relationship with money in order, spending habits under control and a saving system sorted, it won’t matter what income we earn; we will struggle to make money work for us.
Every person's situation will be unique so you need to create a unique saving strategy based on your goals.
Oh don’t forget our costs from last week:
Rent, power, phone, internet, insurance, food, activities, kids, school fees, vehicles, pets, clothing, birthday’s, coachella, Christmas, health...it goes on.
Activity
• Are you grateful for your financial situation or constantly looking at it from a negative perspective?
• How can you remind yourself to have perspective and gratefulness?
• It’s ok & normal to want for more - set a long term goal and picture having it
Next week we’ll look at tax (yuck... but don’t unsubscribe...i’ll make it simple) then we are back to month end and reviewing/confirming our budgets and Net Worth.
Hey, before you go and crush your Friday, I’ll leave you with this.
Don’t have a six figure weekend if you don’t earn a six figure salary.
Luke
In case the contents of this email are topical, it was first sent on 25th June 2020. |
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Now before you jump into the next email in fear of dying of boredom learning about tax; remember you’ll get taxed until the day you die.
Sad but true. You should at least understand the basics. It’s time to go to Tax School.
TRUE - New Zealand has a progressive tax scale which means as you earn more, you progress into higher tax brackets.
FALSE - As you earn more your ENTIRE salary is taxed at a higher rate.
Let’s look at the current New Zealand tax rates and dust off a few examples.
NZ’s Current Tax Rates $0 - $14,000 10.5% Tax $14,000 - $48,000 17.5% Tax $48,000 - $70,000 30.0% Tax $70,000 + 33.0% Tax
EXAMPLES
A) If you have a salary of $12,000 you pay tax as so:
The $12,000 at 10.5%
B) If you have a salary of $52,000 you pay tax as so:
The first $14,000 at 10.5% From $14,000 to $48,000 @ 17.5% From $48,001 to $52,000 at 30%
C) If you have a salary of $100,000 you pay tax as so:
The first $14,000 at 10.5% From $14,000 to $48,000 @ 17.5% From $48,001 to $70,000 at 30% From $70,001 to $100,000 at 33%
As you know, our average salary in New Zealand is $52,000 so most people sit in the 30% tax bracket BUT only for $4,000 of their income ($48,000 --> $52,000). Activity • What tax bracket are you in? • How much tax will you pay on your income as per the rates above? • Teach someone close to you these rates so they understand • Make sure the bank and Kiwisaver provider have your correct tax rate (so they can correctly tax your interest, dividends etc.) Hopefully that wasn’t too taxing for you. It is so important to understand how this stuff works before falling into the trap of believing ole Terry Ten Taxes down the local pub leaning against the bar talking sh*t. Before we next speak, June will end so you should be back in your budgeting and financial position worksheet (see Money Mail 2) to track your progress and plan for July. We have a BIG e-mail on this next week.
Be good out there.
Luke |
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In case the contents of this email are topical, it was first sent on 2nd July 2020. |
If you were a confused child, you probably studied accounting at university and learnt about month end.
If you were normal, you picked another degree and you’ll have no idea what we are talking about.
I shouldn’t take the p*ss out of accountants, everybody else is good enough at that.
Month End is a process where a business confirms account balances to produce reports representing the businesses financial position to inform management, investors, lenders, and regulatory agencies.
Boring! Probably, but it shouldn’t just be for businesses.
I believe this is one of the fundamentals of finance that individuals don’t get taught.
This leaves us behind and means we don’t have a consistent focus on our financial progress.
If you implement one thing from Money Mail and this process is it, you will be miles ahead of the average person in the street and you can shout me a beer one day.
An accounting degree may be another form of contraception but at least we learn this process.
Now you are going to also (the month end bit not the contraception bit).
The important part of this process is actually doing it and doing it consistently.
Every month (or more regularly) you want to build the habit of reviewing all of your assets and all of your liabilities to update your financial position.
Set a new 30 day goal and make the following month about achieving it. Review last month's 30 day goal and figure out how you nailed it or where you went wrong? This is where your cashflow template helps you spot money leaks.
Ultimately you want to see your Net Worth (assets less liabilities) increasing over time.
There will be months where unexpected life events dent your net worth.That’s ok.
The process is more important than the output. This is a great way to become serious about your financial learning and understanding.
In week two you received a template to learn all of this, as well as a training video - revisit that.
Activity • Do you have your worksheet? If not, link below or see Week 2 of [Money Mail] • Prepare your budget for the upcoming month • Complete your ‘financial position’ for the end of June 2020 • Take time to reflect whether you have made progress and if not, why not? What are you happy with and what aren’t you happy with? • Does your progress map back toward the goals you set at the front of the worksheet? • Repeat this process monthly Month end should always be a bit of work and part of that is YOU, yes you...stopping to reflect on where you are at and where you are going.
It doesn’t need to be complicated but it does need to be done. There's a new video on the KTC Facebook page demonstrating how to use the folder and worksheet.
Have a good month end,
Luke |
In case the contents of this email are topical, it was first sent on 9th July 2020. |
Two years ago, I went through a huge & messy break up.
It was painful, very painful. It wasn’t some fling like you’re picturing from too much time watching that junk Love Island. We’d been together for most of my life actually.
This is embarrassing because you probably know who it is. Her name (think she was a she, still unsure really) was ‘Be’n Broak’. Pronounced - Being Broke...
She’s still screwing half the country with her seductive nature, fake accounts and overrated bio.
I’d had enough and I built up the courage to let Be’n Broak go. Be seein ya!
See I think being broke is partly a choice and no doubt that is very hard to wrap your head around but think about it...
People want to be rich. They win Lotto and spend the lot. They end up back at broke. What the hell!
We have to decide to be rich, to be happy, to be a provider, to be [insert your own positive word here] before we will actually become that.
Two years ago, I made a decision. A commitment to being rich. Rich in the way I look at the world, rich in energy, positivity, abundance, good, help, care and money too.
See 'rich' doesn't just have to be money. Rich - existing in plentiful quantities; abundant.
I was so sick of Be’n Broak. Of temporarily breaking up with her and then she’d turn up again. Couldn’t shake her even though i’d see her out with all the fellas. Probably could have been a reality TV show the more I think about it.
I decided I would start learning and keep learning. I study people who are rich, wealthy, healthy, fit, loving etc….To remind myself firstly, it is possible and then challenge myself as to how I will put my take on their principles, into practice.
Basically retraining my brain that it’s possible to live without Be’n Broak and to chase riches in all aspects of life.
Tell you what though, ole mate Be’n Broak still sneaks up on me and tempts me with her comfort and familiarity. My word I nearly fall for it sometimes too.
I have decades of history with Be’n Broak so I shouldn’t be surprised that I have to train myself to not fall back into my sinful ways.
You see everywhere we go, we are blasted with information trying to keep us broke. Sales. Freebies. Discounts. Interest free debt. Have now, pay later. It goes on and on.
Even when we have money we want to find a way to get rid of it.
So you need to make a decision. A decision not to live like the ‘average’ and people who aren’t reading this.
Let those people sleep. We’ll stay awake and aware to what is in front of us.
Remember, this is not to be confused with keeping yourself broke with limited access to money. That is in fact a tactic of discipline and belief that there are riches out there.
Activity • Have you been seeing ‘Be’n Broak’ too? Naughty! • What crap belief do you need to divorce? • What messaging are you subscribed to, that is trying to keep you broke? [Think: finance notifications, 'extend your credit card now messages', daily sales for sh!t you don't need • What tricks of 'Be'n Broke' do you keep falling for? • Over the next 7 days, keep an eye on just HOW MANY things are competing for your $$$ Sorry to drag you into my personal life but I had to get this one off my chest.
Send my regards to Be’n Broak this weekend,
Luke |
In case the contents of this email are topical, it was first sent on 16th July 2020. |
We are going to move into some content around earning extra money and ways to do that.
Before we do though, we need to address the elephant in the room. He’s right over there ---> ‘Secondary Tax’.
To earn more, the seemingly easiest thing to do is get a second job?
BUT ‘Don’t get two jobs, you’ll get double taxed’.
If I had a dollar for every time I have heard this, I wouldn’t ever need a second job.
As an award winning Chartered Accountant (thank you, bragging here) I think it’s time to burn this myth.
So let’s do it via a simple example.
Be’n Broak has 1 job and earns $70,000
Terry Ten Taxes has 2 jobs and earns $40,000 in one and $30,000 in the other (a total of $70,000)
Be’n Broak and Terry Ten Taxes both pay the same amount of tax.
That’s it, we are done...Realistically we could say there is no such thing as secondary tax.
I would hate to know how many people haven’t taken a second source of income in fear of having to pay ‘secondary tax’ which they think is double tax.
TRUE - Secondary tax is the name given to the tax rule that applies when a person has more than one job.
FALSE - Secondary tax is A LOT more than tax on the first job.
If that's all the comfort you need, you can skip down to the example. Otherwise dig in here, we have to go deep for a bit to see how people got so confused over the years.
The secondary tax rate system aimed to tax someone who earns (say) $50,000 in total from two jobs, the same as someone who earns $50,000 from just one job.
The second job is taxed at a higher flat rate because of our progressive tax system which taxes low earnings at a lower rate than higher earnings. You learnt this a couple weeks back.
The main job gets taxed at the lower, accurate tax rate and the second job is taxed at a higher rate. It isn’t double and you don't end up paying more than needed.
FOLLOW THIS EXAMPLE You have two jobs and your income from each employer is $30,000. Each employer deducts tax at the rate of 17.5%. (Remember the tax rate for income between $14,000 to $48,000 is 17.5%).
BUT your total income is actually $60,000, which places you in an upper tax bracket ($48k - $70k) as your total earnings are above $48K.
The Inland Revenue would then chase you for the shortfall (the difference between the 30% and 17.5% on the income over $48k). Therefore, secondary tax was designed to avoid shortfalls by taxing your second income at a flat rate - in this example the flat rate would be 30%.
HOWEVER these days it is even simpler and better set up. Throughout the year, the Inland Revenue monitors the tax paid by wage & salary earners and if it looks like you are being over taxed, they will suggest a more suitable PAYE tax code tailored to that total level of income. The IRD will now automatically refund any overpayment of tax at year end also.
What did you just learn? Secondary tax isn’t ‘double tax’. The most important thing for you to understand is that you are not going to pay more than your fair share of tax because you have two jobs or income streams.
At year end if you have paid too much in tax, the IRD will refund it, so you aren’t paying more than your fair share.
Activity • Don’t be scared about being ‘double taxed’, it isn’t true • Learn tax from people who know tax, not from someone down the pub • Your primary tax code only covers your main source of income. The secondary code will cover your second job - if you have two jobs make sure you are on the right code with your employer • Now that we know we aren’t going to lose ALL of our money to tax, over the coming weeks we will explore some ways to add some income into our households. Have a double weekend,
Luke |
In case the contents of this email are topical, it was first sent on 23rd July 2020. |
Now that we have learnt that we aren’t going to get ‘double taxed’ and that our top tax bracket is 33% in the dollar, we can explore ways to make some more money.
Because most Kiwis are taught to go to uni and get a job….Hold on wait what did you just read? Yes you are suddenly having flashbacks to your secondary school dean being so persistent on you going to university aren’t you?
Oh you don’t think your school was keeping bragging statistics on how many students they had ‘progress’ to university?
Let’s continue, before we get on to some conspiracy thinking...Due to this pathway, for most people, the only increase we learn to ask for (or expect) is a pay-rise.
How dumb is that when you think about it? You work your a$$ off for a year in the hope you will be paid more, to do the same thing next year.
‘5% plus inflation please boss’.
‘Sorry, not this year, we are in a recession’.
Well sh!t you better learn how to negotiate a pay-rise then. If that is your only tactic to increase your income, you'd want to get good at it wouldn't you?
What about if you decide you wanted to give yourself your own pay-rise. How do you do that?
• A second job • Think about ways you’ve made little bits of cash previously, can you do more of that now? • Can you sell anything you don’t need? Can you sell something to your neighbours? • Have you seen someone sell something and think ‘I can do that’ (and then done nothing about it?) • Do you have a friend selling something and know you can give them a hand? • Do you have some knowledge you can package up and sell? • Buy less dumb sh!t - sorry had to sneak that in • Can you become a referral source to someone else generating income? • Anything you can rent out? Room, car, equipment, assets, storage, car park? • Consider a TEMPORARY Kiwisaver contribution holiday - this stops you contributing to your Kiwisaver and holds more money back, can you do something smart with this? • Is your IRD info up to date so that you are paying the right amount of tax? Here’s one from left field - don’t think about what you do for your job, instead, think about what the business you work for does for other people.
Now see if you can help them make more money/sales. Effectively swapping from your role to part time ‘salesperson’. Ask for a cut of the income you introduce to the business.
What did you just learn? No matter your situation, there are many many ways that you can increase your income. It’s not something too many people talk about as it just seems unachievable.
Pick something you know that you can make work and master that for a while. Then move on to another tactic.
Activity • Do you even need any further income? • Did any of the above give you some ideas of things you can do? If so, how can you take action? • Can you become a part time salesperson for your current job? Seriously think about it and have the conversation if you are in that position. Kiwi households continue to spend more than they earn. How do they do this...by spending debt. Obviously NO ONE is teaching people how to generate more income.
Make it your responsibility, so that one day you can teach your children the same thing.
The weekend is incoming,
Luke |
In case the contents of this email are topical, it was first sent on 30th July 2020. |
Last week I heard about some of you guys selling things you don't need. Then I saw some blokes start a platform where you can hire out stuff in your house you don't need.
Outstanding, Kiwis thinking about putting more income into their households.
What if money flowed in week to week and we didn't have to do anything for it, wouldn't that be dreamy?
Wait a second, isn't that called 'Passive Income?' Is that even a real thing?
Quick Google: Passive income is income that requires little to no effort to earn and maintain.
Sh!t no wonder we are all keen on it, little to no effort to earn and maintain.
Examples of passive income include rental income, dividends and any business activities in which the earner does not materially participate.
Growing up we are mostly taught that earning money is ‘hard’ so to hear that there is a form of income that takes little or no effort to maintain is absolutely unbelievable.
However, those two words are a bit of a boom misconception because the idea of making money for doing very little is so enticing, yet passive income still requires a lot of work to put in place.
I think we are just missing the education of how you get to the point of having ‘passive income'.
It's called a sh!t load of work.
Take Fran the farmer for instance, she busts her ass for 30 years, pays down the debt of the farm, own all the stock and decides she doesn’t want to pull tits anymore.
She keeps everything in place and decides just to oversee the farm. Even after paying a farm manager and staff, the farm still generates a profit and provides Farmer Fran with a passive income.
BUT ole mate Fran still had to do the work to make this happen - don’t forget the 30 years of setting herself up to be in this position.
Our desire for passive income probably comes from our love for rental properties. The ultimate Kiwi clean up.
This has been New Zealand’s safety net of financial growth for as long as we can remember.
Generally we expect houses to double in value every ten years and that’s why people want a house as an investment because it’s a ‘safe investment’ that according to history, can’t go backwards.
They also come with passive income streams when you rent them out to people.
Take Rene the rent ranger, he gets paid a weekly rent for people to use his house. Of course he's got some bills to pay on that property (usually debt too) but as the debt decreases, these properties can become cashflow positive (more cash in than out).
Rene uses the 'equity' (how much of the houses value that isn't debt) in one property to buy the next one. Magic (it's real name is leverage). He uses this strategy effectively to acquire multiple properties and multiple streams of rental income too.
Rene is dreaming big; in 20 years, he wants to have 5 houses (average of 3 people per house) resulting in 15 people paying him money he doesn't have to do too much for! Thats passive income. Oh and hopefully the growth of the 5 house's values.
What did you just learn? Passive income is a real thing and it is possible but there are a lot of dreamers that think it happens without hard work or putting actionable steps in to achieve it.
Income streams still require hard work and more importantly, ground work. Your relationship with ‘passive income’ should be understanding what it is and how to achieve it but not wanting ‘easy’.
Month End It's that time of the month again...month end! You need to be back in your budgeting template, cash flow and financial position. Get it done, build the habit.
Activity • Jot down some examples of passive income, then spend 5 mins on google looking for examples (how about renting out a spare room...) • Complete your month end financial review - spend 15 minutes with money as the focus.
Be good out there, Luke |
In case the contents of this email are topical, it was first sent on 6th Auguts 2020. |
Now that we know what passive income is, we can look at New Zealand’s most common form of it.
The pension. The what? The bloody pension. It’s what you get paid when you turn 65.
At the moment, basically everyone qualifies for it and as soon as you turn 65, the government start paying you a pension every fortnight.
Remember, passive income is income that requires little to no effort to earn and maintain.
A lot of people rely on the pension as their retirement income.
Well how much is this free money baby? Good question, let’s take a look at an example.
EXAMPLE My good friend turns 65 and is single because they spent too much time thinking life should be like Love Island. Every fortnight, the government send my good friend $847.66 (after tax). That’s about $22k per year after taxes. Not bad when you don’t have to do anything for it?
Right now you are probably thinking, gee sus Luke really made up for Dry July and got stuck in this week, why do we need to know this, we aren’t anywhere close to 65?
Before you get too worried about me, let me pour you a couple of stats on the rocks.
• 96% of people only ever trade time for money • 3% of people invest money to earn further income • 1% of people have multiple sources of income
The bloody wealthy at it again...obviously they have passive income don’t they - multiple sources of income.
THAT ALONE is why it is a good idea for us to understand passive income.
4% of people figure it out and execute. Not many people right. But to be fair, it will increase as people look to invest more and build up their Kiwisaver funds.
Let’s get really real here too...maybe, just maybe, the pension no longer exists or it becomes ‘means tested’ based on your Kiwisaver or assets. Who knows?
For a lot of us, 65 is a long way away and we know it costs the country a lot of money to pay out the pension every year.
I might be overly prudent but I do not, at all, factor in receiving a pension as part of my financial security.
Personally I think of it as a bonus. Another stream? Maybe one of multiple streams. The 1%.
Too many people are drifting through life thinking of the pension and their Kiwisaver as their retirement plan instead of thinking about what they could be doing right here, right now, before they get there.
What did you just learn? Don’t get to the retirement age before thinking about passive income streams. Can you build some out before you get there?
Activity • Who do you know who is over 65? Ask them about the pension and how much they get • Ask them if they think it's enough to live off? • Ask them what they would have done differently throughout their life? • Could you set a goal that by 65 you have another passive income stream larger than the pension?
Luke |
In case the contents of this email are topical, it was first sent on 13th August 2020. |
So many things to write about this week, including a market dip, Lotto ins and outs, KTC Night School's income comparison, account splitting and a sh!t hit the fan account.
I decided to stick to what we had planned and will tuck these topics up the sleeve.
Come on then, let’s step inside the boring world of rental properties. New Zealand’s favourite pastime.
Buy a house, rent it out, collect the rent, pay down the debt, house price goes up, buy the next one, repeat, happy days.
Why has this been so popular? Well apart from it always (mostly) working, Kiwis used to be able to claim any rental loss against their personal income.
Mini Lesson
BUT we stopped that and now those losses just carry forward to future years. Tax rules now say that if you buy and sell within 5 years, you are taxed on the gain also.
Will these changes stop people from investing in residential real estate? Probably not?
Is it something you should think about? Absolutely. One day it could form a passive income stream for you.
This could be the one passive income stream you understand so you’d be foolish not to investigate it to help your financial security long term.
Remember, passive income is income that requires little to no effort to earn and maintain.
Here’s what a lot of people do - they use the equity in their OWN HOME. They use the home they live in, to borrow against and buy a rental property to rent out and cover the costs + loan repayments.
This is where you need to see a mortgage advisor (or bank) to see if it is possible for your situation.
EXAMPLE Rene the rent ranger has a $750,000 home with a $320,000 mortgage. Rene’s equity is $430,000 (Assets - Liabilities).
Rene can lend upto 80% on his owner occupied home so can increase that $320,000 of existing lending to $600,000.
$750,000 x 80% = $600,000
Max loanable amount - Existing debt = Useable Equity
$600,000 - $320,000 = $280,000 (Rene’s useable equity).
Here is where it gets interesting, because Rene only needs a 30% deposit on his next property.
$280,000 is 30% of just over $930,000. That is your leverage - using $280,000 of equity in home A, to buy home B for $930,000.
Not a single dollar out of Rene’s pocket. Then Rene rents it out and the rent covers interest, rates, etc.
What did you just learn? The above example is designed to teach you how the concept of leverage works and how people turn one home into two, over time. Right now, rental deposits have been reduced to 20% - subject to change bank to bank. So technically Rene could leverage up to $1.4m off that $280k equity.
Of course, there are complicating factors in every different situation so always seek advice from an advisor but you should at least understand the concept, even if you don’t have a house yet.
Activity • You might need to go over this a couple of times to understand it • It’s important to not put yourself in a position where you over leverage yourself (too much debt to service when things get tough) • If having a rental property is how you want to build wealth, start finding people that have rental properties and learn from them • Do you need to speak to a mortgage advisor you can trust? We know a few. We’ll get into the taxation of a rental property another time.
Don't get too leveraged this weekend,
Luke |
In case the contents of this email are topical, it was first sent on 20th August 2020. |
You wake up and go to internet banking, knowing you’ve hit your overdraft limit.
Suddenly you see your bank account balance is now editable.
‘Beauty, I might just add an extra $0 in there’. Bugger it, maybe two! A warning sign comes up and says you may need to pay this back at some stage so you tick the box.
You: ‘yeah fark it we have to keep this household moving’.
You also tick another box that confirms you don’t really know how you will pay it back.
That is literally what is happening in New Zealand right now.
We’ve got the ability to edit our NZ bank account to the tune of $100 Billion. You know, nothing major, just a casual $20,000 for every one of us in the country.
No big deal, someone will figure it out at some point won’t they? Wonder who that will be.
Most Kiwis don’t even know this is happening. And some that do think it’s not a problem. Do you expect our journalists to write about something they don't understand? Would you do that?
Hey, maybe this isn’t a problem and i’m missing something. I actually hope this is the case.
But let’s play it out. The bank notice you’ve edited your bank account and slap you in the ear with a big D.
A Discussion about what the hell you think you are doing...the phone rings.
You: **Walks over to brand new iPhone purchased on After Pay** ‘Come on Westie, I signed the Pact to commit to figuring out how to repay it and even said my kids might if I can’t. What’s your problem?’.
I get to see the fall out of people who can’t pay their debts. It’s not fun.
Has anyone told you that globally we are at the height of a debt bubble? Didn’t think so.
That people who can't pay their mortgages can have a break until 31 March 2021 to figure it out?
How long can a bubble float upward and what happens to it eventually? I know you know this one.
Something is coming and here is what I think it is:
Mid term - people defaulting on their debt. More people gambling on the stock market. Long term - House prices rising in value. Global crash and the big D. Discussion about whether debt is a real solution to solving problems.
You: 'Come on mate you’re just writing a weekly email to 1,300 people pull your head in'. Like I say, I hope i’m wrong.
But one thing i’ve learnt in life is when everyone is zigging, you do well when you zag.
What did you just learn? Right now you are probably thinking, what the hell does this have to do with me? Isn’t this the government's problem?
Well the problem is they aren’t exactly overly efficient at problem solving. Plus you and I can’t control how they go about solving these problems (probably more debt).
Government: ‘we urge Kiwis to live within their means and borrow responsibly’ Government also: Prints money to pay its bills.
Makes sense.
This isn’t a political email because who ever you vote for, we are going to be in this situation anyway.
This email is another reminder to take control of the things you can control. Whilst you are at it, start planning for the next generation too - they will be glad you did.
Activity • Do you have an unhealthy relationship with debt? Maybe a little too comfortable with it? We all have, it's been the tool of choice for decades now. • Do you know how you could protect your children and loved ones over the next 20 years? If the debt tap gets turned off? It's time to start thinking about that. Next week, i’m going to show you how i’ve started doing this when I don’t even have kids.
Luke |
In case the contents of this email are topical, it was first sent on 27th August 2020. |
I am an Uncle,
Don’t worry, I don’t need you to pretend to be excited for me or DM me for pics.
But I have to tell you about the gift I got the little fella.
Instead of buying my sister a kids jumpsuit that my nephew will outgrow in about 6 months, I thought about a gift that would benefit him for much longer.
It’s boring though. My poor sister. She’s been so good to me throughout my life and probably just wanted me to send over the bloody jump suit.
But i’m too much of a geek and too practical. Don’t worry, my sister has been putting up with my antics for a long time now.
I was wandering through a baby store and thought man there is some over priced organic cotton with bananas on it in here, who buys this sh*t?
Well turns out billions of dollars get spent on kids gifts every year. Not the grinch though, I was outta there.
Instead of getting the latest woolen singlet with spew proof technology, I built the new addition to the family a little share portfolio.
I thought if we can compound out growth and regular birthday contributions for 18 years, he might be able to go to Harvard for university if he pleases.
Or he’ll learn about the ups and downs of the market as he gets a bit older.
By the time he gets to an age to take my sit down sessions seriously, we should hopefully have some nice compound growth and reinvested dividends adding to the pot.
The gift of education that can hopefully fund his education if he so chooses. Or maybe a contribution to a bigger life choice.
Who knows, that bit will be up to him.
My sister is still talking to me which is a good sign. She can’t have been too displeased with the spreadsheet I sent her.
I simply wanted to rethink the gift process and go away from sending excessively priced cotton. Plus, my Mums are wicked with knitting needles anyway.
Gifts are a big cost to us every year. Birthdays, events, weddings, baby showers, Christmas, Easter, Valentine’s Day, you name it, they are all designed to get you spending.
Legit, some of those days have been created to encourage you to spend.
Often we feel a pressure to provide a gift and feel bad about it if we don’t. Maybe make it a meaningful gift?
Instead of giving mind reading gifts that people pretend to be happy receiving, open up the communication lines and ask if they even NEED anything?
What did you just learn? My sister has a punishing brother. He’s a practical fella though. Sometimes we are on autopilot to giving gifts when people don’t even expect them. Do it your way.
If we start with (say) a $1,000 initial gift and add $500 at each of the next 18 birthdays, we end up with $10,000. But wait, if we achieve 5% growth every year it becomes over $17,000.
Activity • How much are you spending on gifts every year? • Do the recipients even need them or do you just feel like you should give something? • Is there some way you can use your skill set and knowledge to give a more meaningful gift? You’re gifted, let that be a part of your gift to others,
Luke |
In case the contents of this email are topical, it was first sent on 3rd September 2020. |
I heard this a few times when I was growing up. But I couldn't help myself. It was always just right there, so close to me and so tempting.
No, I'm not talking about my credit card. You sicko. I’m talking about my 'Sh*t hit the fan account'.
It sits there and builds up over time. It is available to you if something happens. Not something like Briscoes discounting a set of egyptian silk sheets though.
Something like losing your income or having a medical emergency.
How far should I build it up you ask? There is no one size fits all here so I am going to suggest you take the hard route.
Build it to be 3 months of your outgoings. How do I know 3 months of my outgoings? Well you’d use your budgeting and cash flow tool you already use every month wouldn’t you...
If something comes up and you have to deal with it then it can come from the shit hit the fan account.
But make sure you balance your shit hit the fan account back to 3 months of outgoings.
These days you can ask for a new bank account (get a low/no fee one) via internet banking so you have no excuses.
How quickly can you get there so that this doesn’t seem so daunting? My challenge to you is to go around the house and sell sh!t you don’t need.
Even a few extra hours at work. A tighter month on the partying. Just find a way to break the back of building this account.
Imagine how amazing it will feel knowing you have a buffer. Especially one that can get you through 3 months of tough times.
Unfortunately this is something that most Kiwis will never get to experience because we don’t do it and haven’t been taught to.
Think about the impacts of stress and worry that you always read about when tough times come.
What about the time we collectively waste as a country worrying about money?
PRACTICAL Run a seperate account (Account B) for your 'Sh*t Hit The Fan Account' where you move a % of your income from Account A over to Account B. You might aim for 2 or 3% of your income.
You are trying to build up a buffer that gives you confidence should anything unexpected happen.
Get to work generating some extra deposits solely for the purpose of building up Account B.
Get your brain in the habit of only analyzing Account A as your life account for spending. Forget about Account B.
This requires discipline and for you to place importance on understanding how freeing this can be for you as an individual.
Consider keeping this account out of sight and out of mind so you aren’t looking at it getting tempted to grab those egyptian sheets.
What did you just learn? A 'Sh*t Hits The Fan Account' which those more PC than me may call the 'rainy day' account, helps you prepare for a downturn, loss of income or an unexpected change in life.
This is always a wise thing to do but it also gives you a level of confidence and comfort should something go wrong - not many people have that.
Activity • Figure out what 3 months of outgoings are for you by using the budgeting tool • Set up an automatic payment to this account that goes out AS SOON as you get paid • Speed this process up: sell something you don’t need, do some overtime, to build it up. Righto, keep your hand off it until you really need it. But build it back up if you do touch it.
Luke |
In case the contents of this email are topical, it was first sent on 11th June 2020. |
Them: ‘Cannabis is going to boom’, You: ‘Is it? I better get some too….stocks that is’.
Them: ‘Yeah my Uncle works for Contact energy and said Elon Musk visited their headquarters via a solar panel powered electric rocket last week’, You: ‘I didn’t know that was a real thing but I better buy Contact Energy shares’.
Them: ‘Yeah i’ve got 45% gains in my share account, i’m basically a ‘day trader’ these days’, You: ‘Mine is only 13%, send me your stock list cuz?’
You: ‘I am over all of these ‘stock tips’ I keep hearing and don’t want to be a part of it’.
Well luckily for you, there is an easier way. Did you know you can buy stocks in a group of companies all at one time?
You can do this by purchasing an exchange traded fund (ETF) which contains a portfolio of securities designed to track specific indices. I.e. the top 10 or 20 stocks/companies in NZ (or even Aussie/USA etc).
The fund (ETF) buys shares in each of the companies in proportion to the index in the hope to mirror the performance of this group of companies in the index.
This means you are ‘diversifying’ and tracking the performance of a number of companies at one time.
There are A HEAP of ETF’s available to you via the NZ stock market. Even the US market - remember that you will buy them in $US if buying from the US markets.
EXAMPLE The ‘Smartshares NZ Mid’ Cap is basically made up of NZ’s top 50 companies, but excludes the top 10 - gets rid of the big boys.
I personally buy this fund as i’m a middle of the road sort of lad who was never tight with any of the top 10 untouchable cool kids when at school. I found many of them to turn out to have mummy or daddy issues long term anyway...
Check out the performance over 5 years. Pretty consistent growth right?
This ETF gives the buyer a stake in multiple industries providing some exposure to a broad range of businesses.
To give you another lesson - a business on the stock market generally exists to maximise it’s value to the shareholders. Not all survive but the people in these businesses are all trying to improve their value and their profits that flow to shareholders as dividends.
ETF’s usually charge you a fund (a percentage) each year to be a part of them. Perhaps a small fee to pay to track the performance of multiple industries and businesses. What did you just learn? You don’t need to be Warren Buffet to figure out the sharemarket. In fact you don’t need to know what you are doing. You just need to hope the people in the companies you invest in do…
ETF’s could be a good option if you want to be a part of the market but don’t want to pretend to be a know it all like the people at the top of this e-mail.
If you have 40 companies improving slowly over time, you'd expect the ETF fund to do the same - grow slowly over time. Keep your expectations realistic.
Activity • Google 'New Zealand etf list' and do some research of your own • Review whether there is an ETF or area of the market you’d consistently like to invest into • Is your Kiwisaver utilising ETF’s? Most probably and perhaps you didn’t know
Keep it simple this weekend,
Luke |
In case the contents of this email are topical, it was first sent on 17th September 2020. |
Below you will find the pathway that plenty of Kiwis borrow blindly from someone else and work their way through life.
Borrow for a degree
It takes on average 6-7 years to pay off your Student Loan if you stay in New Zealand and work, based on information in the 2014 Student Loan annual report.
Borrow for a phone
Usually paid back over 12 or 24 months.
Borrow to get from payday to payday
Credit cards, payday loans, afterpay, you name it.
Borrow for a car
Usually a 3-5 year term.
Borrow for an engagement ring
Optional.
Borrow for a house
Usually a 20 to 30 year loan. House debt of usually 7 to 9 times a persons salary.
Borrow for a boat
Usually goes on the mortgage ensuring the home loan stays at 20 to 30 years.
Borrow for house renovations
Goes on the mortgage too. Home loan stays at 20 to 30 years.
Now what…arrive at retirement and hope you are debt free on your property.
We are programmed to follow the same path to get to retirement with a debt free property and then collect the pension. Happily ever after.
Who really benefits from the above pathway of debt? The bank, every single time.
Guess how many people who followed the above path are on the New Zealand rich list? Zero.
Why not borrow someone else’s methodology?
What did you just learn?
There is nothing wrong with the above methodology if it gets you to your goal. You might not aspire to be on the NZ rich list, that's sweet too. But you need to think differently if your goal is to want more than the above outcome.
If you know you want more from life than the most common pathway, you need to borrow someone else’s pathway and learn how they did it.
Activity
I hope you checked out The Undercover Billionaire. That bloke certainly didn't pick the above pathway.
Luke
In case the contents of this email are topical, it was first sent on 24th September 2020. |
This week is mental health awareness week.
What’s that got to do with money? Because we’ve all been taught that money doesn’t buy happiness…
Well money causes a heap of stress, anxiety, worry and arguments.
None of those things are healthy.
Let’s be honest, financial problems are stressful, especially when they are unexpected.
They will happen to every single one of us. Probably because we can’t predict the future.
Your car might break down, you get sick, or worse...you lose your job.
Remember our rainy day account a few weeks back? It’s designed to keep our stress levels low when we run into trouble.
Then there’s the stupid stuff we do that causes strain on our mental claity.
Binge buying, online buying, ‘she’ll be right’ purchases, excessive risk, retail splurges.
Gee i’ve done some dumb sh!t with money. Has anyone had that feeling of driving to work on a Monday just thinking about the weekend's poor choices?
You have to limit your ability to do that stuff. Kill the credit cards and limit your access to cash.
Then there’s the things we just outright ignore.
The things that we procrastinate about are usually the things that we need to deal with YESTERDAY.
Pick something money related, that is causing you stress or overwhelm and make a commitment to deal with it. Do something about it TODAY.
You will feel so free of the burden that this procrastination has brought you.
One of your friends is battling right now, and you know it. Drop them a line and see if you can help in some way. Helping people ALWAYS makes you feel good too, do something before Mental Health Awareness week is over.
What did you just learn? Worrying about money is very common. We want to get ourselves to a point where we have to worry about it less. To give ourselves some financial stability and know where to look when we get stuck.
Remember, help is always available for each of us when financial issues show up. Never be too proud to ask someone for help.
And if you can help someone else, maybe it is time.
Activity • What things about money are worrying you? Write them down... • How can you solve these things? Who can help you? • What money matter have you been procrastinating about? DEAL WITH IT!
Look after yourself out there ok,
Luke |
In case the contents of this email are topical, it was first sent on 1st October 2020. |
20 weeks in and I come with bad news...taxes are going up.
No matter who ends up in Government, taxes will go up somehow, some way.
We’ve created too much money to get us through the pandemic and we still aren’t really through it.
I want you to do something really hard, take your political glasses off please .
Now put your maths glasses on…let's look at tax rates going to 39% for those people who earn above $180,000.
It’s expected to affect 2% of New Zealanders and forecast to generate $550 million of revenue a year.
If we’ve borrowed $14billion for a wage subsidy to pay out to around 1.7 million Kiwis, do you really think $550million is going to be enough tax to repay that? And that’s just the subsidy.
It’s probably something you’d never thought about and that’s part of it.
We say things like ‘it’ll only affect 2% of Kiwis’ so that 98% of people instantly don’t care.
But we do need to care because we can do math. With our Dirty Dog math glasses on, our quick math tells us $550 million won’t do sh!t.
We also need to be mindful of what this does to our scepticism of these ‘2% ers’ too. ‘Oh those rich bastards don’t need the money’. ‘Who cares, i’ll never earn that’. ‘Good job’.
Well hang on, us Keep The Changers know that 1 in 5 households earning $150,001 or more said they had only just enough, or not enough, money to live on.
The people who hate on the ‘2% ers’ do so because they are quitters. It is at this stage that some people unsubscribe from Money Mail due to how confronting that is.
Quitters...yes quitters. We get conditioned that being a ‘2% er’ is so unattainable, we quit on trying and start hating those people instead. It almost sounds like a bad thing doesn’t it? More tax, become hated by other Kiwis.
We should be embarrassed that only 2% of our nation makes $180,000 or above.
We are living with dinosaur thinking in a tech world and it’s limiting our possibilities and making us quit.
We all now have a thing called the internet which has fundamentally changed the world and the economy.
Who’s teaching our kids to generate YouTube revenue? To make a product in China and sell it in America (returning profits to NZ)? To work online for international companies? To sell to billions of people, not millions.
You need to be so careful hating on these people or thinking these tax changes will fix things.
Firstly they cripple people's mindset about earning, in that high earners are alienated when we already know most of them have nothing to show for it anyway.
Then, you become blind to the fact you will be taxed yourself anyway. It’s coming and for you and I it might not be an increase in income tax rates.
It might be a tax on your yearly Kiwisaver increase, a capital gains tax, a tax on property you hold.
The hidden tax is prices going up, that’s how every one of us will be taxed. Your income stays the same but your costs go up leaving you with less money.
What did you just learn? Don’t hate on the ‘2% ers’ XXXX. You’ll end up teaching your kids to do the same thing. Just like you and I, those people are paying for our hospitals, roads and helping repay the wages that 1.7million Kiwis received. AND we know that their pay cut (increase in tax) isn’t going to cut it.
We’re all in this together and will all be taxed, somehow, some way. Accept it and make a plan.
Activity • When higher taxes come, will you be surprised or will you have already dealt with it? • Do you find yourself hating on high income earners? What good does that do for YOU? Righto, you can take the dirty dogs off and get back to your Friday. Go well out there.
Luke |
In case the contents of this email are topical, it was first sent on 8th October 2020. |
At the time of writing this, if you contribute $1,042.86 a year to your Kiwisaver, the Government will contribute a 50% return on this being $521.43.
Unless you are a good gambler, you will struggle to find a guaranteed 50% return each year.
It is also compulsory for employers to contribute to their employees' KiwiSaver accounts.
The minimum rate for employers' contributions is currently 3% of the employee's gross salary or wages.
Again, are you a good enough gambler to get a 100% return on this same 3% each year?
Thinking about that, you’d be smart to AT LEAST trigger each of these contributions each year as they are basically leveraging your contributions to get a guaranteed return.
What about pouring a higher percentage into Kiwisaver, is it worthwhile? Should you contribute more than the minimum?
This really depends on where you are at in your savings cycle and what your need for cash is. I.e. maybe you need to contribute the minimum only to then focus on paying down debt that is costing you a high rate of interest.
A lot of fund providers now offer an investment fund outside of Kiwisaver which you can invest in. They aim to mirror their same Kiwisaver funds. With these, you can access them when you need the money.
OR perhaps investigate Exchange Traded Funds that we spoke about a couple of weeks back.
Maybe you could create your own Kiwisaver / retirement portfolio via sharesies or in a fund where you can still access it before retirement.
Discipline is key here though and I know you’ve struggled with this every now and then...come on be honest. Kiwisaver gives you the advantage/disadvantage that you can’t access your funds (except for certain circumstances) until you retire.
The age of access is currently 65. Will that change? You already know I think it will but who knows, it’s a long way away for a lot of you reading this.
Who would you prefer to control your money? These answers are different for every reader based on your circumstances.
These are things YOU NEED to make decisions on and revisit as your life changes.
There is no one size fits all for Kiwisaver, especially when it comes to contributing more than the minimum.
Because every person has different circumstances, you need different advice tailored to you. Don’t fall into the habit of reading generic articles targeted at 400,000 people if YOU need to work YOUR situation out.
What did you just learn? Contributing more than the minimum might be good for a few reasons; forced savings, not being able to access the money and compounding growth.
But that doesn’t mean it is right for everybody so think about it first and don’t forget you can automatically save the other % you might have contributed to Kiwisaver, somewhere else in the market.
Activity • Do you know what fund your Kiwisaver is on? Over 60% of people still have their funds in the ‘default’ scheme - you're missing out. Get it sorted to match your investor profile. (If this is you and you are embarrassed, let me know and I'll point you in the right direction). • Are you thinking about forcing yourself to save more using Kiwisaver? 65 might be a long way away. Just because one person is doing it, doesn’t mean it’s right for you. Get some advice first • Do you know what costs you are paying for your Kiwisaver?
Well not many people unsubscribed last week but there were plenty of positive messages. Hatin gets you no where!
Have a good weekend,
Luke |
In case the contents of this email are topical, it was first sent on 15th October 2020. |
During the week, my mates at Heartland Bank came out and said that they are going to offer borrowers interest rates of less than 2%.
There are two reasons this is exciting.
The first one is that this is the first time in New Zealand we’ve seen rates under 2%.
The second one is that they got a lot of attention for it. That’s exciting for me and my mates who dumped a $15,000 Vegas stag-do fund into Heartland Bank in the sharemarket a few months back. WIth plenty of attention, money follows and their shares have gone up.
I’ll pause there actually as there is a lesson for you...with plenty of attention, money follows. Think All Blacks, influencers, businesses, a new baby. They get attention, they get money.
You might want to think about that when hunting out opportunities. If plenty of attention is going somewhere, money most probably will too.
Still not making sense? Let's say an All Black gets added as a brand ambassador for a health company = Attention. Same day….share price moves from 9cents to 16cents = money follows.
4 months on, all the attention has gone and the money has too. The share is back below 9 cents. Will the money return? For sure, just drum up some more attention.
Anyway, I got side tracked. Mates and I couldn’t see the point of leaving the stag fund in the bank nor bonus bonds as it doesn’t look like we’ll be getting to Vegas anytime soon are we?
This is the more important part. Think about how much this is happening across New Zealand.
We have record levels of money sitting in the bank and record low interest rates. We talked about this months back now, what's the point of leaving it in there?
Right now, parents sitting on money will be questioning whether they pass it through to younger generations to buy assets or leave it in the bank to rot away.
Where is all this money going to go if they pass it down generations? Stay in the bank for security reasons? Head to the housing market? Head to the sharemarket? Start a business?
The older generations have loved property more than some of their own children and will be looking at 2% borrowing rates saying ‘you need to buy a house young son!’.
This is why asset prices (houses, shares etc.) head up in times like this. If we keep seeing this, those who sit on the sidelines get left behind as prices rise. Especially in housing.
If your money isn’t increasing in value in the bank but a house price is, your ability to buy a house is decreasing as you may not have enough money for the deposit when it is your turn.
Economists are getting the housing market wrong left, right and centre but my man Mikey who predicted interest rates starting with a 1 before Christmas, tells me he is banking on house prices continuing to rise and playing his cards that way himself.
Some major family decisions are going to be made over the next 12 months and that will ultimately determine what happens with A LOT of money currently sitting dormant with the bank.
It’s a bloody exciting time to be alive but remember, we haven’t been here before so everyone is truly guessing.
What did you just learn?
Money follows attention. It’s a simple lesson but it is so true and might help some of you out there take advantage of it.
A great way to build wealth is by understanding what people will do before they even realise they will. That sounds like predicting the future but really it is just thinking about how people think, the herd mentality and what they’ll do because of this.
Unfortunately we can get caught doing the same. Buying things just because they get a lot of attention.
If an influencer posts about a new product and if Sharesies hit their email list about a certain stock, attention is going to follow, now you know what will happen!
Activity
On Wednesday, my Kiwisaver mate Adam and I got together to teach people about Kiwisaver. Learn: https://www.
Be bold,
Luke
In case the contents of this email are topical, it was first sent on 22nd October 2020. |
Right I am going to start this by saying that I don’t necessarily suggest that buying bitcoin is a good idea.
I simply don’t know enough about it. BUT I just sold out...I got on the bandwagon. What a stupid time to do that when it’s at a recent high.
I keep an eye on the price of Bitcoin. Before I tell you how or why I want to tell you a story.
I’ll take you back to 2017 when I was working in the great province of Taranaki. Smashing out sets of accounts and tax returns. It’s so much fun. I was the envy of all my friends, everyone wanted to be an accountant...sh!t sorry wait, that's not the story.
We had a client come in and say they got given a bitcoin years ago on a travel trip and had heard bitcoin was booming so wanted to cash it in. Naturally they asked their accountants.
The boss left this one with me and given I had studied for years to be a qualified accountant so valuable to my community, I knew exactly what to do. I rung a mate i’d seen banging on about bitcoin on Facebook.
Hours later they turned up with stacks of cash (tens of thousands) and took the bitcoin off the clients hands/digital wallet or something like that.
I had no idea what the fark just happened but everyone was happy and I believed this bitcoin thing was a bubble. You know, money following attention...leave me out of it.
Fast forward to 2020 and some people believe that crypto will crash to zero and others think it’ll boom. Who knows!
Months back, when the economy started getting shaky, I thought hmm I wonder if people will move toward crypto as they get nervous. Maybe I will jump on the bandwagon and buy a bitcoin. I thought it could be a good thing to learn to then explain to Money Mail readers too.
Riiiight that’ll be $14k. Sh*t I don’t know if I like you that much to risk 14 rack.
Instead, I put some money into a ‘safe’ coin called Tether which usually holds its price so I could learn how you can buy crypto.
Last night as you were watching another episode of Emily In Italy, I was researching the bitcoin price and it’s now bloody $19,000 for one of these things.
Next I was uppercutting myself in the mirror for not getting in at $14k wasn’t I. The price rise made me think HOW?
Earlier in the week I watched a video from the international monetary fund...I know don’t even ask. Anyway they are worried about how money is currently working in the world and suggested we need a conversation around resetting money.
The IMF president is a boss lady, and said heaps of stuff that went over my head but she basically stressed that today’s economic hardships are the same as the difficulties the world faced at the end of World War II.
Bloody hell that sounds major. I wasn’t here back then but in 1944 they had a huge world meeting and reset how money works. They are calling for this again.
I don’t know what the boss lady was trying to tell us but people smarter than me are suggesting Central Bank Digital Currencies are coming. So again, money is following attention and bitcoin is on the way up gambling on what the boss lady is working on behind the scenes.
Finally, I transferred some of my Tether coin to Bitcoin but of course I needed some Ethereum to complete the transaction. My word, I am learning a new language now too.
What did you just learn?
Money follows attention. Wait that was last week...but it is the same thing here. As it gets more attention will it increase in price?
It’s not all over my Facebook feed like it was in 2017 so maybe the bandwagon isn’t full or maybe I am just a fool? Probably a bit of both. For me, I am purely gambling - with real money. An amount I can afford to lose though and at the same time, I am learning.
Activity
Whatever you do, don’t go and put all your money into a crypto currency. For me, this is about diversifying and extending my knowledge of ‘digital currencies’.
Be bold,
Luke
In case the contents of this email are topical, it was first sent on 29th October 2020. |
Housing Boom...the little blue pill for Kiwis with cash. We can’t help but stay excited.
You will start to hear these two words even more as people make headlines out of house prices going up.
These two words drive plenty of FOMO too. Something we’ve been discussing (money following attention) that economists and smart people find really hard to measure.
In September, the number of properties sold across the country increased almost 30% from last year.
All of that whilst life does still look very uncertain. But according to the market, now must be the time to buy a house?
Cheap debt, people moving back to NZ, too few houses, no international travel, bank of Mum & Dad opening the floodgates, FOMO. It’s all happening Jemma.
September house sales were the busiest month of sales since March 2017, and the strongest September in 14 years.
House prices across NZ are 10% higher than a year ago. Auckland? Those buggers are 11.5% ahead.
When was the last time you got a 10% pay rise at work? Probably never. A house that can’t even talk is showing us all up.
For those sitting on property for longer than 5 years, they aren’t paying tax on those increases either.
For first home buyers it puts them into a tricky spot ‘If I don’t get in now will I ever get on the property ladder?’ and ‘Is this mortgage going to soak up my entire paycheque until I retire?’
Sure debt might be cheap but mortgage repayments required to service a mortgage will chew up a lot of someone's income meaning a sacrifice in other areas of the ole lifestyle.
Nothing wrong with that, it just needs to align to your life goals right?
With rising house prices, those already in the market can borrow against House A to buy House B without any money down - remember the leverage lesson?
Who knows when this ends or if it ever does. Probably with a capital gains tax finally getting accepted by a NZ population that remembers how much debt we have.
But for now, if you are thinking about buying, do your research and be prepared for the bank.
Think about what YOU want. There is a bloody cool strategy of buying where you want to live in the future and renting it out until it is time to go and live there. Something to think about.
Remember that month end process? That’ll help you prepare your list of assets and liabilities that the bank will want to see.
If you’re in business, the bank will probably ask for a cash projection over the next 12 months too.
They are trying to de-risk themselves from the very real reality that some people are going to over leverage themselves.
What did you just learn?
It's all go in the housing market and prices just seem to keep screaming up. No one really knows how this will play out but whilst interest rates are low and people can access debt, sales will continue to go through.
If you already have a home, maybe the smart play is to consider using the equity in the home to build out your future wealth.
Activity
· It’s month end...prepare your budget for the upcoming month
· Remember to complete your ‘financial position’ for the end of October 2020
· How is your progress? What is working well, what isn’t?
· Thinking of buying a home? Start studying the market and talk to an advisor
FOMO can be a real nasty nagger so make sure you are making financial decisions in line with what you want your life to look like, not what someone else's life looks like.
Luke
In case the contents of this email are topical, it was first sent on 5th November 2020. |
My business partner and I were growing a business called Schoolrebates. We helped parents claim back a million dollars from the Government.
These parents didn’t know they were entitled to a third of their school donations back. We made it easy for them to do it online.
We noticed that 85% of the claims were completed by the woman of the relationship. We changed the targeting of our adverts to be seen by females only as we thought the blokes weren’t interested.
After a couple of months we checked the website data and it was 50/50 men/women.
But we’d spent thousands of dollars getting women to come to the site. What the?
We had it WRONG! Men hunt and gather, women decide when the trigger gets pulled.
The majority of financial transactions in a household are decided by women. Sorry lads, you might think you were the pants but you probably didn’t even choose the pair you are wearing.
Every car yard has two sales people, the first one works for the yard, the second one is the male trying to convince the partner that the vehicle is the right one.
If 75% to 80% of financial transactions in a household are decided by the women, what do we need to think about?
Getting on the same page. This is bloody tough as we come from different money upbringings with different beliefs and ways of thinking.
They end up colliding in a relationship and turn into arguments the car dealer knows you have in your sh*tty car on the drive home.
Talking about money with your loved one is tough. Foolishly we tie so much emotion to money. These conversations need to be transactional and unemotional.
You know what makes them easier? Having a plan that you BOTH agree on and work towards. Financial goals, what life looks like in 5 years, how you’d navigate a big bill, who’s spending beyond the budget.
This is one of the exercises in KTC Night School that users have found useful.
All this good stuff that will help you have a road map to work toward when things get shaky. Or when impulse purchases tempt you both.
What did you just learn? If you’re a lady you’re probably gearing up to make 8/10 financial decisions this weekend and probably didn't even know it.
There is nothing wrong with this statistic but there is if it leads to problems in a relationship so getting on the same page with a plan that you build together can help to avoid this.
Activity • Have a chat around money with your better half, do it regularly • Don’t have one? Sending hugs. Think about the conversation you will need to have • Build a plan - map out 5 year goals and how you’ll get there. Set a calendar reminder quarterly to review it together
Finally, lads, step up and pick a pair of pants for yourself for once would ya. Ladies, let them decide for themselves every now and then aye? If they look like a dickhead, its character building.
Luke |
In case the contents of this email are topical, it was first sent on 5th November 2020.
|
I get to work with successful people and watch what they can achieve over a set time frame.
They are people who set goals, make progress and then arrive at destinations.
Of course it's not all smooth sailing and every now and then they get in a rut.
No one likes feeling stuck in a rut. Whether it be with finance, health, your career progress or whatever is getting you frustrated.
There are 5 simple things you can do to get yourself fired up and inspired.
These 5 things aren't world beating but they work. These are the steps you too can work through when you feel stuck:
The strange thing is that the feeling of step 5 is often similar to step 1.
A big part of what we often need help with is just making a decision.
Let’s look at an example:
Activity
Think of one thing (just one) that you know you need to do or have been putting off. Something in regards to your finances.
Make a decision before 5pm Friday that you are going to sort this out. Write it down and then take some form of action.
See how you feel after getting it done. It will be a huge inspiration for you. Then you have a blueprint toward getting sh!t done.
Get it done this weekend,
Luke
In case the contents of this email are topical, it was first sent on 19th November 2020. |
Before we start this week, I want to take you back to a few weeks ago when we discussed those two words ‘Housing Boom’. Well every day this week, the media have been talking about house prices getting out of control.
Of course they aren’t out of control if you own a home, just if you don’t and it then gets harder to get into a home.
I foresee a HUGE financial issue in 10 years time where New Zealand has a very unfortunate wealth gap.
The gap between the wealthy and the poor as such. Internationally we are at record levels since the 1930’s.
Rewind 27 weeks and that is exactly why I started Keep The Change. I promise you I don’t have all of the answers but it is CRITICAL that you do what you can to educate yourself. Hopefully this helps you take action in your life in areas of your finances.
Right in we go...A lot of people will tell you that there is a magic number you need to retire.
If you have a google you’ll probably find different theories that should apply to a lot of people.
I don’t like to think like a lot of people. I’m a bit (A BIT) weird. I prefer to look at complex situations like retirement and think about ways to make it look less scary.
My brain is very strategic which gives me a huge advantage. It instantly looks for different solutions and ways past roadblocks.
My retirement is a fair way off but I do think about it, as we all should.
Instead of boring you with data that might make retirement seem like a giant financial mountain, I am going to share some lessons that have helped me look at retirement more practically.
What about aiming for these practical targets:
The niggly thing about retirement is that we don't know when we are going to die nor what life looks like at that age.
Here’s the thing I always hear too ‘oh when you turn 65 you get your entire Kiwisaver’.
Why would you move your entire Kiwisaver into your bank account if you don’t need the entire thing?
I’m going to check with my man Adam who helps me with Kiwisaver but it’s not how i’m going to play it.
I plan to have a giant stack of cash in there, attach an eftpos card to it and spend some of the annual gains, hopefully leaving the initial balance in check.
If you stack say a million over your life and can achieve a 6% gain each year you’re living off $60,000 tax free income (unfortunately I predict it won’t be tax free in the future).
What did you just learn?
Retirement is a long way away for me and by the time i’m there, the world will be completely different to what it is today.
What I am trying to show you here is not to listen to the noise. Break down these complex problems with practical steps that you can achieve throughout your life.
Think differently and don’t let it scare you into doing nothing or learning nothing.
Activity
Next week I am going to make you do something sexy, it’s called math, I know you loved it last time.
Luke
In case the contents of this email are topical, it was first sent on 26th November 2020. |
For some of you, last week may have frightened you into thinking that you can never retire.
How on earth could you pay off an entire property in order to remove your living costs?
Or maybe you thought you don’t want to retire in the house you currently own.
Righto problem child lets look at another solution when you get to that retirement age.
How about working? Someone had to say it. Just because you hit the retirement doesn't mean you have to stop working.
Quick Quiz - what is NZ's official retirement age? Answer in the 'Did you know'
It seems that a lot of retirement commentary focuses on this magical day where you stop working.
I've filed many tax returns for retirees and most of them still have earned income in their tax return to add to their pension.
Research suggests that work actually makes us happier in retirement. Who would have thought.
Imagine sitting in a room, playing cards of humanity by yourself, you'd get bored at your average chat faster than your usual opponents do.
Given most people continue to work or spend their time doing things they love, you aren't all of a sudden going to have a huge stack of mates who are keen to hit the local happy hour.
So working aye? Even if you were to work two days a week at minimum wage you'll be bringing in close to $15k a year to help fund your lifestyle choices.
Time for that math that I promised you. Really quickly though:
• $20k coming in from your Kiwisaver pot • $15k coming in from a job 2 day a week • $20k coming in from your pension $55k in income each year (that's more than the average Kiwi annual salary).
PLUS: Remember you won't be paying tax on your Kiwisaver $20k withdrawal as it's yours and not taxed.
BONUS: Managed to pay off your home so not paying rent or a mortgage? That's like adding $15k back to your income as you don't have it as an expense.
Managed to pay off a rental property during your working life too? That will add a weekly income stream to your income column too.
What did you just learn? With retirement, it is time to think differently. Do the math and don't let retirement scare you.
It depends on your definition of retirement. The internet says it is ‘the action or fact of leaving one's job and ceasing to work’. It is our responsibility to figure our own definition for ourselves.
Activity • What does retirement mean to YOU? • Work backward from there to make a plan as to how you could make that happen? Before we go: don't buy sh!t you don't need just because it's 'Black Friday'. It's not invented for you, it's invented for retailers.
Luke |
In case the contents of this email are topical, it was first sent on 3rd December 2020 |
It’s that time of the year again where we are into the pocket every day spending our hard earned money on our festive season.
25% of Kiwis end up ‘anxious’ about the amount of money they spend on Christmas.
Wonder how? Let’s have a really random guess...
You jump on the gram and see that influencer you love to double tap. They got an early Xmas present from their boo. OMG!!! It’s a free teeth whitening kit to post. SO thoughtful. Next one, oh there’s a paid trip to some filtered hotel room with crisp white sheets, saaaa cute.
Now you are left thinking about how much of a sh!t non influencer you are with your 18 followers, stained teeth and next trip to a 3 star hotel.
If you do one thing this December, it’s do the opposite of what the influencers are getting paid to encourage you to do.
This week we are going to rip through some really practical things to think about before you blow a santa sack of cash on gifts:
• Don’t be pressured and don’t compare yourself to others and what they are buying • Got a gift idea? Google it to find who has it at the cheapest price • What are you trying to prove? And why? • Don’t go into debt for Christmas presents, at least pay off your credit card on time • Do you know your partner's love language? Just because you like gifts, your partner might not • Re gift some things you don’t need around the house • Make our own Christmas card • Sell some consumerism from around the house to pay for gifts • 72 hours later, is the recipient truly going to care about your gift? • Give a book, write inside the front cover with something meaningful (save a Xmas card) • Are you buying for the sake of it? • Go gift the 80% of your wardrobe you don’t wear to the clothing bin or Xmas aid • Are you gifting ‘in front’ of people - this leads to competitive behaviour of ‘is this present good enough?’ • Give early and look the person in the eye and tell them why you bought them the gift - attaches emotion to the gift and makes it more meaningful [PROTIP BAAANG!] • Real weird one - ask your recipient if they even want what you’re about to buy them OR ask what they do need • Ask the store to wrap your gift and if they have spare Xmas cards - save time and money • Stick to a budgeted amount • Have you communicated your gift expectations with your partner or family? We could keep going but you’ve got a Chrstmas list to make.
What did you just learn? Christmas can be a stressful time for many. Don’t give it the stress it doesn’t deserve. Let's be honest, there’s a high chance that you aren’t even celebrating the real meaning of the holiday and gave it your own meaning anyway.
Activity • What budget are you putting on Christmas? • Who are the most important people to gift to, what will REALLY help them over the next 12 months? Can you put yourself out of your comfort zone this Christmas and help a stranger? More on that next week because i’ve got a challenge for you.
Luke |
In case the contents of this email are topical, it was first sent on 10th December 2020. |
I spoke about this on a Sunday live stream back in August.
The challenge is to give $100 to a complete stranger. Someone that might be in need.
It doesn't NEED to be $100 but lets use that as the example ok?
Sound pretty easy? It is a bit out of the ole comfort zone for most of us.
I’m not talking about ole mate on the corner with a cap out that is down on their luck.
I am talking about every day Kiwi people because I think we can help people have a great end to the year.
Let’s find a family in a supermarket car park that you know have a big food bill. Someone leaving the dentist with their 3 kids. Someone behind us in a queue.
We all need help at times and there is nothing wrong with that. Sometimes we don’t need it but it’s a bloody good feeling to have someone care, especially a genuine stranger.
The festive season can be extremely stressful for some. There is so much competition for the dollar. Let’s see if we can spread some cheer.
Even if we follow the 80/20 rule, we might see 450 of you do something out of your comfort zone and perhaps change someone's day.
If you’re a little shy, just go and pay a part of someone's restaurant bill before you leave and don’t tell them, let the surprise hit them when they go to pay.
I believe it is good to give, but for me it has to be meaningful. It fills me up. Personally I tried this with a bus driver to say thanks as that must be a thankless task!
It doesn't have to be money either, there are a tonne of ways to give including time, advice, goods, help, lending tools etc.
The above challenge is about getting you out of your comfort zone, trying something new and seeing how it makes you feel.
Activity • Draw out $100 cash - it is no longer yours • Keep it in your wallet & over the next couple of weeks you will see someone that needs it • Don’t let them take no for an answer...unless they really don’t need it • Afterward, write down how it makes you feel You’re a giver. I would love to hear your stories if you have a crack at this.
Luke |
In case the contents of this email are topical, it was first sent on 17th December 2020. |
We are 7 days out from Christmas, bitcoin is at record levels, we all just got shouted a $200 vaccine, we are running out of watermelons, my Mum is staying, IT'S ALL HAPPENING!
How are we supposed to keep up let alone get ahead? That's the problem for a lot of Kiwis.
Living paycheck to paycheck is very, very common in NZ. Data suggests that over 6 in 10 people are living from paycheck to paycheck.
Paycheck to paycheck: Using most or all of your monthly income to cover your monthly expenses. No money left over & none for savings.
Is this because life is expensive, maybe it was how we were taught or maybe it’s just habit?
The comments on my Facebook post about this say: ‘I didn’t know there was another way’, ‘yeah because sh!t is expensive’.
Those comments have plenty of likes & support so people clearly believe there is no other way.
We’ve already learnt that we will change our lives to match our income / earnings.
I was asked to speak at an online business summit this week with a few accounting tips.
I was at 11.45am so most people probably grabbed an extra lunch break as soon as they heard an accountant was speaking.
For those that stayed on, I tried to keep it really practical to make sure they didn’t mute me.
A lot of business owners get themselves into trouble because they pay their tax last.
Once all the money's gone they try to figure out how to pay tax. That doesn’t work.
We flip it with our smart clients and make them pay tax first. By putting it aside into a separate tax bank account.
When tax is due they have it & pay it. Easy. Just like businesses, you & I can do the same thing.
‘I can’t save because there is nothing left over’.
Time to save first then! Save, invest, pay down debt, over pay the mortgage FIRST.
THEN figure out how to live off of the rest. We will match our expenses to our remaining money.
You guys crushing it with house mortgages need to think about this with your interest rate changes (a % decrease can put thousands back in the household income every week).
You need to put your future FIRST when you get paid, not LAST.
Activity
You don’t want to struggle through life and from pay day to pay day do you? We all need to get in control of this and a great way to do it is to save something FIRST.
Luke
In case the contents of this email are topical, it was first sent on 24th December 2020. |
Hopefully today you have a brilliant day planned with your family and loved ones. A few beverages and the odd awkward ‘thank you’ for that gift you’ve always, never wanted.
We’ll keep it quick today...you’ve got more important things to do ( & ).
I have been doing a lot of thinking about the number of amazing things people do for others at Christmas time.
Last weekend I briefly helped out at the City Mission to pack Xmas parcels. There were volunteers, donated foods and gifts everywhere you looked.
But apparently it’s never enough. These types of initiatives can’t keep up with the demands of those who need their help.
I may be wrong but it seems these not for profit ventures are doing more and more every year but we aren’t fixing the underlying problem.
I don’t know what the overall solution is to inequality but a mate said to me this week that ‘wherever you are right now is a sum of the decisions you have made in your life’.
Where ever you are today, I think this time of year is such an important time to be grateful for what you do have.
I'm about to have pancakes at a beach house...privileged life. The best bit...the house isn't mine and I'm not paying to be here; I'm house sitting so the owners can travel for Christmas. There are always ways to get closer to luxuries if you're willing to think outside of the box.
Even if you don’t FEEL like you have a lot of money, or the fancy Christmas that someone else is having on social media, there is richness around you.
Having a family, love, health, education and modern day tools like the internet, puts us at an unfair advantage to a lot of people.
Let’s make some kick ass decisions together in 2021 that have us and those around us, in a better position than we are today.
Enjoy your day today. Look after yourself and i’ll see you on New Year's Day.
Thanks for reading this year.
Luke |
In case the contents of this email are topical, it was first sent on 31st December 2020. |
To finish the year, I knocked off something i’d had on my goals list. Not a major but a much needed task.
Closed down the ole credit card. I’ve had this credit card for over a decade and don’t really know why I still had it.
Sh!t i’ve had some good and bad times with this bit of plastic.
You can really use them to your advantage sometimes (rorting rewards, short term 0% finance etc).
But really I just don’t need one. I simply had it because i’ve always had it.
Obviously we have debit cards these days but I haven’t had one. I use my credit card like this anyway and just pay it back ahead of time to re use the money on it.
I got rid of it to simplify my internet banking and not have to think ‘oh but I actually have $500 less as I owe it on my credit card’.
One less thing for my brain to compute. One less account fee too. One less piece of debt.
I tell you what, they don’t make it easy to close it though.
Call the bank, wait 25. Get told I can’t close it yet. Put a pause on it. Call back 4 days later. Get told I can’t close it. Get told we’ll sort it in 3 days just don’t use it in the meantime.
Blardy heel I felt like maxing it out in the Viaduct last night and calling Fair Go for a whinge.
But I stayed true and got it sorted.
Whilst everyone p*sses around with ‘thinking' about goals and resolutions, think about why they don’t follow through with them.
They are all talk. Missing the execution bit. Not you though, you are a doer.
My accounting business helps businesses set 12 month plans for their success & growth. It costs them tens of thousands to work with us to execute their plans together.
Really strange but the businesses that DO the work are the ones that kick a$$.
In 2021, make a commitment to taking action. Doing. Not just talking.
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Get it done in 2021!
Luke
In case the contents of this email are topical, it was first sent on 24th December 2020. |
One bad habit I got back into in 2020 was reading the news again. It doesn’t serve me too well.
Stuff, The Herald. I was getting way too clicky. Tuning in 8 times a day to see what was happening with housing, business, money or COVID.
Most people will say they read the news to stay up to date with current affairs but really its to procrastinate from their life. If news is important enough it will end up in front of you.
Most of these articles are opinions these days anyway. The click bait titles drag you in to prove to advertisers that their dwindling media product is still getting engaged eyeballs everyday.
News - a horrible way to get you off task & fill yourself with sh*t energy. Something had to change.
To tip me over the edge I read an article about NZ CEO’s and how they should have taken no pay in 2020.
Riiiight, go to work (in one of the most stressful years in history) for free basically because:
‘’These are very well-paid individuals, so they've got accumulated wealth, they have assets, they have everything they could possibly need.”
I kind of get it because I used to think like that too. Oh these rich people earn so much why do they even need it?
The opinion piece went on to say:
‘’The chief executives of many New Zealand companies could have afforded to go without pay this year as the country navigated the Covid-19 pandemic, one expert says, but instead some actually took home more pay this year than last’’.
I thought. Wow I wonder who this expert is...found it…a university senior lecturer.
Imagine paying for an overpriced degree to have your lecturer tell you not to expect to get paid once you get ‘high enough’ up.
Especially when the going gets really tough, you work double time, barely see your family, your team needs you more than ever, you neglect yourself, your health, you burden everyone’s circumstances, your country needs your talent, your next career move depends on your performance.
Yeah go on just go to $0 pay wouldn’t ya you selfish bugger.
The more time I have tried to rid myself of hatin on high income earners and actually studying them i’ve realised some freeing things.
We all know how hard it is to get to ‘the top’. How much sacrifice it requires. How much you have to invest in yourself to get there. The work that most people aren't willing to do to get there.
Be very careful of opinion pieces like these when you go down the rabbit hole. Even when they are ‘experts’. They have more chance of you wanting other peoples lives to be worse off than you wanting your own life to be better.
Most of us aren’t high income earners or CEO’s or whatever title expert opinion piece writers use. It becomes very easy for us to resent these people rather than understand them. Or challenge ourselves and think of the 1,000 other ways these people add value to our own lives.
You will continue to see this sort of Stuff (can pun) and you need to be able to question how it can impact your money mindset.
No matter what side of the fence you sit with this, HOW can some stranger taking a pay cut improve your life?
Hating won’t increase your income, pay your bills or make you feel better about yourself.
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Be careful what you consume this year, it’s going to be messy out there and someone will always dislike what someone else likes.
Luke
In case the contents of this email are topical, it was first sent on 12th January 2021. |
Us humans are weird. We love to complicate things and then justify why we do it.
Like money...the thing that actually has no value. Bits of plastic, maybe metal, numbers on the screen these days.
That money, well when you think about it, it really has no value.
The value is in the product or service that you purchase with the money. Money is a vector for expressing value.
Value comes from what you were willing to do to get that money.
Humans 'assign’ value to it. However, we all have different ideas of value.
But hang on, ‘Money is the root of all evil’?
Everyone learnt that one growing up. My Mum even reminded me at Christmas time.
I won’t claim to be qualified to be taking Sunday school but I think that saying is misquoted.
‘’For the love of money is the root of all kinds of evil’’.
Is the actual line from the bible. Us humans have left off the ‘for the love of’ bit.
Now, given that most Kiwis aren’t actually Christian nor believe the bible, it’s interesting that they are so keen to believe that ‘Money is the root of all evil’.
It seems a pretty easy way to make excuses for not having money, for bringing down people that earn more, for bad things that happen in the world.
That’s something we can ALL get in behind. A bible phrase on the other hand, don’t think so.
When I hear people use this saying I stop and think ‘alright let's see who is at fault here, the money that has no value OR the human causing the problem’.
This year, when setting financial goals don’t be scared of them. Don’t think that you’re a bad person because they involve money which is ‘the root of all evil’.
Have a think about WHY you want those goals, money and what value you assign to money personally.
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Over the next few weeks we are going to take a look at some different savings strategies.
Luke
In case the contents of this email are topical, it was first sent on 21st Jan 2021. |
In 2020 I sent out 33 [Money Mail] lessons and the most common question I get is still in regards to secondary tax OR 'double tax'.
Lets clear a few things up:
There is no such thing as 'double tax'
A second stream of income is not taxed at a 'double tax rate'
You are taxed on your total income, not total number of jobs. I.e.
- Be’n Broak has 1 job and earns $70,000
- Terry Ten Taxes has 2 jobs and earns $40,000 in one and $30,000 in the other (a total of $70,000)
Be’n Broak and Terry Ten Taxes both pay the same amount of tax.
The secondary tax rate system aimed to tax someone who earns (say) $50,000 in total from two jobs, the same as someone who earns $50,000 from just one job.
At year end if you have paid too much in tax, the IRD will refund it, so you aren’t paying more than your fair share.
I would hate to know the number of people who have avoided a second stream of income due to the thinking that they will lose most of it to tax.
Don't buy into the 'double tax' 'secondary income tax' or what other phrases people give it.
Some of the people that didn’t get caught by this myth use the second stream of income to save and invest.
They live off of income A and then save/invest secondary income B.
This is a very common savings technique for families too. As you know, humans will usually match their living standards to the income they have.
So the most disciplined couples will try and live off of one salary and then save/invest the other. OR if not quite at that stage, they will ensure that any joint increases in income become savings/investments.
They do not change their lifestyle to match the new level of income. Something to think about!
Thanks to all of the people who took time out of their day to send over some feedback regarding Money Mail, it has given me a heap of ideas that will no doubt help a lot of people thinking the same things.
Luke
In case the contents of this email are topical, it was first sent on 28th January 2021 2020. |
I got a lot of feedback about investing over the last two weeks.
There is a lot of interest in how, who, what and why, when it comes to investing.
I’m a bit concerned about diving into it without getting into what I believe is the most important investment you need to make every year.
So far this year I have spent time & money on a personal trainer, books, a nutritionist, a $600 ring to track my sleep better, a mental strength coach and a relationship coach.
Trading my time and money for their knowledge because I don’t have it. Sometimes the lessons stick and other times I probably wasn’t ready for them.
Cool story Luke, must be great having money that allows you to do all of that.
Actually it kind of sucks. Money in. Money out. Gone before you know it.
I see these all as ways to improve myself. Unfortunately for my bank balance, I’m hell bent on doing that. It’s just how I’m wired.
I search for areas I want to improve and I go after them. I call it betting on myself.
My strategy is that a bet on myself will return more in the long run than any company will on the stock exchange.
What comes of a better me? A lot better life. A more valuable person.
Why is everyone so hell bent on investing in the best share or the quickest gain?
Probably because as humans, we love short cuts.
That’s probably why we dislike investing in ourselves too. It’s hard and takes time. We don't know what the returns will be either. Plus we didn’t really get taught to do this did we?
You’re probably reading this one email thinking ‘knew it, this bloke is definitely weird’.
Us kiwis are so obsessed with investing in property and trips to watch the All Blacks so that we can put it on Instagram. That stops you from being weird and allows you to be normal...yay!
But dig deep into the successful people of the world and you’ll sh^t yourself at how much time and money they invest into themselves.
Before we get deep into weeks of investment chat I want to reiterate one point:
You are the greatest asset you will ever own so why not consider how you are investing time, knowledge, education into levelling yourself up before we start looking at ways to invest into New Zealand companies.
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Lastly , compare yourself to who you were yesterday, not who someone else is today.
Luke
In case the contents of this email are topical, it was first sent on 4th February 2021. |
It was great to see so many people relate to the lesson about investing in yourself last week.
I believe it is so important because it can last your lifetime where as investments in stocks, bonds etc. usually have a maturity date.
Before you get too excited by investing, ask yourself:
• Have you cleared that expensive credit card debt? Got debt under control? • Have you got some cash aside for an emergency? I want to explain to you how I look at INVESTING. I capitalise that because I want to distinguish it from TRADING which, in my opinion is glorified gambling.
If you want to learn about gambling may I suggest a group...just kidding...focus.
I took this screen shot on the 7th of Jan because I knew I could use it for one of these emails.
I put $5k in Meridian energy in May 20 & by Jan 21 I had doubled my money. A 100% return.
I could say I predicted this growth but I would be lying. I had no idea an American fund was going to buy up a portion of Meridian and send the price rocketing. Don't follow US politics enough to know that Biden would get in and fuel more purchasing.
To be honest, I had no idea why it rocketed over a few days until I asked an expert.
I guessed a 15% increase over time & was going to be stoked with that...so I got it really wrong.
I will explain why in another email to give you an example of how I choose stocks.
For now...did I sell and collect my $10k? Making a cool $5k profit in 8 months?
No...because I’m not trading, I am investing. Coulda, shoulda, woulda sucks too.
What an idiot Luke...you could have doubled your money if you sold the shares.
Well great but that’s not why I bought those shares. I bought them to hold and invest.
Let’s look at that $5k today. The shares are not worth $10k today, they are worth $7.7k.
Oh well, I still own them and believe in energy and the company. I’ll hold. I’ll invest.
Plus, that 55% return is way better than the 15% I had hoped for.
You need to get very clear on the difference between investing and speculating because in this stock market frenzy, EVERYONE will have 'a tip' for you.
Remember last week I said humans will chase short cuts. We are hard wired to chase the biggest possible reward for the lowest possible output. Life doesn't always play out that way though does it?
Listen to your mates when they talk about the shares they are buying. Ask them:
• How come you bought that particular share? • When do you intend on selling it? See if they have thought about those things because unless they are studying this stuff every single day, there is a high chance they are operating off incomplete information - as we all are.
Trading is like stepping into the octagon so you better have your eyes peeled and know your exits if you want to play the trading game.
If you want to invest every week with your spare cash (effectively what Kiwisaver does for you) then stay calm and see what you can learn from the upcoming emails.
You don't need to overcomplicate it and you don't need to be Warren Buffet to have a crack.
Investing is about YOUR situation and future, not your mates, not mine, not your neighbours.
Leave your ego at the door, your hard wired human traits of chasing shortcuts, you don’t need to be a hero. You need to be calm and consistent over long periods of time - just like you expect the companies you are investing in, will be too.
Did you watch the video I sent out last lock down? If you're keen on investing, you better...
Get curious, not FOMO.
Luke |
In case the contents of this email are topical, it was first sent on 11th February 2021. |
Well if you don’t, apparently Elon does. Mr Musk announced that he has put $1.5billion dollars of Tesla's cash reserves into Bitcoin.
Fair bit of coin to invest into the world's most volatile asset. So why would he do that?
I don’t want to get too deep for you but we did speak about this in Money Mail 23. That was the week I got itchy and finally got some bitcoin myself.
In America, they are printing so much money that each year that money is becoming worth even less. Ie. If there was only $100 and you had all of it you'd have 100% of the world's money. But then they make a new $50 and now you’ve only got 2/3rds the world's money. Your $100 isn’t worth as much as it used to be before they printed more.
The theory is that some of these large organisations in the States, much like Elon & Tesla are fed up with the value of cash decreasing and are moving cash to assets that won’t erode in value.
There is a limited supply of Bitcoin so the theory is that it will stabilise in value over time. For the meantime, it is very, very volatile.
In summary, cash is trash. But we get taught that ‘cash is king’.
Cash is the king of options. In a time where the stock market, bitcoin and housing are all increasing in value and your dollars are buying you less, cash is actually trash.
I.e if you had $100,000 in cash at the start of last year, it is still $100,000 today and it’s true buying power is now less (things get more expensive).
If you had $100,000 in a property and $0 cash, your $100,000 in that asset increased to roughly $115,000.
This is part of why people are moving so much money out of banks and into financial assets as we have read in earlier emails.
Of course this all might settle down or ‘bubbles always pop’ so sitting on cash will be king - well really the options you will have will make you king.
Right now you are probably reading this thinking you need a university degree to understand what this all means.
And maybe you do because it is bloody hard to understand and not many people are well educated in this space. If you’re interested in this space you’re going to have to do your own research.
We might be watching another moment in history kick off here and us little ole New Zealanders will be late to the party again because we are undereducated and not living in the chaos playing out in the rest of the world right now.
I started with YouTube, US news articles and then once I had my base knowledge I jumped over to Easycrypto.ai to join the party.
Easycrypto are described as the ‘on and off ramp’ to buying crypto currency in New Zealand.
Of course, you shouldn’t buy crypto currency just because Elon is. You do what works for you and what matches your investment + risk profile. This is a whole different game.
Even if you don’t buy crypto assets, it might be worth putting some research into the technology on the list because if one of the world's smartest and richest humans is getting involved, you’d expect them and their team have done their research too right?
What ever you do, don’t lose your crypto wallet password!
Luke
In case the contents of this email are topical, it was first sent on 18th February 2021. |
If you read one of these emails, you’ll learn something.
If you read one of these emails every week you’ll learn something that can change your life.
If you go to the gym once you’ll feel good for a few hours.
If you go to the gym every day for years, you’ll change your life for the better.
If you save money one week you’ll have a bit of money in a bank account.
If you learn to save and invest every single week, you’ll be amongst NZ’s top savers.
If you learn how to do it every year, again, again and again, you’ll end up with a stack of cash that stabilises your future and perhaps those of your next generation.
So what's the problem with us all then? Why don’t we do what we know we should?
It’s hard for us humans to know what the effect of our current choices will be in the future.
What will saving a dollar a day, everyday for 20 years, mean to a 20year older version of yourself?
You don’t know and you won’t know until you get there.
But how about this bloke. His name is Warren Buffett.
Had $6k at 15, a million by 30, $7million at 35 and nearly $60billion by 83.
Check that sh!t out, it’s exponential compounding.
You can already hear the haters, the disbelievers and those who don’t believe in cause and effect.
Couldn’t happen for them though aye. Imagine it if you pull it off; ‘Oh what ever, don’t you know, got lucky’.
You reckon Buffet got lucky? Doubt it. Small smart plays over long periods of time remove luck from your vocabulary.
You reckon Dan Carter got lucky at kicking goals? What about the Six60 lads getting 50,000 people to a concert? Probably just lucky 50,000 people were walking past that night...surely.
Compound accumulation is usually exponential. But most of us never get to taste it because we don’t start or we don’t stay consistent.
For some of you scrollers, your favourite follow was punching content, after content, after content and then BANG one piece blew up and they ‘made it’.
We should understand compounding and cause & effect then shouldn’t we. It’s the same as clocking social media by going viral. Lots of small pieces lead to exponential growth.
This is what makes using your money wisely such an important topic. Warren didn’t get there by just saving, he had to invest too.
We are going to look at exactly this in the Five Figure Formula. If Warren isn’t solely relying on his money to make it ahead, I don’t want to either.
Believe in cause and effect...not chance.
Luke
In case the contents of this email are topical, it was first sent on 25th February 2021. |
You need to figure out a way to invest in the future of your family and friends.
This sounds simple, and you may think it’s a no-brainer, but take some time to think on it further.
I said INVEST. I did not say GIVE. Let me explain.
Purely giving material things to your siblings and friends may appear to be the right decision.
You love them, and they were always there for you growing up, so it’s only right that they should share in your success and all that comes with it.
So you buy them a car, a big house, pay all of their bills. You want them to live a beautiful, comfortable life, right?
But the day will come when you realize that as much as you believed you were doing the right thing, you were actually holding them back.
You will come to understand that you were taking care of them because it made YOU feel good, it made YOU happy to see them smiling and without a care in the world — and that was extremely selfish of you.
While you were feeling satisfied with yourself, you were slowly eating away at their own dreams and ambitions.
You were adding material things to their lives, but subtracting the most precious gifts of all: independence and growth.
The above isn’t my writing. It is a true champion writing to himself. Guess who?
Kobe Bryant. After his NBA career, Kobe Bryant wrote a letter to himself; his 17-year-old self who is about to be signed to the Lakers.
I don’t get excited by basketball much (gee it drags on for someone who can’t sit still) but I love studying this man and the way he thought. He has some unbelievable interviews on YouTube.
Kobe tragically died at 41 so this letter holds even more weight when reading it.
He goes on to say:
Use your success, wealth and influence to put them in the best position to realize their own dreams and find their true purpose.
Kobe obviously believes that independence and growth are more important than material things and money.
Deep down, I think we could all agree on that. That is why it is important to stay away from envy. Envy of those who ‘win lotto’ or ‘get given everything’. Understand, they will have their problems.
Worry about the things you have and the things you want. Not those things that others have & want. Those things are not your dreams nor are they your ambitions.
Google ‘Kobe’s letter to his 17 year old self’ if you want to read the entire letter.
I often wonder how long it took him to write this and how he felt knowing that hundreds of millions of people would read his thoughts.
That letter has something that we can all learn from - if we choose too.
THANKS to those who joined us for the live workshop on saving $10,000 in 365 days.
You can still request a copy of the replay if you like - it will be sent on the weekend.
Details are here: https://docs.google.com/
Luke
In case the contents of this email are topical, it was first sent on 4th March 2021. |
A couple of weeks ago I got going on cause & effect. How compound accumulation is exponential & most of us never get to taste it because we don’t start or stay consistent.
Remember that? Well it played out for me this week.
On LinkedIn, I threw up my email about buying my coffee for $100 when we went into lockdown and the post views went exponential.
Over 65,000 people saw the post. A lot of people messaged me. Now they’ve read other Money Mails. I nearly ended up on Seven Sharp (my agent didn’t approve….jokes)**, randoms were ringing, some dude wanted me to mine bitcoin with him, IT WAS ALL HAPPENING I tell ya.
At one stage I thought i'd get my own discount code for HelloFresh but anyway...72hours on it’s all over and life goes on.
I didn’t post it for the view count, couldn’t give a sh*t to be honest. I posted to inspire a different way of thinking.
I’ve posted over 40 Money Mails to LinkedIn now and been producing content on LinkedIn for years.
Sometimes those posts get 5 likes or 30 views. Every now and then they go exponential.
Just like I explained two weeks ago. But, I wouldn’t know unless I stayed consistent.
Believe in cause & effect.
Anyway, this week I wanted to introduce you to the concept of ‘Dollar cost averaging’.
DCA if you will. What the hell is it? Another acronym to learn. It’s about consistency too.
It is an investment strategy or concept whereby you spread out the purchases of stocks (in this instance) over a period of time.
The methodology aims to reduce the impact of volatility (big ups and downs) by consistently investing or purchasing.
Have I lost you? Ok really simply then. Instead of waiting 5 months to drop $1k into a single stock, we buy $200 of it, over 5 months.
Instead of buying $1k at one price, you’d be buying $200 at 5 different prices (the price at the time of making the transaction). This helps you buy at an average price rather than one price.
After the market crashed last year, A LOT of people benefited from continued purcahsing during the upswing of the stock market.
Their Kiwisaver was still buying stocks & they were a lot cheaper than the week or month before. Investing into the stocks their portfolio is set to invest into and buying at the new price.
As the prices increased, they had effectively bought the stocks cheaper in earlier weeks.
This brings down the ‘average cost’ of those stocks.
If you’re in Kiwisaver, you’re most probably doing the DCA and didn’t even know it.
Next week, if I get some time away from being an influencer (might be selling Hellofresh boxes on Seven Sharp) i’ll explain some examples of how people use dollar cost averaging.
**SINCE writing this earlier this week, I've been locked in for Seven Sharp..see you tonight, 7pm.
Luke
In case the contents of this email are topical, it was first sent on 11th March 2021. |
It’s been a crazy week, still no Hellofresh discount but we did nail a 4.3 second Seven Sharp appearance.
If you missed it (i’m sure you didn’t) you can check out the story here: https://www.youtube.com/watch?v=xb1ifM7Jr1c In Money Mail 30 we talked about the $100 challenge and this $100 coffee was inspired by that.
There is a good chance that if I didn’t write that content and get inspired by some of the stories you all sent back, I may not have been triggered to practice what I preach.
So thank you! Why wait to be ‘rich’ before being a giver
I have used the time I had set aside for promoting my HelloFresh discount code to instead dig deeper into Dollar Cost Averaging.
Humans seem to be so obsessed with getting the ‘best price’ and buying ‘at the perfect time’ when realistically we only know these things with the benefit of hindsight.
Averaging-in can be a really handy way to avoid the ups and downs of financial markets.
In the Five Figure Formula, we discussed using something like an auto-investing feature through Sharesies. Firstly setting up an automatic payment to Sharesies (or whatever you use).
This is the simplest way to put dollar-cost averaging into practice. Each week, your DIY order is buying you shares in the funds you selected when setting up your DIY order.
It will buy at the market price of that day. Again helping you achieve a more average cost for the shares / funds you want to buy.
When I first started investing, the fee to buy shares was quite fixed with the platform I used, so I would have to save up until I had enough money to invest, to make the fee worthwhile.
I couldn’t dollar cost average because I had to wait until I had the money. This meant I was buying at the price available when I had the money saved. It was often frustrating as the price had moved from when I decided to buy, compared to when I could afford to buy.
With this virus hanging around, markets are volatile, so this is a concept to really understand.
Of course, you need to understand what fees you are paying each time you invest too because those fees eat into the gains that you make. Make sure you understand the fee structure of the investing platform you are using.
I found this REALLY good article explaining dollar cost averaging with worked examples in numbers.
https://www.fool.com/investing/dollar-cost-averaging-what-investors-need-to-know.aspx
Luke |
In case the contents of this email are topical, it was first sent on 18th March 2021. |
|
This week we are going to look at dividends. A stack of you are into Sharesies, Hatch etc. so this will be something you are familiar with OR will need to be as they need to go in your tax return.
Dividend - a sum of money paid by a company to its shareholders out of its profits (or reserves). (Basically you own a share of the company so if they distribute out their profits (through dividends), you are entitled to a share of the profits and get a dividend).
Withholding tax - a tax deducted at source, usually on interest or dividends paid to a person. (Basically a tax taken before the money gets to you to ensure it gets to the IRD before you blow it on new activewear. You'd probably be most familiar with this on interest from banks).
Imputation credit - (this one is a bit harder to understand as it’ll be new to some of you). Dividend imputation credits (or tax credits) are essentially a credit back on your tax. The way it works, is that you pay the tax on your dividend income and claim a credit back based on the imputation credit attached to your dividend payment. Say what?
Example
BUT, we actually have it set up for the dividend to be reinvested instead of physically receiving the money. The dividend turns into more shares which, fingers crossed, go up in value too. (Remember those compounding lessons?).
Back to the dividend - the gross dividend needs to go into my tax return as income as I am the shareholder of those shares and need to declare those profits as income to me.
The company has already paid tax on this dividend so I can include the imputation credit they have attached to the dividend in my tax return, to offset some tax. They’ve also paid some withholding tax to the IRD on my behalf already, that will go into my tax return also.
The net dividend (after taxes of withholding tax and imputation) is the amount that I get to keep and in this case, is reinvested.
For some of you using the likes of Sharesies, you’ll receive your dividends directly back into your online wallet. They’ll have a record of the dividends you’ve received during the year if you ever need to check.
I have included my dividend for Heartland (via Sharesies) for you as an extra example.
• Gross Dividend of $30.99 • Imputation of $8.68 (28% which is the company tax rate) • RWT of $1.54 (5% of $30.99, to ensure I pay my correct tax obligation of the 33% tax bracket). When that dividend hits my tax return, I should have paid my entire tax obligation already (via the imputation and withholding tax).
If you don’t have a MyIR account, you need to set one up, it’s pretty fundamental when it comes to taxes.
Just like a HelloFresh box, there is a bit to unpack here. Read it a couple of times and get learning.
For the rest of the March, I have moved KTC Night School to $99 for those of you wanting to do some learning to finish your financial year OR say thanks for the content.
Luke |
In case the contents of this email are topical, it was first sent on 25th May 2021. |
Thanks for all of your kind feedback on the dividend email - glad to hear it made sense. This week got pretty interesting with the property space getting a big shake up.
Property accountants & property investors are busy figuring out how these changes affect them.
I need a few emails to explain each of these major changes in detail. If you really want to have a good read let me know and I can point you in the direction of IRD facts, not clickbait opinions.
Quickly, the government is trying to slow down investment in property & make it easier for first home buyers to get into a home. Will it work? Probably not. Not over the long term anyway.
However, maybe this is just the start when it comes to changes. Because I do know that previous taxation changes to property haven’t slowed down the speculation, bubbles and obsession.
But how did we get here? How do prices keep rising? Good blardy question.
I want to give you an example to help you understand. This is just one way prices have been rising and is based on a true story.
Righto picture this...Person A & Person B are the final two bidders on a property. It’s come down to just these two.
Person A bids to $885k and can’t place another bid.
Person B bids to $890k and wins the battle. No more bids form Person A.
Going, going, BIIIIID.
Just when we thought it was over, back to war we go. Bids go back and forth again.
Person A’s Dad bids Person B up to $920k and thinks, actually this is silly I’m out.
Person A could get borrowing for $885k and then Dad decided out of no where that he was going to make up the difference.
Person B wins the house at $920k. $30k more than 2 minutes ago when they initially won the true auction.
Person A’s Dad has just cost Person B $30k...Person B doesn’t shout Person A a beer.
Well I hear you say, ‘get over it, $30k isn’t much in the scheme of $900k is it’?
Try saving $30k out of your after tax income.
The bank go on to lend the $920k and we all carry on. That money is in supply and the seller does whatever they do with the cash - probably buy another property in the same conditions.
You can see how this gets out of hand pretty quickly huh?
The government stepped in this week and changed some rules for the property investors and it captured nationwide attention. The hope is it cools the market, lets see how that goes.
If you think these changes might impact you, do your research and ask experts. Don’t take your neighbours advice on this stuff. Some of the examples I've seen would have you believe that no one will be at open homes this weekend and that the market will crash.
For the rest of the March, I have moved KTC Night School to $99 for those of you wanting to do some learning to finish your financial year OR say thanks for the content.
Luke |
In case the contents of this email are topical, it was first sent on 1st April 2021. |
Happy Easter to you and your family,
A new financial year is here. That means us accountants get super busy.
Calculating tax and completing sets of accounts for clients.
Our firm focusses more on the business advice & growth side of things but we still rip through plenty of accounts ourselves.
95% of people don’t read their accounts but it gives accountants a job and keeps the IRD happy.
Most clients just want to know how much tax they have to pay.
Our clients are legends. They know if they are making progress during the year.
Tracking their profits and keeping on top of tax. Building their balance sheet and wealth.
I’ve told you before; there is no reason why you can’t do the same, even if you don’t have a business. I made a video about it here: https://www.youtube.com/watch?v=eQDD9ogJlaY
These rising house prices are really troubling me and I think I worked out why.
I think it's because I know most people aren’t in control of their income. It sucks feeling helpless.
Right now if your income or salary is fixed and you don’t have a house, you’re losing purchasing power when it comes to buying a house. Most assets are increasing in value whilst your cash and income are not.
What if we learnt how to make some extra income? We could take some control back.
I know someone who did just that. Quit the job & went out to the big wide world to have a crack.
He’s writing this email to you right now.
This isn’t one of those ‘if I can do it, you can do it too’ stories. Because maybe you suck (whoops), hate working, don’t care or just can’t do it.
Sorry. I tell it how it is. The market doesn’t accept sucky businesses, attitudes or ideas.
But the market (people) does like it when you solve a problem. Surely YOU can solve problems.
That’s why we are going to work through a 2 hour webinar on side hustles and business.
Common mistakes. Business basics. How to get taxes in your favour. Where to start.
I’ve seen plenty of people waste time and money on ‘ideas’ when solving a problem was really the smart way forward.
We are going to go deep on this one and yup it is free. I’ll ask you to support KTC at the end if you find it useful but if you don’t want to I won’t hold it against you.
Thursday 8th April 7pm - get it in your calendar. I'll send out a zoom link closer to start time, hopefully you can join us.
Luke |
In case the contents of this email are topical, it was first sent on 8th April 2021. |
Just kidding, it was epic.
We had a great crew of people turn up to learn more about business and side hustles.
We covered some serious ground over two solid hours with plenty of good Q&A at the end. I know a number of you couldn't make it so I have put the recording on Youtube.
There were also some other links gold nuggets in there that you might want to read: • New Income Template • Hobby Or Business? • Side Hustle Tax Benefits This webinar is a good example of investing in yourself. Learning.
Often people fall into the 'perfect idea' trap that they need to think of the next invisible coffee cup to start a side hustle. You don't.
The market wants what it wants, not what you want to give it. Don’t do what you want, do what the market wants someone to do.
Think about solving problems and giving the market what it wants. These days we can even go on social media and ask people if they'd like what we are thinking about doing before doing it.
Ideas suck without execution so don't get stuck at the perfect idea phase...that doesn't work.
If you aren't interested in side hustles or business, there are some interesting slides (at the start) about how much money you need to make $40k in interest today, compared to 15 years ago.
You might be reading this thinking, I don't even know what I want from my life. Don't worry, we have you covered also - get this podcast in your ears:
Have a big ole weekend, Luke |
In case the contents of this email are topical, it was first sent on 11th March 2021. |
My week started by reading some data about the amount of Kiwis who owe money to the Ministry of Social Development.
Almost 560,000 people now owe $1.9 billion to the Ministry of Social Development. What do these people owe money for you ask?
These loans come about from taking out interest-free loans for things like school uniforms, the dentist, electricity and car repairs.
Essential items for families struggling to make ends meet. Over 1 in 10 New Zealanders.
Take it down to a household level and that is a lot of households.
Households requiring debt to get themselves life essentials.
On average, each person owes almost $500 more than three years ago, with the average amount being $3,420.
This is 50,000 more people than in 2018. Can you see why financial literacy is so important?
The niggly thing about data is that it doesn't lie. These problems aren’t getting better, they are getting worse.
Why? A number of the solutions we give people don't end up educating them.
We all do it tough at times in life and yes some people have it better than others. But you need to own your education in this space, really take responsibility for it.
DON’T leave it to chance and to systems because quite clearly, they are failing us. Of course they are well intentioned but as well intentioned as they may be, we aren’t getting it right.
In a report I read this week that was put together by Christians Against Poverty, 96% of the people they helped get out of debt, said debt made them feel stressed. 55% felt fearful and 68% said debt made them feel ashamed.
If you've been in debt before (I have!!!) you can relate to those emotions.
You might think well these things don’t really impact you and that’s partly true but someone has to sort the debt. One political party suggested we just wipe the $1.9billion of debt as it’s unfair on those who hold it.
Great well who ultimately pays that - you as a taxpayer. Perhaps an opportunity cost of where that $1.9billion could be spent (ahhh education maybe?).
Indirectly, these decisions do impact you and our nation needs a good hard look at itself around budgeting, debt and financial education.
BUT we can't control what any govt does so start with who you can control...yourself and your education.
I know we can't help everyone but if you have been reading these emails thinking they are interesting but not really taking any action, you need to wake up. Please, do something! Wake your friends & family up too, get them learning, get them taking action.
Be smart out there, Luke |
In case the contents of this email are topical, it was first sent on 15th April 2021. |
Whilst most of you were getting your weekend started, I was doing something pretty rash.
Buying a bit more cryptocurrency. Some of you will have seen this on the Keep The Change Instagram account:
24 hours later I was reading about a ‘flash crash’ in the crypto space and my investment (gamble...whatever you want to call it) was down in value. Mint...
Probably couldn’t have timed it any worse if I tried. But the sun still came up and we carried on.
The interesting thing was that a number of people messaged me asking what the best platform was to buy cryptocurrency from.
I have no idea, but the one that I used worked. I didn’t really know there were other options. It didn’t really matter to me, I just wanted to get to my outcome - getting some crypto.
It reminded me of the people that go shopping for the best protein but forget to purchase the gym membership.
Stuck in the detail instead of getting the work done or getting the outcome you are setting out after in the first place.
When you go looking for ‘the best’ rather than the solution that works, you often risk not making a decision and therefore not taking any action.
Of course these are no small decisions to make but I see it when it comes to investing on the stock market through Sharesies and the likes too.
‘Whats the best stock to buy in NZ?’ ‘Whats the best numbers for Lotto this Saturday?’
It’s not always about getting caught up in the trap of ‘the best’. Instead, get caught in the habit of taking consistent action over time. Action that gets you closer to your goals.
Less besting, more action, Luke |
In case the contents of this email are topical, it was first sent on 29th April 2021. |
Last week I got to tour around with a business owner who is building new homes in the Waikato. I love getting out and seeing what people are doing in life and business.
These guys look for sections that are under-utilised with jungles, grassed up areas, inefficient sections, that sort of thing and then they turn it into a well utilised section by putting another house on it.
They took me to a completed project where they paid $550k for the house and section. The section was overrun and had a little shed that was never used. The shed could go which freed up some space.
They then built a brand new home on the back. A young family bought it and moved in. The family paid $630k for the new home.
Once the project was finished, the original house went on the market too and sold for $600k.
For a bit, my brain couldn’t comprehend. The accountant was stumped.
They found a house/section. Built another house on it and then sold both houses at a profit.
It reminded me of a lesson a property developer told me last year ‘Luke you don’t make a profit when you sell, you lock your profit in when you buy’.
That’s probably the reverse of what you were taught or believe.
A trained eye can find an opportunity because they can see that they can add value to what they are buying.
They aren’t buying with emotion. They are buying with a value add approach and the market rewards them for that. The seller of the section saw a messy section with a useless shed and over grown gardens.
A property developer sees two houses on the same section. They take the risk, get it done and the market responds by agreeing and paying for both houses.
Here’s an example of a build near completion
Luke |
In case the contents of this email are topical, it was first sent on 6th May 2021. |
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In case the contents of this email are topical, it was first sent on 13th May 2021. |
This is the 52nd week of Keep The Change.
A whole year of sending out an email regarding money or something finance related. An email that you can learn from and that is intended to get you thinking.
Even if you skim it, it’s a useful weekly reminder to think about YOUR finances. A push in the right direction.
Every month I have a meeting to review how many people have signed up, what’s working well and what to do for the coming month.
Each week I get some help to put Money Mail on various social platforms as well.
Of course, the content has to be written too, it doesn’t just think itself up and start typing itself.
I know some people have given up reading these. Imagine how they'd go trying to write them…
Quitting is a massive disease in our society. We give up or quit something that we know we really should be doing. Sometimes it’s because it’s hard and other times it may be boring.
When I thought about starting to write these, I told myself I wouldn’t send the first one unless I could see myself sending the 52nd one.
Of the things that I have been successful with in my short life, they’ve mostly come down to consistency and stickability - I think that’s a word.
Often when we do things, in the short term we get dissatisfied with the initial results. The excitement wears off and we pull the pin. Things aren’t happening fast enough.
Like saving, investing, learning, exercising, meditating, saying thank you, stretching...you get the picture.
Things take time. It sucks. But it’s real. Success requires consistent effort over time whether we lke it or not.
Over the last year, I hope that these emails have taught you something you didn’t know. I hope that they can teach you about consistency too. For whatever purpose that might be useful for, in your life.
Embrace the grind, it is good for us.
Bring on the next 52, Luke |
In case the contents of this email are topical, it was first sent on 20th May 2021. |
BIG news before we start - you can now listen to previous Money Mail lessons as a podcast: Right lets get into this week...In Money Mail 51, we touched on renting and why it might not be such a bad idea for some people.
I said that there were other things to think about when buying a house that often get swept under the carpet. A couple of people reached out and wanted to know what I was referring to.
Before I do, I want to reiterate that if your dream is to buy a house, good on you, make a plan, figure out what you need to do and get started. The below will help you plan for things after the purchase.
I am not sh*tting on people who want to buy a home, merely passing on information from someone who has owned a home and researched both sides.
We spoke about the money a house ties up which means you have an opportunity cost of what else you could do with that money. I.e. invest, travel, start a business etc. Again, you wouldn’t do those things if they aren’t your goals or don’t excite you.
If you’ve ever purchased a home in NZ you’ll know how yuck the process is. Missing out on the first 4 homes you had already moved your cat into, in your head. It’s a massive time suck for many and again, the opportunity cost of this time is something only you can know. (Suggestion, investigate new builds).
We can’t forget the costs of keeping your house in good condition. Here are a few big things that will need doing down the track that you’ll need to budget for.
• painting the outside of your house (apparently every 10 years) • painting or replacing your roof (for better Google satellite images) • painting or replacing your fence (I lived in Hawera so mine got tagg’d) • replacing rotten weatherboards (saw a couple of these in my uni days) • fixing leaky pipes or chimneys (birds love nesting in a chimney - never understood why) • replacing a hot water cylinder (old school but plenty of NZ homes have them) • repainting or wallpapering the interior (Sam & Emmett made it look easy on The Block) • replacing the carpet (after having the squad round for the Warriors in the NRL final - chances) Most people aren’t thinking about the above when they buy & don’t put any money aside for it. The truth is your home needs it’s own maintenance fund or ‘Rainy Day account’. Instead, people head back to the bank & borrow against the capital growth to repair or improve the house.
A lot of people try to reduce these costs by a bit of good fashioned Kiwi DIY. I hate DIY so I am biased but have you ever tried to paint a house, or a roof? I was horrendous at it.
I never won a colouring in comp and even though a house is about 100x bigger, I still couldn’t stay within the lines.
Data suggests that the length of time that properties are being held onto before they’re sold is about 7 years. An average mortgage is about 30 years. High chance you’re going to get sick of that house & move to another. Humans love progress. Historically, housing has allowed this by borrowing against the capital growth & repayments of your mortgage which creates ‘equity’ in the home.
Oh apparently houses need furniture too so don’t forget to budget for that.
Time - this is where you can really feel the impact of a property. Maintaining it in your ‘spare time’. The gardens, lawns, weeds, house itself, fixing broken stuff, organising trades people. Taking rubbish to the dump. The list goes on...easier to use the phrase ‘I just have to do a few things around the house’.
The true cost of a home isn’t the mortgage repayments, it is the opportunity cost of the time and money it takes up. That said, the true value of a home isn’t the purchase price...it is what value it brings to your life.
Luke |
In case the contents of this email are topical, it was first sent on 27th May 2021. |
Did you catch the budget last week ? Didn’t think so. If you weren’t tuning in you’d probably be considered normal, so I don’t blame you. It was pretty boring listening anyway.
But the Government need to budget just like you and I. Work out what we have coming in and what is going out too. They have to keep a financial position; assets and liabilities.
I’ll give you a few of the high level key points from last weeks budget:
If you’re reading this you’ve learnt that living within your means is a good idea but many of our fellow Kiwis don’t do that.
They use debt to add more income to their household. The government's plan is no different.
People will argue it doesn’t matter as interest rates are so low so we might as well take advantage of that.
That debt is going to wash out in the economy somewhere and you should figure out how to get your hands on a piece of it. I’ll give you a hint - it’ll probably end up over in housing again.
Part of me doesn’t really care about the budget as it shouldn’t be a determinant of my life BUT part of me watches with intrigue of where the money will flow too as well as hoping one day there will be something seriously BOLD in it.
For example, I’ve always wondered what NZ would look like 10 years into tax deductible expenditure of gym memberships, counselling, therapy, coaching and self funded learning.
For the non accountants and geeks (all of you), here is what this would look like:
PAYE salary $70,000
Tax deductible;
Counselling $2,500
Gym membership $1,000
Finance course $500
Total annual expenditure $4,000
Total taxable income $66,000
Your tax would be calculated on $66k not $70k
This is basically how businesses work. Business owners can claim business related expenses in their businesses that PAYE earners can’t.
A change like this would allow more Kiwis (not just businesses) to claim expenses that make them more productive, healthier, educated & happier - some of the key goals of a Govt anyway...
Each year, I get let down as no one seems to think like this. The budget does more 'same ole' promising plenty & delivering poorly (google 'Mike King medal' for a current example of this).
Anyway...a lot of larger businesses offer a wellness or professional development contribution. You might want to check with your employer whether there is any room for them to cover your healthcare, fitness, education, therapy or development...you never know unless you ask.
I highly recommend you listen to the ‘Side Hustles’ webinar from minute 36 to 52.40 to learn more about how claiming expenses works & how one day you could use these tax rules in your favour.
Make sure you check out the podcast if you want an audio version of these lessons! There are over 15 lessons available on Apple Podcasts now too. Search for 'Keep The Change'.
Cheers,
Luke
In case the contents of this email are topical, it was first sent on 3rd June 2021. |
The red one isn't it...I knew it!
The Keep The Change podcast is now available on Apple Podcasts here:
https://podcasts.apple.com/nz/
Or Spotify here:
https://open.spotify.com/show/
It has been good to see hundreds of people already tuning in to the audio versions of Money Mail.
Recently I was travelling down country and I got to the airport early...that means get the laptop out and rip into some mahi.
The beauty (and curse for some) with my business is that I can basically dress up like that backpack kid and have my business wherever I need it. Laptop, phone, internet, off we go.
It wasn’t too many years ago that I believed that the Koru lounge was only really for rich people or the ‘elite’ or what ever sh*t you’d been taught growing up. I had to unlearn that education.
I took a membership pre that world wide virus thing because I was travelling so much and could justify the price of an annual membership very easily.
I hadn’t renewed my membership since the virus as I didn’t have much travel planned. Then I found myself at the airport at short notice.
I sat at the airport in the departure area, looking at the Koru lounge door and thought: ‘I’m definitely not travelling as much as before but I should probably pay some ‘self tax’ here’.
That’s where, for me, I pay for things that I don’t necessarily need, intend on buying or think are worth the price.
Why? Well Air New Zealand lost a billion dollars of revenue with the virus and I really, really rate their service and business as a whole so I want to see that continue in the future.
I went online, spent $600 odd bucks and renewed my membership. Wandered over, scanned straight in, grabbed a snack, coffee and took the backpack off.
You see, I think there are times where we need to think bigger picture and support things that we care about rather than ‘what else could I do with that $600’...probably invest it or not spend it.
But that $600 will make itself back in some way. I have learnt so much about business from studying different areas of Air NZ and their business model.
When you become committed to learning you start to want to repay those who have taught you. It’s a subtle change you notice within yourself.
Air NZ weren’t hounding me to renew, I did it because ultimately I value what they bring to my life and I am going to need their help in the future so I should find ways to help them along the way too.
I actually finished this email from the Koru lounge this morning as I head down country for the day.
The first time I used the Koru lounge, it was like a brand new club I finally had access to. Excitement levels were high for this young lad from Dannevirke (we didn't have an airport let alone an Koru lounge where I grew up). Who would I see, what could I eat, who would I meet?
I sat down with the laptop, had a muffin and the place was rammed as they were renovating the soon to be finished lounge. A couple of politicians were left without a seat so I ended up giving my seat up for them to do some work and I went back out to the departure lounge.
An anti climax but you don’t want your politicians standing around looking for seats you want them doing some bloody work. I don’t ‘self tax’ myself to pay them, they do that to me themselves.
Go well this weekend,
Luke
In case the contents of this email are topical, it was first sent on 10th June 2021. |
Turns out plenty of you like the green Air NZ lollies and the red ones too.
But not everyone likes Air NZ. One reader told me that it was the end of their learning from Keep The Change as they are ‘a conglomerate corporation who do not care about actual New Zealanders’.
It was heavy reading for a Friday and I was sad to see them go but that’s life. My parents taught me that 'in life, you’re not going to please everyone' and they were pretty right!
It made me think about how our personal bias & opinion can get in the way of our own growth.
We can become close minded to learning because we don’t hear the things that we want to hear or get triggered by things that we don’t like.
We turn our back on teachers because we don’t agree with something that they have done.
It seems like we’ve continued to move to a world where if we have a bad experience with a company, business, telco, petrol station, influencer, podcast etc. we then have to ‘hate’ them.
Hopefully people are using the word HATE too easily instead of genuinely hating these things. We are all guilty of it, I am no different. Trying to spot it in ourselves when it happens is valuable.
We’ve spoken about this before. What good does hate do for us to learn?
If we become close minded to different ways of thinking it makes it hard to explore both sides of education. It's horrible fuel for creating tension and division also.
These emails are often designed to test some of the ways we think about money and what we have been taught.
Take cryptocurrency for example...some say it's a scam & others say you can't buy enough.
What about Kiwisaver...not everyone thinks it’s worth being a part of because you can do it yourself. Other people think that it is an amazing solution to retirement planning and EVERYONE should be in it.
The key is to work out what works for YOU, not THEM.
Whilst talking Kiwisaver, remember that the 30th of June is the cut off for the KiwiSaver Government contribution of $521.43.
If you are aged between 18 – 64 and have contributed at least $1042.86 to your KiwiSaver fund since 1 July 2020 you will be eligible for the full government contribution. If you are contributing to Kiwisaver out of your usual PAYE salary, this will be happening for you automatically.
If you haven’t contributed to this level you only have until 30 June 2021 to do so. The government contributes $0.50 for every $1 that you save – to a maximum of $521.43.
The future value of the free $521.43 contribution to a 25 year old, invested at 7.5% per annum, upon retirement is $9,408. The power of this extra money compounding over time can make a huge difference to your retirement balance.
Stay open minded,
Luke
In case the contents of this email are topical, it was first sent on 20th May 2021. |
Since starting to write these weekly emails, we’ve seen a new tax rate introduced in New Zealand.
NZ’s Current Tax Rates $0 - $14,000 10.5% Tax $14,000 - $48,000 17.5% Tax $48,000 - $70,000 30.0% Tax $70,000 - $180,000 33.0% Tax
A couple of quick examples to help you understand it.
EXAMPLES
A) If you have a salary of $13,500 you pay tax as so:
The $13,500 at 10.5%
B) If you have a salary of $252,000 you pay tax as so:
The first $14,000 at 10.5% From $14,001 to $48,000 @ 17.5% From $48,001 to $70,000 at 30% From $70,001 to $252,000 at 39% It was the first time since 2010 that the income tax rates have changed. It’s like getting a new abacus for us accountants as we love working out what these changes might mean for clients and the public.
However, for those people buying and selling property on the side for instance, you should be aware that the proceeds from these ventures (and others - i.e. side hustles, buying and selling crypto at a profit) may be income and add to your total taxable income.
I was crunching some data from the IRD’s website - you can download entire tables of the number of taxpayers between each $1,000 increment. The sort of thing you do if you’ve got a couple of undiagnosed issues.
About 1.9% of people in the data set had incomes of $180,001 and higher. Because I am even geekier, I was reading some government updates about the new tax rate which state: ‘’This policy is forecast to generate $550 million of revenue a year. The new tax rate for the top 2% of earners will help keep debt under control, while protecting vital services like health and education’’.
Well I can tell you this ‘controlling debt’ bit is a giant fib because if you read the Government's budget (please tell me you didn’t...I know you didn’t) you’ll notice that debt is forecast to INCREASE beyond current fresh record levels, through to 2025.
Anyway, the Govt isn't my client so balancing those books is someone else's job to figure out.
You might be interested in this table I found that summarises the data I was crunching above.
Luke |
In case the contents of this email are topical, it was first sent on 24th June 2021. |
Last week we learnt that roughly 92% of people in New Zealand earn below $100,000.
For those of you that aspire to earn $100,000 from a salary (i.e. not from house prices going up) then you have 8 out of 100 people to look at for clues.
What about earning over $260,000? My word, what would that be like you ask? Well you’ll need to ask the 0.78% of people who do that. Hard to find 0.78% of a person, but statistically there aren’t too many of these people we can seek answers from.
It might not be the $100,000 salary you’re after...maybe it’s a better physique, diet or control of your emotions.
There is a saying that you are the sum of the 5 people you spend the most time with.
You’ll know what I mean, it’s why you keep saying LESSSSHGO when you are heading out for a weekend drink.
We become the product of our environment. We need to be careful of the environment we are in.
Often, with business owners, we see them doing the same thing, year after year. They say they have ‘7 years of business experience’ (this concept goes for people in employment too) but really they have 7x the same 1 years experience.
It is not until they decide that they REALLY WANT to achieve something different that they then have to work out a plan to take action (PLACTION) to help them get there.
They hold the image in their mind of what they WANT which they then visualise and ‘feel’. This then determines their actions, which determine their results.
Think about the results you want to achieve and feel how it would, to have achieved those results. Practice this and see what actions you come up with that you need to take, to get you closer to the desired outcome.
A question for you - are the people you are socialising with earning much the same as you? How do you think that happened?
These days with the internet, it’s easier than ever to surround yourself with the right people. BUT it’s equally as easy to surround yourself with the wrong types of people and content.
Think about a couple of things in your life that you want to improve - it could be finance, health, diet, relationships, faith or whatever is important to you.
Go on social media and FOLLOW two people who you know will genuinely inspire you in that area.
Time for some extra for experts...jump back on social media. UNFOLLOW two people you know that really p*ss you off, drain your energy or make you compare yourself to them.
I’m waiting….
Still waiting...
You did it? Good work! You don’t want ‘mates’ who make fun of you for investing or wanting more from your life. HINT - they aren’t mates. They are scared of you leaving them behind & scared of losing you as a mate. Re-read that, yeah? Someone needed to hear this….you're welcome.
Remember, we become the product of our environment, so get yourself into a good environment.
Bring people into your life that you want to learn from and be inspired by. First, you need to know what you want - start there!
Change your environment, change your results,
Luke
In case the contents of this email are topical, it was first sent on 1st July 2021. |
Getting rich is confusing. There seem to be a thousand different ways to do it.
In New Zealand, the majority of us are taught to get a good education. It’ll give you a good job and therefore a good income.
Those who apply themselves work their way ‘up the ladder’ and get rewarded with an increase in income.
But the world has changed...this internet thing has a lot to answer for.
Last week I watched a documentary on a lady in Australia selling images of herself and dating people online. Pulling in a cheeky $1,000,000 most months.
I’m sitting there thinking. Are you serious? You mean these last ten years i’ve spent studying and researching to be a Chartered Accountant and I should have been training to take selfies and nudes? What a world we live in.
I don't think my pillow talk game is strong enough for online dating 'Hey did you know only 8% of Kiwis earn over $100k?' isn't the sexiest sort of chat is it...
I had to turn the documentary off and go back to studying more practical methods.
What about Bernard Arnault... have you heard of him? Well, Bernard recently became the world's richest person.
I know, I know, it wasn't long ago that I told you that Elon Musk was. Things change quickly around here.
Before you go to the Big G of Google and find out who he is, I’ll enlighten you below.
Chances are you’ve tasted a bottle of his champagne, Moët. Perhaps something from his bag collection is in your wardrobe? Louis Vuitton, Fendi, Christian Dior and Givenchy.
(Can we talk about how much ladies spend on bags one day? Or is that off limits? They're an investment I've been told...).
Anyway, these luxury goods are loved by people all over the world. His potential market is HUGE and he can achieve scalability.
Arnault’s fortune jumped from $76 billion in March 2020 to $186.3 billion in May 2021. A rise of over $110 billion in only 14 months.
We don’t really get taught about ‘scale’ in New Zealand. Remember from the top: good education, good job, good income.
To be fair, it is hard to think about ‘scale’ in New Zealand as we have a population of around 5 million people. Most NZ businesses need to carve out a potential buyer from that 5 million.
Trading your time for money in a job is often not seen as a good vehicle to scalable income - your hope of an increase in income is usually an increase in your salary or hourly rate.
Scale is often why a lot of New Zealanders look overseas to pursue bigger dreams or bigger markets.
I'm not suggesting you level up on your soft core selfie game, but those who are, are learning about the access they have to the worldwide market - huge scale.
Scalability shows us that when property is going nuts, people flock to become real estate agents. Taking a clip of each sale they make, they can scale their income dramatically.
This is also why people love property investment - they get the hang of one investment and realise they can scale their methodology and get 2,3,4 properties over time. Scalable.
Perhaps you are working on a business idea or a side hustle idea. Have a think about how scalable it is...how many times can you replicate it before you get in the way & hinder the growth?
Scalability requires processes, automation and, of course, a huge customer base to start with.
Think big, think scale.
Easy on the selfies this weekend Jade...once they are online, they are online forever,
Luke
In case the contents of this email are topical, it was first sent on 8th July 2021. |
In my accounting practice, we have been having conversation after conversation with business owners & HR experts about finding staff.
The business owners tell us that finding staff is proving extremely testing. Labour supply has been restricted with our borders being closed (fewer workers coming to NZ).
The HR experts tell us that every placement is met with a counter offer from the current employer. What this means is that people are going for jobs and when they get an offer, they go to resign from their job and their current employer offers them more money to stay.
Some big corporates are offering large pay increases to keep staff from moving to competitors.
The simple solution for most employers is to offer staff more money, hoping that they will stay. People enjoy progress & progress in income is no different. They are tempted by the higher pay.
We know that house prices are rocketing up. Our prized possession and goal in New Zealand of home ownership, means people go after a rate of pay in line with the ability to achieve their goal - buying a home.
We can look to the banks to see what their economists predict (take it with a grain of salt as always). On this one, ANZ says that the economy is rapidly approaching “full employment”.
Full employment is when everyone that can work has a job.
ANZ think unemployment will drop from 4.7 per cent to below 4 per cent by 2023. This would be a new 16-year low.
What about ASB? "Difficulty of finding labour and labour as a limiting factor are at record highs. Labour turnover surged in Q2, evidence that firms are now poaching staff off each other''.
What does that mean for you?
Employers can expect wage pressure from their staff. (See the HR experts' experience above).
The noise on this is getting louder, so much so that I nearly sent this out to you on Monday.
You need to pay attention to it as there may be an opportunity to speak to your employer and see whether there is room for you to be paid more. You need to think about your last pay-rise.
Remember previously I've said that your biggest asset is yourself and this is the sort of environment where you need to remember that.
Of course, just because something is scarce doesn't make it 'good'. However, scarce labour means more competition, which usually means a bigger cost to secure the labour.
Don’t approach your employer without a well-thought out story as to why you deserve to be paid more. Try to understand what will help them as an employer and what they are trying to achieve.
No employer enjoys a staff member threatening them that they'll leave if they don't get more money.
You need to actually be valuable to your employer to be paid more in value. Have an honest conversation with yourself first - are you worth more in this labour market?
Of course, you could always approach similar employers and ask them what your skillset and experience is worth to them or whether they are hiring. From what ASB said, that is happening a lot so the chances are, they are looking for good labour.
ANZ also reported that job vacancies had risen “way above pre-Covid levels”. This is across every industry. The total number of job vacancies is “well above previous record highs”.
We are in interesting and unusual economic times. I suggest you spend some time thinking about how you can become more valuable to your current or future employers.
Time to have a brave conversation,
Luke
In case the contents of this email are topical, it was first sent on 15th July 2021. |
A few weeks ago, we looked at the new tax rate in New Zealand. The top tax rate in New Zealand is now 39% for income over $180,000.
I also reminded you to be wary of extra income sources. I.e. For those people buying and selling property on the side, for instance, you should be aware that the proceeds from these ventures (and others - i.e. side hustles, buying and selling crypto at a profit) MAY be income and add to your total taxable income.
Well, this week we had this exact scenario and I thought I would share it with you so that you understand how it works.
We had a client contact us with an offer on the table for their rental property. The sale of this property would give them a $186,000 profit....I know...
This is an unreal gain in just over 12 months....especially when you think that the house earnt more than 92% of our taxpayers do in a year.
Now, this client is in the new 39% tax bracket as they earn over $180,000 from their business income.
Therefore, they will be taxed at 39% on the profit of the property sale (should they decide to sell).
The tax on this sale would be $72.5k. This is because they have bought and sold the investment property - it is not their own personal dwelling used for their own use.
The client now needs to decide whether they sell or not. There is a high chance that they won’t sell and that they will do something that won’t trigger any tax.
The client will most likely just hold the property, rent it out and use the extra equity as collateral. I.e. borrow tax-free dollars to spend on what they like (subject to their ability to service the debt).
This has been going on for decades in New Zealand. No doubt you’ve heard the saying ‘Put it on the mortgage’.
That’s how a lot of NZers add extra tax-free income to their household. They borrow against their home for a vehicle, boat, pool or deck.
They receive the proceeds tax free from the bank & spend them on their extension of choice.
Their loan repayments change and they carry on with life. Better still, they are usually repaying today’s spending with future dollars.
BEWARE: this has worked well for people over the last 30yrs with consistently lowering interest rates, BUT rates could go up and debt servicing can become a burden.
Recently, America has been looking at the amount of tax that their mega-wealthy individuals pay & how they avoid large taxes by keeping their incomes low & borrowing money against their assets to spend. There was outrage across the country...turns out home-owning Kiwis are good at it too.
This week, we have gone past 4,000 readers. Thank you to all of you who have helped Keep The Change grow past this milestone. There are thousands of podcast downloads now also.
Enjoy the weekend,
Luke
In case the contents of this email are topical, it was first sent on 22nd July 2021. |
You might remember that last year I became an Uncle for the first time.
It was my first go at buying gifts for a baby in the family, so I wasn’t too sure what to get.
The Chartered Accountant in me really wanted to get him an abacus.
Instead, I built the new addition to the family, a little share portfolio. 7 shares only. 3 shares made up 60% of the portfolio & the other 40% went to 4 lots of 10% (you love a bit of math).
Well, a year on and I can report to you that he is 33.6% ahead.
I am not too sure I will be writing to you next week as I assume today I will be getting a call to join one of the NZ investment firms. Surely they will want my secrets & to put me on the pay-roll.
The truth is, I just timed it well and bought the stocks when the market was in a slump. I expected that with more money printing (thanks Reserve Bank) we would be well ahead if we waited it out.
I am not the only one though...the Net Worth (assets - liabilities) of Kiwi households increased by more than $400 billion in the 12 months to March 2021.
This increase is nearly as much as the increase of the four previous years combined. Whoopsies, did we just leave those without assets a lot further behind? Yes!
(This shouldn't be a surprise to you smart readers. I think you will hear more about that this week. I need to calmly collect my thoughts before diving into it. We will look at it next Friday).
Of course, these are unrealised gains, aren’t they...they would only be realised gains if the shares were sold and the profit taken.
This year it was a tougher decision. The market is pretty bubbly and, of course, I still have the internal conflict of whether I should get him that abacus? Maybe a calculator?
Perhaps those can wait for a later year when the dividends from the shares can pay for them.
I ended up opting for Bitcoin and Ethereum. Risky, risky stuff you say. I could be accused by some of throwing money away.
Well, given he isn’t of the age to even understand he has these gifts yet, I think we can take the gamble. These 'investments' match his risk profile.
Who knows, maybe they will be teaching kids about crypto at school by the time he gets there.
Given that I like to invest with a 10-year view, I think that this gift may give the little fella a wild ride that we can talk about one day...or he'll wonder what I was thinking and i'll teach him something there too.
Remember that gifts are a big cost for us every year. Birthdays, events, weddings, baby showers, Christmas, Easter, Valentine’s Day, you name it, they are all designed to get you spending.
Some people build a ‘gift account’ where they allocate some of their income to cover upcoming presents, gifts and events they need to attend.
Other people set 'gift rules' where they have a set limit for what can be spent on a gift. Perfect for relationships and big families. Be practical, not emotional.
Hey before we go...every previous edition of Keep The Change Money Mail lessons are now available as a podcast on your favourite podcast platform. A deeper dive into the week's lesson.
Be gifted,
Luke
In case the contents of this email are topical, it was first sent on 29th July 2021. |
Eyes open because the numbers are in & we have an elephant in the room to address.
The net worth of Kiwi households increased by around $417 billion in the 12 months to March 2021 (houses anyone?).
This increase is nearly as much as the increase of the four previous years combined.
Statistics New Zealand released this data last week and it doesn’t make for the best reading when we are trying to close the gap between ‘the haves’ and ‘the have nots’.
You smart readers will remember that Net worth = Assets less Liabilities. It's something that right from Week 2 I taught you and suggested you track month to month.
Well Statistics New Zealand do it for the entire nation and Kiwis just got a good dose of net worth in the 12 months to March 2021.
Alright, let's not beat around the bush and get right into it.
I don’t want to tell you ‘I told you so’ but I did. I have told you time and time again that the money put into the system would have to wash out somewhere. Week 14 ‘What happens to a bubble’ August 2020.
If you don’t have assets, like houses, shares, shares in a business...well, you just got left behind. More so than those who do anyway.
To those of you in that position (especially those without houses), that will be a hard pill to swallow and I am sorry!! I genuinely feel for you.
I don’t set the rules of the game and I know you are trying hard and doing a lot of the right things. I don’t want to make you feel hopeless, so please remember that there is ALWAYS a way and that this is still a country where you can get ahead if you can just find the right path...
You'd have to think that the powers that be must have known that this would be the outcome. Studying this stuff is just a hobby for me and it seemed fairly obvious. For some, it is their full-time job. They must have known?
Enough about them, guess what else? Savings rates have dropped too. With such low interest rates, who would have thought? We did! We spoke about this in Week 3 ‘To save or not to save?’ This was June 2020!
Well what happens now?
I don’t think enough people understand what is really going on here, for any serious action to take place - soo uhh probably nothing?
Maybe there is a serious ‘correction’ coming where we have a market crash and people lose a portion of this wealth that they’ve recently gained...could potentially happen, but will the powers that be let it happen? Who knows!
This one has already happened - last year we talked about how you are going to get taxed in the form of inflation and new taxes. I got the inflation bit right (it is at record levels)...
Week 20 (Dec 20) - The hidden tax is prices going up, that’s how every one of us will be taxed. Your income stays the same but your costs go up leaving you with less money.
And taxes? Well unfortunately, I think we had better get real and start talking about some of those soon too.
Because, back to the start, we are trying to create a country where we don’t increase the gap between ‘the rich and the poor’ but yet we’ve done exactly that?
A lot of people suspect this is political but it probably goes further than that into our monetary policy which you don't want to bore yourself with.
The message here (yet again) is that no matter who is in power of our country, you want to make sure you are in power of yourself and your future.
So if you haven't optimised your Kiwisaver, started learning about investing vs savings, set some financial goals, killed some high interest debt, figured out how to increase your income...you have some work to do.
Please, continue to learn and pay attention to your finances. We are just getting started.
Be bold,
Luke
In case the contents of this email are topical, it was first sent on 5th August 2021. |
Recently, I had a special half an hour on the phone with someone a lot younger than me.
They were now in a position where they were making really, really good money and had achieved a lot of the things they thought might take a lifetime (mortgage free on one property, for instance).
Of course, this person received some good ole fashion Kiwi Tall Poppy chat from others. How dare they do so well? How dare they change? Who do they think they are?
Then there were family criticisms of the new career direction chosen. That’s normal, our family wants to protect us. They don’t want to see you get hurt & they can’t always see what you can see.
This person had to completely change their life to see these results. Change careers. Change habits. Change workloads. Learn new skills. Build resilience. Learn to grind.
They’ve done exactly that and achieved things they hadn’t previously thought possible.
Here’s where it gets tricky. There are still hesitations about spending and also worries about money that can’t seem to be shaken. Fear creeps in when making financial decisions.
On the call, we spoke about how the lessons for ‘the majority’ no longer apply or make sense, so we need to let that old education go.
Some of the things learnt when growing up don’t work for this person anymore. ‘Count every cent’, ‘don’t spend money on coffees’, ‘get a job & stay there’, 'don't get too ahead of yourself'.
This person is now operating from a place of abundance, not scarcity.
Those old money lessons are no longer fit for who that person is today. It is time for them to study others who have done the same and have gone further. Ultimately, the same direction this person is now aiming their life toward.
Surrounding yourself with people who have done the things you want to do - they can be your teachers. Not the naysayers and those who don't dare to achieve the things you desire.
We spoke about how you need to start positioning yourself to see yourself as the person you will become and start doing it right now. Not when you get there.
You see if you want to go after change and you want to break the mould, you need to be ready because you will have your own tests like the above.
This person changed their life. Now it’s time to fine tune the operating system they run on. This is possible for every one of us.
I often finish these emails with ‘Be bold’ because when it matters most, you have to be.
Enjoy the weekend,
Luke
In case the contents of this email are topical, it was first sent on 13th August 2021. |
Last week, I asked the Keep The Change community how their progress was going with The Five Figure Formula.
For those of you who didn’t see it, The Five Figure Formula was a challenge we ran earlier in the year, to save $10,000 in 365 days.
Month to month we are tracking the progress and seeing whether it can be done.
Understanding that it is possible is just as important as what we learn along the way.
The community are an honest bunch of people and we got a few differing responses:
1) Badly, but I'm making changes to get on track.
2) Terrible!! No excuses, I'm going to start again!!
It’s not always easy to keep our money goals on track because….well, life happens. These two are great attitudes though, acknowledging it and getting back on track.
For many people, at this point they give up. This is not the time to give up, it is the time to learn and carry on. Setbacks will come and we need to work our way through them.
3) Brilliant! I love the structure of the spreadsheet, the ability to look and plan ahead for what’s on the horizon. I love that I have been able to plan/challenge myself on spending habits. The weekly emails/podcasts get me thinking, taking notes, learning and implementing new ideas.
Currently, I am planning out how I can pay for Christmas and save each month (paid monthly) so I stay within my means and buy gifts that have meaning/purpose.
I love having my money work for me and being away from temptation.
There have been moments that have daunted me and put me out of my comfort zone (not having savings in a traditional bank account), but I am loving where I am heading.
This is somebody who has followed the process and built on top of momentum from month to month.
This is the key - making progress and then stacking more progress on top of that. Look at all of the things this person has learnt and thought about when sticking to the process.
We all go through money ruts where nothing seems to be going our way when it comes to finances & bills.
Our job is to see these for what they are - temporary ruts and then find ways to get to the other side and start making progress again.
Better yet, if we have an emergency fund or money set aside to deal with these things, we are even better prepared.
Often we can have a ‘bigger month than normal’ OR we miss our savings goal that month OR end up having to dip into our emergency fund OR our investments decrease OR life happens...it goes on and on.
That’s why tracking your progress over time is so important, because you see the progress you make over a longer period of time and can look back at where you've come from. This can be incredibly inspiring for us - much like the person in comment 3.
Don’t give up when it gets tough. Find a reason to keep making progress.
Have a good weekend,
Luke
In case the contents of this email are topical, it was first sent on 20th August 2021. |
This week the Reserve Bank left the Official Cash Rate the same.
Over the coming weeks we are going to look at who the hell the Reserve Bank is, what the official cash rate is and how inflation is ruining the cost of many things you buy.
Before we get into that geeky material, we will look quickly at low interest rates with a bit more info (we first looked at this in week 3).
Well, what’s the big problem with low interest rates?
They make it cheaper to get debt, which excites a lot of people who are borrowing, but let’s look at some of the less talked about implications.
Recently, I discussed this exact scenario with an asset owner who was looking to sell up some investments that have gone up in value a lot.
We talked it over for 40 minutes and eventually I got a bit over the excitement and back & forth and asked the question ‘what are you going to do with all that money? Given your experience in assets, surely you’re not going to cash forever?’.
The conversation basically finished. Great question. Because if the asset holder cashes out, what do they do next? This is the concept of protecting your wealth in a money printing environment.
For many who are sitting on assets, they are now realising the bank isn’t so appealing. In fact, our term deposit rates currently mean you end up with less at the end of your term than when you started - remember that inflation thing?
This can slow down people's willingness to sell off assets to their next user. I.e. 'No point selling this second home as the money's no good earning interest in the bank anyway'.
Consider that a lot of the large asset holders are the generation who are used to the bank & ‘safety’ & ‘good interest returns’. Now even the things they learnt are gone. They need to learn now too.
Financial advisors should be the busiest they’ve ever been, as people look for returns that will keep them satisfied.
Now then...it’s time to remember that since 2016 the country has turned 400,000 savers into share investors through Sharesies (a deliberate decision). This is without factoring in those learning about the markets via their Kiwisaver exposure (a somewhat encouraged decision).
I believe this will mean a fundamental shift in our education levels and risk appetites for a HUGE portion of our population. A different way of thinking leads to new actions and new choices. This will take years and years to watch it play out in full.
The thing for the younger people to think about is to not get complacent. The game is always changing and we all need to adapt as it changes. Perhaps interest rates will rise temporarily again and then fall or they might just continue to rise.
Even our parents must keep learning…a lot of them are now sitting on piles of wealth tied up in assets but have watched their cash deteriorate in a bank account, bonus bonds or term deposit and can now actually buy less with the same amount of money.
The banks? They will find a way to benefit. They’ll re-loan houses to the same owner.
How? Look for things like ‘reverse mortgages’ to start to grow in popularity.
What is a reverse mortgage? Let’s look at Heartland banks offer:
A reverse mortgage allows people to access some of the equity in their home….with a reverse mortgage you, continue to own and live in your home and community for as long as you choose.
Interest is calculated on the outstanding balance and added monthly to your loan.
This will allow Kiwis to access more tax-free money (by borrowing against assets) for longer periods of time.
Like we said in Week 61: BEWARE: this has worked well for people over the last 40yrs with consistently lowering interest rates, BUT rates could go up and debt servicing can become a burden.
The tricky times are just arriving. Keep learning.
Hey I know this has been a long one, but before you go, please support your favourite hospo joint on the other side of Level 4 - they get crushed in Level 4. If you can afford to, jump online and buy some things you need (as per the 'essential rules' of course) to keep money flowing through the economy, which helps wages + bills to continue to be paid.
Be well,
Luke
In case the contents of this email are topical, it was first sent on 27th August 2021. |
The Reserve Bank Of New Zealand. Who the hell are they?
Their name suggests that they are the TJ Perenara of Halfbacks in New Zealand. Ready to step in off the bench if ya Westpacs, ASB’s, ANZ’s, Kiwibanks, BNZ’s, Heartlands all get injured.
Although they do provide these banks with some support when things get dicey, they are also in charge of monitoring and supervising the registered banks.
A central bank (or the Reserve Bank) is there to protect the value of money, keep the system running, keep prices stable and ensure money is flowing through the economy.
They have a number of ways to do this and the one we will look at soon will be the ‘Official Cash Rate’.
The RBNZ ‘was established in 1934, and although not a government department, has been wholly owned by the government of New Zealand since 1936’.
Gee, that's confusing, so our government owns a bank too? They’ve got a bit on.
Maybe that’s how they could ‘print or create’ all of that money during the 2020 lock down to pay out as wage subsidies.
Well, what do they do?
The Reserve Bank is required to ensure that, throughout the economy, money works as well as possible as a mechanism for making transactions, storing value, and keeping account - RBNZ.
I read through their briefing to the Finance Minister & was going to note down some of the points but I know I’ll lose you. You just don’t need that in the week you’ve had...let's go plain English.
You and I bank with the commercial banks who want to make a profit out of us for their shareholders. The reserve bank lends these dudes some money and somewhat controls the interest rates we pay (on debt) and receive (on deposits).
This is meant to keep the system stable and ensure a prosperous nation. The Reserve Bank are busy tackling problems like unemployment, inflation, innovation & productivity in our economy via money related levers they can pull - such as deciding how much money is actually in supply; yes it can change.
They are independent from the government but the government owns them. Doesn’t make much sense, does it? But I didn’t set it up in 1934, so don’t put that on me.
Adrian Orr is running the show at the moment: he is the Governor of the Reserve Bank of New Zealand. If you want this job, you basically have to study heaps of economics. He studied at the hearty University of Waikato which shows you don’t need to go to a poncy Auckland Uni to get the top jobs (hey come on Aucklanders, relax, just having you on).
At this stage, I assume you are so fascinated with the Reserve Bank of NZ that you’ll be sending them love letters this afternoon asking if they’ll increase the supply of money to your bank account - unfortunately they won’t do that for you.
If you are intrigued, (I know you aren’t) you can check out their hot pink website here: https://www.rbnz.govt.nz
If anyone is interested, I will be hosting a tour of The Reserve Bank Museum when we get back to Level 1 (I am joking, I think). But legit there is a museum.
During the week, I sat down with Mikey to go through some common questions I get asked about crypto currencies. I am not an expert in this field or suggesting you should buy it, but I am happy to share my experiences with it. You can listen to that on any podcast platform or watch the video on youtube: https://www.youtube.com/watch?
Pray for Level 3,
Luke
In case the contents of this email are topical, it was first sent on 3rd September 2021. |
Us Kiwis love cars. I live by the port and watch them get unloaded off of boats, get loaded onto trucks and head all around the country.
I get it, I've had a few over the years. Usually I've not paid for these upfront either. I have used finance to buy them. Debt allows us to have something sooner than perhaps we should.
Many of us use debt to get into a new vehicle. We get the new vehicle and we repay it over a term of 3 to 5 years.
The thing to watch out for is when you are buying a vehicle you are usually emotional.
‘I love this car’, ‘This car is my favourite’, ‘OMG this will look sick on insta’, are all signs that you are buying with emotion.
What's the problem? Well, it’s only a problem if you don’t know what you're getting yourself into.
When that car dealer pushes the papers in front of you to sign, you are thinking ‘what’s the monthly or weekly payment and can I afford it?’. If it’s a yes, you are signing the docs and getting your a$$ in that whip ASAP.
You’re not thinking about the interest rate, loan fees or the terms of the loan.
I was reviewing a car loan with a client and they didn’t know what the length of the loan was or what the interest rate was. This is pretty common. People just think about the payment coming out of their bank account.
The loan was set up over a 5 year term and at interest of 9.95%. For this client, they actually have the money to buy the car outright. But they did what they thought was the thing to do - borrow money to pay for the car. The contract also ensures that if they repay the loan early they will be charged a fee in the form of a percentage of the interest they would have paid if they stuck to the loan terms.
This client has money in their bank account earning no interest (income) but is paying 9.95% on a vehicle they didn’t need a loan for. The total interest and charges for the loan add up to over 25% of the amount financed.
(The challenge for the client is to use the spare cash they have to generate a return of 9.95% or greater - fortunately, they will be able to do this through their business).
Not everyone is in the position of having spare cash to buy a vehicle, so a loan may be necessary. Before you go and finance something like this, understand YOUR cash situation.
BEFORE accepting second tier finance through the dealership, at least speak to your bank and find out if they have specific asset finance for a vehicle - it might turn out to be a whole lot cheaper than the rate you’re going to be paying.
(Perhaps consider asking a friend or family member for a loan? There is a lot of cash in the system as we have previously discussed - they might give you a cheap rate).
Some people prefer to borrow against their house to buy a vehicle. I.e. extend their mortgage. This can often mean borrowing at a cheaper rate. BUT be careful doing this, as if you’re borrowing for a vehicle over a 30 year period, you might end up paying A LOT more for the vehicle than you realise.
If you are going to go down this route of extending your mortgage, then ask your bank if you can increase your mortgage repayments to clear the car debt that you are taking on. We are trying to get out of debt here, not get further in it.
With our business clients, we often suggest taking out debt over the time you expect to have the asset. For a vehicle, that might be a 3 year loan before you get sick of the car and upgrade or change vehicles.
Remember too that there are ALWAYS fees & random charges involved when taking out a car loan.
Example 1
You borrow $30,000 for a vehicle at 9.95% and pay the car off over 5 years (60 months).
The total cost of the car is $38,200 & you're repaying 1.27 times the amount you've borrowed.
(If you paid this off over 3 years, the total cost would be $34,823).
Example 2
You borrow $30,000 for a vehicle at 4.95% and pay the car off over 5 years (60 months).
The total cost of the car is $33,927 & you're repaying 1.13 times the amount you've borrowed.
(If you paid this off over 3 years, the total cost would be $32,344).
You can see how much of a difference interest rates & repayment periods have on the total you ACTUALLY pay for the vehicle. The scary thing is, a lot of people take car finance out at 19.95%. $30,000 at 19.95% over 60 months is $47,639 or 1.59 times the total borrowing.
Both of these examples ignore the set-up fees and charges that loans add on to the true cost of a vehicle. Remember that you are effectively financing these costs over the term of the loan too, because you don’t pay them up front, they add them to the loan.
We can go deeper into this topic, but for now that should really get you thinking! Before blindly signing up for a car loan - have someone you trust review it and explain it to you.
A reminder that you can read all the earlier lessons at the Keep The Change Blog:
http://keepthechange.co.nz/
Be good,
Luke
In case the contents of this email are topical, it was first sent on 10th September 2021. |
Recently, we looked at who the Reserve Bank are and this week we are going to look at one of the levers that they pull.
If you’ve got any geeky economics mates, they probably get pretty fired up for ‘Official Cash Rate’ announcements and throw around the acronym 'OCR' whilst you wonder what they are talking about.
Well, the Official Cash Rate or OCR is the interest rate set by the Reserve Bank. It is a lever they pull to support ‘maximum sustainable employment’ and ‘price stability over the medium term’.
This ‘price stability’ is defined as increases in the ‘Consumers Price Index’ (CPI) (you’re kidding, more bloody acronyms) of 1% to 3% each year. Loosely, this is ‘inflation’ because we believe that if prices rise between 1% to 3% each year, our economy will be growing.
The OCR is reviewed 7 times a year by the Reserve Bank but unscheduled adjustments can be made at any time in response to sudden circumstances (like COVID).
The Official Cash Rate is currently at 0.25 percent.
Come on Luke, give me that plain English sh!t please man, seriously.
Alright, so remember Governor Orr from Waikato Uni? He and the crew can change this OCR to help determine what banks will then charge Kiwis when they buy their guilty pleasure - a house.
With a lower OCR, the banks get access to cash at a cheaper rate. Those banks then charge you & I a cheaper interest rate. We then have more money in our hands (instead of paying the bank higher interest) to spend on other guilty pleasures like trim flat white lattes & Gucci sunglasses.
Of course, with lower interest rates, we get less from the bank when we are saving too, so we are more inclined to spend the money and not hold it in a bank account. This often means that assets run up in prices (i.e. houses, stocks, crypto-currencies etc.) as people chase returns they are comfortable with instead of bank interest rates.
It’s all one fine ole balancing act and the above explanation should make it simple for you to understand.
Whether you are a borrower or a saver, you will want to understand the OCR in some way.
As an example, if prices of goods in New Zealand keep going up & up, the Reserve Bank may raise the OCR quickly to ensure we all pay more interest on our mortgages and have less money to spend on these goods. This is partly why people love to play the game of fixing their interest rates, instead of floating, in order to get ‘the best’ price & certainty.
They were actually expected to make an increase to this rate just before the big ole delta flew into the country and locked us all down, but that got put on hold.
The Reserve Bank have signalled that they would like the Official Cash Rate to be around the 2% rate. This is a huge jump considering it currently sits at 0.25%.
Whether they can actually do that or not is another story. We can explore this another time.
A reminder that you can read all the earlier lessons at the Keep The Change Blog:
http://keepthechange.co.nz/
Have a great weekend,
Luke
In case the contents of this email are topical, it was first sent on 17th September 2021. |
You might remember from an earlier lesson that my business partner & I had a business called Schoolrebates. We helped parents claim back a million dollars from the government.
Many parents didn’t know they were entitled to a third of their school donations back. We made it easy for them to do it online.
This was possible because we can all claim back 33.33% of the donations that we make.
You can claim tax credits for donations of $5 or more when the donation:
You can submit the receipt of a donation at any time within 4 years of payment. You need a receipt for each donation you want to claim. If you’ve lost yours, don't worry, most organisations keep copies of receipts.
What this means is that you can claim donations you’ve made in the last four years.
Who pays for it?
When we were operating Schoolrebates, there was some misinformation floating around that this affected the schools (or the charity) as they are the ones who have to pay the refund.
This isn’t true. The IRD refunds you the money and there’s a tax law in place to encourage Kiwis to be charitable towards the causes they care about. The government actually ‘provide’ for this by putting money aside to allow for refunds back to those people who donate.
Examples
1. You pay $1,000 in donations. You can claim $333.33 back.
2. You’ve been paying $1,000 in donations for the last 4 years and had no idea you could make a claim. You have copies of the receipts and had income in all 4 of those years. You can claim $1,333.32 back via the IRD website.
How?
You need to go online to your MyIR account & lodge a donation rebate return. Follow the steps at this link:
Bit of a brag here...this link or the process didn’t exist when Schoolrebates started. You couldn’t upload a receipt online (in our system you could). You were required to fill out a form, attach hard copy receipts and send them in an envelope to the IRD - maybe why no one did it!!!
Note: there is a limit to how much you can claim back. Your claim is limited to the total amount of income you had in that year. I.e. say you genuinely donated $20,000 to charities, you could only claim the whole $20,000 if you had taxable income of at least $20,000.
Say you won the lotto (which is not taxable income) and donated $1,000,000 to charity. You most likely wouldn’t have the income to allow for a claim of that amount.
If your total donations were more than your taxable income, you can split your donations with your spouse or partner.
That will give you a good solid understanding of how donations (and claiming them) work in New Zealand under our tax rules. If you are interested, there is more simple reading at this link:
Be giving,
Luke
In case the contents of this email are topical, it was first sent on 21st September 2021. |
A bit of a one-off email here to bring you some warning. Hopefully you don't need it and I hope this comes to nothing, but as a Keep The Change reader, I want you to be awake.
The problem with New Zealand is we get so caught up in our own sh!t that we forget to see what is happening around the world.
For the last week i've been keeping an eye on China and what is happening with one of their largest property developers (Evergrande). These dudes are the world’s most indebted property developer.
Did you know they are on the brink of collapse? Doesn't sound good does it.
Evergrande has obligations of more than $300bn (yeah that's billions) to creditors and other businesses. They owe more than our whole country does. This could be your first wake up call as to how SMALL New Zealand really is.
Well, what's the big problem? We end up with a thing called contagion where fear spreads and people start to sell off shares related to that potential failure.
- Is Evergrande just the tip of the iceberg?
- Banks are exposed, insurers are exposed
- The suppliers to the property sector are exposed (i.e. iron ore)
The big question is whether the government will bail this business out. Will they let it fail? Currently the markets are betting that it is going down. This story has a long way to go.
Over the last week I've been asking business NZ owners, well-educated friends & financial connections about Evergrande & nearly every one of them has wondered what I am talking about.
It's only just starting to come out down here in New Zealand with our mainstream media copy & pasting some of the international articles that are now a week too late to be considered a heads up.
Yesterday I considered selling off some of my shares because I just don't know how this is going to play out. I didn't and have made the decision to ride it out....for now (always stay agile).
Because I know that I still have a good few market crashes and recessions to roll through in my lifetime. This is part of investing. Putting on a life jacket, getting smashed by the storm and waiting for calmer seas to turn up.
Late yesterday, I checked a few of my shares and saw the decline across the board and thought 'here we go'!
On Friday night, whilst you non-Aucklanders were fired up for some Level 2 hospitality, I was watching The Big Short to get myself ready for what could be a hideous crash.
You might want to go and check out the movie 'The Big Short'. It is technical teaching of the HUGE collapse of the real estate market in the USA, put into plain English.
Buckle up! In times like these, I try to remember that there is always someone with WAY MORE at stake than me, so is there someone I can go and learn from via YouTube etc.
Don't just rely on New Zealand for your financial news. You'll only end up learning about property because it's all our economy is built on. You need to go looking for further education. I only learnt about Evergrande because I went looking.
If you are looking at your shares, crypto or Kiwisaver this week, it could be all over the show and this is probably why.
It's going to be an interesting week. Try not to do anything rash!
Be bold,
Luke
In case the contents of this email are topical, it was first sent on 24th September 2021. |
Well, it certainly was a rocky start to the week but we seem to have come to some calm now.
There were huge concerns that an Evergrande property bust in China could cause a worldwide ripple impacting all markets. This has been brewing for months, and really for those researching close enough, years.
They are just like you & I...they have debts & they have a timeframe for when they need to repay them. They admitted last week that they cannot sell off assets quickly enough to repay their debts.
At the moment, it looks like they’ve been able to delay the crisis with an announcement that they can meet their immediate interest payment obligations.
Even if the worldwide crisis has been delayed or avoided, people still do get burnt (like the shareholders) and there is still the concern of the overall slowdown of China. It's pretty important to us down under as China accounts for roughly 30% of exports and 40% of Australian exports.
Where do you think 90% of those logs on trucks are going, when you're stuck behind them in the car freaking out they are going to fall off the back?
Also, decisions get made based on ‘contagion’ which we spoke about on Tuesday.
As an example, we saw one of our Kiwi property companies postponing a $250 million capital raise for office buildings due to fears of Evergrande contagion.
I got a message from a reader who had been following the Evergrande saga for weeks and they were nervous about it causing a big hit to their Kiwisaver.
They decided to move their Kiwisaver out of the aggressive fund it was sitting in (with a lot of worldwide exposure) and put it to ‘cash’ with effectively 0 risk.
Why were they doing this? Surely they aren’t trying to 'day trade' their own retirement balance?
Thankfully they aren’t. They were trying to protect a deposit for a house.
This person will soon be withdrawing from their Kiwisaver to buy a property and no doubt they’ve done their calculations on withdrawing ‘x’ amount.
If a worldwide sell-off comes in & wipes out 20% of that, they’ve got to find 20% elsewhere.
This is why I continue to remind you that you need financial goals and your actions need to map back toward achieving them.
If you’re soon looking at buying a home and using your Kiwisaver, you’d want to be more alert to the risk of your portfolio compared to someone who doesn’t need their Kiwisaver for 30 years.
This is often how these big shocks sneak up on us. We aren’t awake to the fact that risk is just around the corner. We are busy doing our day-to-day lives and all of a sudden it seems to just come out of nowhere.
If we take it to a micro example, a shock dentist bill can cause a money crisis and ripple through your personal financial situation, stress levels and short-term decision making.
Better to be prepared for something like this so that the ‘crisis’ doesn’t feel as impactful when it arrives. Have you got your emergency savings sorted?
Back to Tuesday's topic of educating ourselves...I invest across 5 different investment platforms and I didn’t see communication from any of those platforms about Evergrande until one finally got something out on Tuesday night. Meanwhile, this situation had been bubbling for weeks.
Remember that these platforms are great and make it really easy to invest, BUT they aren't optimized to provide you with education and advice, they're optimized to build revenue.
This is part of the reason that the traditional financial space has been disrupted and everyday investors are accessing their financial information increasingly via smart internet channels and reputable experts from all over the world.
Your financial future will still remain your responsibility. The information & access is there for all of us now, not just for those with millions tied up in investment accounts.
Eyes open,
Luke
In case the contents of this email are topical, it was first sent on 1st October 2021. |
Coming to you on this beautiful Level 3 Friday during mental health awareness week.
I hope you’ve had a good week and have done something to boost your mental and physical health.
This week I rang an electrical company who had a van parked across from me with the lights left on. I gave them the heads up and they sent someone to turn the lights off in the van. How much does a flat battery play with your mental wellbeing?
These little things cause us stress and can derail an otherwise brilliant day. We know that money causes stress, anxiety, worry and arguments for a lot of people too.
Last week we talked about how financial shocks are stressful, especially when they are unexpected.
For some of us though, we just feel like we are in too deep.
Surely we’ve all had that feeling at some point in our lives where we just think all of the solutions seem too practical & they are going to take too long. It stops us from even starting. What’s the point?
Who worries about money? Guilty. You know it is really really common for us Kiwis?
The worry cycle is a dangerous one because most of the time the worry doesn’t eventuate to the level we are thinking it will or we forget it is something we can get back in control of.
Like last year, I want you to pick something money related, that is causing you stress or overwhelm and make a commitment to deal with it. Do something about it TODAY.
Make some progress toward solving it. We want to get ourselves to a point where we have to worry about money less and less and less.
I want to help someone who is struggling with debt and you've got yourself into a bit of a mess with it. It’s playing on your mind and consuming more of your thinking than it should be.
You might be lacking a pathway out of debt or just want to make sure you are on the right track.
You and I will record an anonymous podcast of your debt situation and create a plan to get back on track and get in control of it.
Who knows who we might help? There will be plenty of Kiwis in the exact same position, so let's create a podcast of hope and build a plan for others to follow.
Who’s brave enough to get in touch with me? If that is you, drop me a line with a bit about your situation and we can go from there.
Now a reminder that we are on the pathway toward 5,000 readers.
When we hit 5,000 subscribers to Keep The Change, I am going to give one lucky reader a $500 investment.
You might want a Sharesies giftcard or perhaps a bit of bitcoin? That will be up to the winner.
To enter:
How you can help:
Look after yourselves,
Luke
In case the contents of this email are topical, it was first sent on 8th October 2021. |
I found my person in debt...in fact, I found a number of people in debt. It was great to see so many people brave enough to reach out and offer to be the person I recorded a podcast with.
Unfortunately, I couldn’t get back to each of you in detail, but hopefully the podcast I did record will give people a framework of things to think about.
For those who missed last week's episode, I wanted to record a podcast with one of his Keep The Change readers about the stress of debt and how it impacts them every day.
The person who got in touch thinks about debt and money within 20 minutes of waking up every day. 'The stress is huge, I'm keen for help' were their exact words.
We went through their background and how they came to be in debt as well as some ways to get back in control of it.
By the end of the podcast, they admitted that just talking through the situation gave them some peace of mind. A plan gave them direction & they knew what actionable steps they needed to take.
Simply having a plan and knowing what we need to do is often the starting point of huge PROGRESS.
PROGRESS = happiness. Make progress when it comes to clearing debt, investing or storing money.
For you, this might mean decreasing a credit card limit and the access to credit that goes with it. Instead of just paying money over onto your credit card, that you end up spending again and again and again. Repeating the cycle rather than actually making progress.
This podcast is a worthy listen for all of us who find ourselves juggling multiple forms of debt in our personal lives.
Spotify
https://open.spotify.com/
Apple
Start by writing down all of your debt and eyeball it. Actually, come to terms with the debt that you have (this is why I suggest completing your financial position monthly).
Rank your debt in order of importance. The most important may not be the largest. It is most probably the debt with the highest interest rate.
You need to know what rate of interest you are paying on each piece of debt Jade.
Now we need a plan to kill this debt. There are 'hacks' in this podcast, but unfortunately, killing debt usually means lifestyle changes and sacrifices. These annoying things called changes.
Remember that debt is a number on a page - you gave it the emotions that you now feel. Those emotions are a choice, you can unwind them.
Reminder - when we hit 5,000 subscribers to Keep The Change, I am going to give one lucky reader a $500 investment.
You might want a Sharesies giftcard or perhaps a bit of bitcoin? That will be up to the winner.
To enter:
How you can help:
Have a good weekend,
Luke
In case the contents of this email are topical, it was first sent on 15th October 2021. |
In 1971 there was an Act introduced called the Unclaimed Money Act. Cheers for the legal lesson Luke but I ain’t tryna be no lawyer.
Relax & stick with me because you might have some ‘unclaimed money’ waiting for you to claim.
Unclaimed money is money left untouched by its owner in organisations like banks, insurance companies, power companies or an old employer. It is usually amounts over $100.
The length of time that passes before money becomes 'unclaimed' is generally 5 years.
After the organisation has been unsuccessful in trying to find you to return your cash, most unclaimed money is transferred to the IRD, the Public Trust or the Treasury.
More plain English please Luke, seriously. Alright, say a phone company owes you money and they don’t have your new bank account number to refund you and they can’t get in touch with you, they will most probably hold onto the money for some time and then give up.
From here, they may pass the money to the IRD to hold onto, in the hope that one day you read an email like this and go to search if you’re owed anything.
Once the money has been passed to the IRD, it is published in a searchable database. You can search this database at any time to see if you are on there.
Money stays in the database for no longer than 25 years. If no one claims the money in this time, it is removed from the database and no further claims can be made.
Take 2 minutes out of your day to search whether you are owed anything. Could come in handy right now...
Link here, scroll to the bottom:
https://www.ird.govt.nz/
IF you are in the money (or out of pocket depending how you look at it) then you will need to complete an application process to ensure the unclaimed money is actually yours. This will take you a few minutes, but perhaps it will be worth it!
I put out a teaser of this content earlier in the week & I've already had a couple of people message me who have claims lodged for unclaimed money from power companies. Have a look for yourself & your family members. (Don't forget to check maidan/married names).
Speaking of unclaimed money….there was a thing called Bonus Bonds that we spoke about many months ago. They were basically the worst returning investment invented, but anyway people loved them as they mixed safety with gambling (which usually doesn’t go together).
Bond holders were in a monthly draw for a big money prize. ANZ ran the fund and recently wound it up as interest rates declined. They are currently trying to track down and repay every bondholder.
They were a popular gift from parents and grandparents to children. A LOT of kiwis had these things and some don't even know that they did.
You might want to check whether you have an online account or whether someone gifted you bonus bonds. If this rings a bell and you don't know if you've got some, then perhaps drop them a line or give them a call.
Bonus Bonds: 0800 266 3743 https://www.bonusbonds.
Keep The Change Update
Last week we introduced a way for people to be able to support Keep The Change from as little as $5. This was due to people asking how they can support this content to go further. Thank you to those people who have done so.
Contributions are used to get previous episodes in front of people on social media and hopefully signing up to learn.
You might even want to contribute with a topic you'd like to learn about or provide feedback on how Keep The Change has helped you.
Contribute: http://
Take a look at it,
Luke
In case the contents of this email are topical, it was first sent on 15th October 2021. |
In 1971 there was an Act introduced called the Unclaimed Money Act. Cheers for the legal lesson Luke but I ain’t tryna be no lawyer.
Relax & stick with me because you might have some ‘unclaimed money’ waiting for you to claim.
Unclaimed money is money left untouched by its owner in organisations like banks, insurance companies, power companies or an old employer. It is usually amounts over $100.
The length of time that passes before money becomes 'unclaimed' is generally 5 years.
After the organisation has been unsuccessful in trying to find you to return your cash, most unclaimed money is transferred to the IRD, the Public Trust or the Treasury.
More plain English please Luke, seriously. Alright, say a phone company owes you money and they don’t have your new bank account number to refund you and they can’t get in touch with you, they will most probably hold onto the money for some time and then give up.
From here, they may pass the money to the IRD to hold onto, in the hope that one day you read an email like this and go to search if you’re owed anything.
Once the money has been passed to the IRD, it is published in a searchable database. You can search this database at any time to see if you are on there.
Money stays in the database for no longer than 25 years. If no one claims the money in this time, it is removed from the database and no further claims can be made.
Take 2 minutes out of your day to search whether you are owed anything. Could come in handy right now...
Link here, scroll to the bottom:
https://www.ird.govt.nz/
IF you are in the money (or out of pocket depending how you look at it) then you will need to complete an application process to ensure the unclaimed money is actually yours. This will take you a few minutes, but perhaps it will be worth it!
I put out a teaser of this content earlier in the week & I've already had a couple of people message me who have claims lodged for unclaimed money from power companies. Have a look for yourself & your family members. (Don't forget to check maidan/married names).
Speaking of unclaimed money….there was a thing called Bonus Bonds that we spoke about many months ago. They were basically the worst returning investment invented, but anyway people loved them as they mixed safety with gambling (which usually doesn’t go together).
Bond holders were in a monthly draw for a big money prize. ANZ ran the fund and recently wound it up as interest rates declined. They are currently trying to track down and repay every bondholder.
They were a popular gift from parents and grandparents to children. A LOT of kiwis had these things and some don't even know that they did.
You might want to check whether you have an online account or whether someone gifted you bonus bonds. If this rings a bell and you don't know if you've got some, then perhaps drop them a line or give them a call.
Bonus Bonds: 0800 266 3743 https://www.bonusbonds.
Keep The Change Update
Last week we introduced a way for people to be able to support Keep The Change from as little as $5. This was due to people asking how they can support this content to go further. Thank you to those people who have done so.
Contributions are used to get previous episodes in front of people on social media and hopefully signing up to learn.
You might even want to contribute with a topic you'd like to learn about or provide feedback on how Keep The Change has helped you.
Contribute: http://
Take a look at it,
Luke
In case the contents of this email are topical, it was first sent on 22nd October 2021. |
Today is exactly one year on since I made my first bitcoin purchase. (Not a whole one, you do realise you don't have to buy a whole one, right?).
The $3,300 is now worth $15,100. Pretty decent return, huh?
An $11,800 unrealised gain. I haven’t sold it, so as you know, this is an ‘unrealised gain’. It would only become a realised gain if I were to sell & bank the profits (which I would pay tax on).
It’s a great feeling. You probably think that it’s a great feeling due to the fact that I’ve made $11,800 on paper?
Well, that’s great, but it’s not really about that. It’s more about trusting my instinct, research and then having the courage to do something about it...turning those thoughts into action.
I will take you back to the money mail lesson 23 where I explained why I bought bitcoin:
...again, money is following attention and bitcoin is on the way up...
Money follows attention...As it gets more attention will it increase in price?
It’s not all over my Facebook feed yet so maybe the bandwagon isn’t full or maybe I am just a fool? Probably a bit of both but for me, I am purely gambling - with real money. An amount I can afford to lose though, and at the same time, I am learning.
Whatever you do, don’t go and put all your money into a crypto-currency. For me, this is about diversifying and extending my knowledge of ‘digital currencies’.
A year on and I can say that I have learnt A LOT about the economy, money, digital currencies and my emotions when the price swings.
Unlike university, which cost me a stack of cash, this learning has just cost me my time & if I were to sell today, I would actually have been paid to do it.
This ‘gamble’ or investment (whatever camp you sit in) has helped me beat inflation too. We will discuss inflation next week.
You’re probably thinking that the $11,800 gain isn’t life-changing and you’re right. The person who just won $40million tax free, through Lotto is unsubscribing right now whilst laughing at my $11,800 taxable gain.
The amount of money might not be life changing as such, but here is what is:
In my work, I help business owners build out plans and set clear actions that they have to take. As they start to take action & achieve their goals, I like to ask them if it’s improved their confidence. They all say yes.
Doing the things we say we will do and achieving the things we set out to achieve gives us great confidence.
I haven’t found many things more rewarding than seeing people increase in confidence. If you’ve ever coached someone or helped a friend become more confident, you will know exactly what I mean. It is literally, life changing.
You can’t go and buy confidence off of the shelf. Finding ways to build confidence in ourselves doesn’t seem to be a part of the education system either.
For me, when I expect something to happen in the future, & I take actions that reflect that (i.e. more people paying attention to bitcoin & the price increasing) & it happens, I improve my confidence.
That has a huge effect on other areas of life, including the decisions I then go on to make and the ability to trust my decision-making process, my strengths and my intuition.
That might sound pretty deep, but I think we live in a time of an inability to make decisions for ourselves, low self-esteem, low self-confidence and a desire for external validation when it really starts inside us.
I was taught that if you want to improve your self-confidence and trust in yourself, then you must start by doing the things you say you will do.
When we don’t do the things we say we will do, we reduce our self confidence and erode our ability to trust ourselves. I.e. not saving money when we said we would, spending when we said we wouldn’t, or not getting up when we said we would.
We are in control of our own self-confidence whether we like it or not. It is no one else's job but ours to build this and improve it.
NOW...it’s not all sunshine and rainbows, is it? I haven’t cashed out the bit of bitcoin I bought a year ago. I’ve actually purchased more over the last 12 months, confident that my thinking is right and that more attention will come to this space and money will follow.
I am aware this can swing dramatically but I am in a position to ride that out or accept that it all could go to zero. I have put serious thought into why I am doing this and how I am treating the money I have in it.
If it crashes would I lose my confidence? No, because my initial thoughts and research have been proven accurate…money has followed attention.
I’ve made the decision not to sell and that is based on new learning and expectations - again, I get to see if I’ve done the work to be correct.
I would encourage anyone ‘gambling’ on this **SCAM** to do their research in order to be better educated when you talk to people who tell you that that is exactly what you are doing.
Before going and putting your money in a crypto-currency (or any investment), ask yourself why?
Keep The Change Update
We have introduced a way for people to be able to support Keep The Change from a fiver to feedback or content idea. Contribute: www.
Learn to be confident in yourself. It is life-changing,
Luke
In case the contents of this email are topical, it was first sent on 29th October 2021. |
Last year, we talked about how you and I were going to get taxed in the form of inflation and it is here, BIG TIME!
Statistics NZ tells us that annual inflation jumped to 4.9% in the September quarter. This is the highest level of inflation we have seen in over 10 years.
Some people say it’s actually the largest in 13 years, as 10 years ago we had an increase in GST which increased prices artificially.
Anyway, this puts inflation almost 2 per cent above the top of the Reserve Bank’s target. Remember that the Reserve Bank targets inflation between 1-3% (you can see earlier Money Mail lessons at www.keepthechange.co.nz/blog).
Inflation is the rise in price levels in an economy. Want plain English?
It gets worse...data shows us that the cost of living is rising faster than our wages are increasing. That means we are going backwards because our wages aren’t increasing fast enough to keep up with price increases.
These are all comments ‘in general’ and you may not feel it yet as you may have had a good pay rise, benefited from a house price going up or you might not buy some of those goods that are going up in price.
Inflation is worth understanding and thinking about for all of us because we can take actions to combat it.
For instance, recently I moved some of my investments to shares which are paying a 5% plus dividend because they will help me weather the inflation storm.
Your term deposits and bonds, for instance, are going backwards. It’s a negative ‘real return’ as the interest paid on the term deposit (some are 3% now (before tax)), isn’t enough to keep up with the rate of inflation & rising costs.
Sure, they may be stable but your purchasing power is being eroded.
Got a mortgage? (Or any debt). You could see higher interest rates as interest rates increase in order to decrease the disposable income you have available to spend on lattes.
A lot of the above is a consequence of printing so much money and putting it into supply whilst we decrease our ability to produce as many goods as usual (lockdowns anyone?).
This situation leaves us with more money chasing the same goods, in turn driving the price up.
Then there is the concept of this set of price increases being ‘transitory’. That means that this high level of inflation will pass and we don’t need to worry about it too much. Just suck up ya $8 tomatoes for now.
Of course, you know as well as I know, that when prices start rising for things we all need, you don’t often see them coming down do you? Wouldn’t mind $2 petrol again!
Surely there is a silver lining? Well, if you took out an interest-free student loan years ago and are now paying it off with today's inflated dollars, it is effectively cheaper for you (if, you've got the ability to repay it).
Inflation looks like it is going to be something we are all going to learn about over the next couple of years, so take some time to understand how it could impact your situation and decide what things you could do to decrease the impact.
Here is a bit of extra reading if you want to look at ideas & ways to 'inflation-proof' your life:
https://www.stuff.co.nz/
Month End: It's month end Jade...you know what that means. Time to review last months spending and forecast the next couple of months (very important with Christmas coming up). Then you need to work out your financial position and check your progress to your goals. If you are new here and have no idea what we are talking about, then go back and read the first two weeks in the blog.
You can grab a copy of the month end spreadsheet with worked examples from the KTC template folder below. Download or make a copy.
https://drive.google.com/
Keep The Change Update
We have introduced a way for people to be able to support Keep The Change from a fiver to feedback or content idea. Contribute: www.
Stay afloat,
Luke
In case the contents of this email are topical, it was first sent on 5th November 2021. |
Last week we briefly spoke about how an interest-free student loan could be a good thing right now.
Especially with inflation here, making it effectively cheaper for you to pay it back with tomorrow's dollars. Most people with a student loan only get charged interest if they leave NZ for an extended period of time.
Wage inflation is the highest it's been for a while. That means that wages are going up for most people (still not enough to cover goods/services inflation). If you’re paying off old debt with new money, in some ways it can be seen as cheaper today than it was yesterday.
Many people with a student loan (or any form of interest-free debt) are sitting there thinking what is the point of paying this off in a hurry if it’s not really costing me anything in terms of interest?
This is a fairly good question to ask. There doesn’t seem to be an incentive to pay back interest-free debt. However, with student loans you do need to repay 12% of every dollar you earn over the repayment threshold.
The repayment threshold is different depending on how often you get paid, but it is designed to get people decreasing their loan balances.
Many people say that when they pay off their student loans it is like getting a 12% pay-rise. (HACK: continue to live off the same income and store/invest the 12%).
What you may need to be mindful of is the fact that you may be a true Kiwi & want to buy a house.
You will need to understand that your student loan gets added to total debt calculations when a bank works out your debt to income ratios. I.e. They are taking your student loan into account when building a profile of you as a borrower and this can impact the total value that you can borrow.
You can pay off your student loan faster than the 12% compulsory rate too. This can be done via extra repayments out of your pay automatically (ask your employer) or by paying the IRD directly (via internet banking), regularly or as a once off.
For those of you who don’t have student loans but are thinking about this same situation with your interest-free debt from the likes of interest-free credit cards, this is still worth considering - do you need to be in a rush to repay it?
Often it comes down to personal preference and you need to understand whether debt brings you stress or spends ‘mental rent’ where you find yourself constantly thinking about it. If it does, perhaps you need to build a plan to kill debt as fast as you can because the stress won’t be worth it for you.
We all get tempted to use free money when it is sitting in front of us. We’ve all said things like: ‘I can pay it back over 36 months’, ‘I get 4 pay days to repay this’, to ourselves.
We can all take advantage of interest-free deals or offers, but they can catch us out if we don’t set things like calendar reminders to keep us alert to when interest is going to kick in or when we need to repay things by.
You need to be disciplined to do this. That is all good and well if you are good at managing money. The reality for many of us is that we aren’t disciplined and good at managing money.
It can be tempting to ignore interest-free debt, but remember that it will impact you in some way shape or form.
Be careful the next time you take out a BNPL or an interest-free credit card because those places still need to make money and they’re going to rely on you not knowing exactly how it all works and making some mistakes along the way, meaning you miss the payment deadlines and end up paying interest and maybe even penalties.
Have a good think before ignoring paying off interest-free debt. Next week we will look at ranking some of our debt.
Enjoy your weekend, Luke |
In case the contents of this email are topical, it was first sent on 12th November 2021. |
What are they? A balance transfer usually lets you transfer your credit card debt from one bank to another at a low interest rate.
You move an existing credit card balance to another card, which charges a lower interest rate and sometimes no interest at all (0%).
The transferred balance won’t accrue any interest for an agreed interest-free period. This is usually 6 or 12 months & even right up to 36 months.
This effectively gives you time to pay it off before the free or low interest period ends. You can clear the debt faster as you are ideally not paying interest on the original credit card.
Offers to transfer credit card debt from one bank to another change often, so you will need to take a look at the latest offerings.
Google Search - ‘Credit Card Balance Transfer’ on the internet and see what bank is offering a balance transfer.
If your current bank is offering a transfer option, you might struggle, as often banks are using this as a way to attract new customers and may ask you to move your banking over to take advantage of the transfer offer. Read the terms and conditions.
Sort your credit cards out - don’t get caught out by 20% interest.
Be careful - If any of your transferred balance hasn’t been paid off, and is still on your credit card at the end of the interest-free period, you will be charged the usual purchase interest rate on this amount.
Any new purchases on that new card will be charged the usual interest rate too.
WHY USE IT?
Balance transfers give you the opportunity to get away from high interest rates on credit cards & hopefully pay down the credit card debt before the interest-free or low interest rate period ends.
Use them to your advantage. Don’t fall into the trap of using them as another form of credit.
Recently, I found a balance transfer option where you could move eligible credit card balances over to them and pay 0% p.a for 36 months. However, if you don’t clear the debt before 36 months, an interest rate of 25.99% kicks in and that is brutal!
You need to use these types of offers before they use you.
The beauty with this offer is that if you had multiple credit cards, you could transfer balances from up to 5 credit cards up onto this interest free offer. (If you have 5 credit cards you probably need to look at a few others things in your life too but you probably already know that).
You will need to google ‘balance transfer’ to further investigate this option and see if it is right for you. It is available to apply for this one until the end of November 2021.
I did this years ago to get on top of debt when I had a credit card costing me interest and I used a balance transfer to move the debt to a new card and was charged 0% for 18 months.
I then had 18 months to pay down the debt and I built an automated way to do that (as soon as I got paid, I paid it down and decreased the balance). During this time, I wasn’t losing money to interest payments, so I could pay off the debt faster.
I made a video last year to explain further how this works.
If a balance transfer isn't for you then this might be something to think about if your credit card is getting on top of you:
Call your current bank and say: ‘Hi there, I am having trouble maintaining the payments on my credit card with you guys. Is there anything you can suggest or can you please explain what options I have?’
You want to hear out their solutions (you won’t be the first person to ask, especially at the moment) and see if any of them are helpful.
Then ask ‘Is there any way I can move my credit card debt to an interest-free or low interest loan?’.
If not, tell them you are thinking about using a balance transfer to another bank and see what they say.
If you are a credit card user, make 2021 the year you get on top of this!
Enjoy your weekend, Luke |
In case the contents of this email are topical, it was first sent on 19th November 2021. |
We are 80 weeks deep and recently I have been getting some amazing feedback. It is great to see and hear so many people taking action that is improving their situation - keep it up, love it!
Well Aucklanders, how happy are you? You can finally get out of jail and get around the country.
For some of you outside of Auckland, you are probably keen to tune straight out. JAFAS and all that.
Fair enough, I’ve come from a small town and I tell you what, if you smile at some Aucklanders like you would in a small town (i.e. being friendly), they look at you like you’ve given them COVID.
Some of them are probably loving the fact that they have to wear a mask and don’t need to show any emotion but anyway we aren’t just here to beat up on the 09ers.
We are talking about how important it is for the country to be moving freely and what this leads to.
Within a couple of hours of border announcements, I had flights locked in to go to Mt Maunganui to go down and complete some work for the day.
Here are a few costs that pop straight up when we all need to travel:
By the time we are done for the day, this will mean money flowing through the economy and a happy business owner with clarity for their business in 2022.
Outside of business, people all over the country will be booking travel and trips that they haven’t wanted to do for fear it would be a waste of time. (PROTIP: only book travel arrangements that guarantee a refund or have a policy around cancellations).
People need certainty and without it, people struggle to make decisions.
People don’t make decisions when they don’t have all of the information they need to make a decision. If you’re ever struggling with a financial decision, you can always ask yourself ‘what information do I need to make a decision?’.
That is what you need to go and find the answer to, not to ‘think about it’. What people are saying when they say they will ‘think about it’ is that they don’t have all of the information they need to make a decision.
Now that we have the information that the borders will be open domestically, more people can make decisions.
There will be a lot of pent-up demand all over the country that is about to be spent in the economy.
This effectively speeds up the velocity of money. What the hell is that you ask?
It is a measure of the number of times that money is used to purchase goods and services within a certain time period.
This is important as the speed of money exchange is one of the variables that determine inflation.
We all know that we have plenty of inflation and this pent-up demand could really get Kiwis spending and spending quickly over the summer months - making the most of their freedom, just in case it gets taken away from us again.
Add the mad Christmas rush to this and we are going to see some serious cash moving through the economy. More money chasing fewer goods!
Don’t make the mistake of searching for Christmas presents too late as you might be relying on Santa to bring them to you instead!
I would suggest getting any Christmas shopping done ASAP in order that you don't miss out on getting the goods to your door before the big day.
For some of you with kids, you may notice that toys are increasing in price at 30% at the moment. You might want to protect yourself from further price increases by getting 2022 birthday presents or Christmas presents early.
Plenty for us all to think about as it doesn't look like inflation is leaving us for a while.
Have a good weekend,
Luke
In case the contents of this email are topical, it was first sent on 26th November 2021. |
Ahh the ole term deposit. What are they?
A term deposit is a type of deposit account usually held at a bank, where the money is locked up for a set period of time and returns a set interest rate.
You get paid the interest for effectively lending the bank money.
A bit like a savings account that you can’t touch. You pay tax on the interest you make too don't forget that.
Historically, these have been very popular products because it’s easy money and simple for people to understand.
As interest rates have decreased, these have become less popular because the return is so low. Hence the growth of the likes of Sharesies where people are chasing a larger return.
What does the bank do with the money? Probably lend it back out for people to buy homes.
This week I heard from someone that they went to break their term deposit.
Breaking the term deposit happens when you ask the bank for the money back early. I.e. before the time period ends that you originally agreed to lend the money to them for.
Sometimes, the bank then charges you a fee for breaking the term deposit & usually you forfeit any interest you had accrued. A lot of term deposits pay interest at the end or ‘upon maturity’.
Then this person had to justify to the bank why they wanted the money. In this instance, it was to help a family member get into business.
Guess what? No can do. The bank didn’t have any part of that. That wasn’t an approved reason to return term deposit money early.
This week we are putting the did you know into the body of the email...
Did you know: Banks do not legally have to allow customers to break term deposits, that is, give back the money early.
Whether you can break your deposit will depend on the terms of your contract with the bank. In most cases, you can do so only if the bank agrees.
Back to the situation above and it is good news...the bank did offer a solution. An overdraft at 10% interest until the term deposit matured (could be released).
A bit of a costly solution, but a solution nonetheless.
Obviously, the whole point of a term deposit is to lock up the cash so that you can’t spend it, but let this be a lesson as to how liquid that term deposit may actually be should you need the money.
Different circumstances create different results, so some things will be acceptable to the bank whereas others clearly won’t.
We don’t seem to like seeing money go toward business in this country (unless it’s secured by a house) so it’s not a surprise, but beware there are T&C’s when using term deposits.
Always read the terms and conditions when using these offerings and ask questions before committing to them. You don’t know what you don’t know.
Maybe we can have a bit of fun and, before committing to a term deposit, ask the bank what they are going to do with our money? ;).
Before I go, I hope you opened this before one of the 894 black Friday sales emails and adverts you'll see today. Be careful. I've told you before, these sales aren't designed for you, they are designed for the sellers. We just take the bait and 'take advantage' of them.
Do you really need that 5th candle or that 'discounted' overpriced pair of shoes?
Lift it, only buy the things you really need.
Have a good weekend,
Luke
In case the contents of this email are topical, it was first sent on 3rd December 2021. |
Every month I read an article about how median house prices in New Zealand are up by some ridiculous amount. I've usually seen an article about how house prices are about to come down too.
It seems like the housing market can’t stop and won’t stop.
The average value of NZ homes increased by $17,227 in November. The average value is now $987,401, according to the CoreLogic House Price Index.
Over the year to the end of November, the average value of New Zealand homes is up $218,388
That is nuts. Anyone on a $180,000+ salary in New Zealand is paying 39% tax on the income over and above $180,000.
You're about a 2% chance to have a personal income of over $180,000.
Most of these, on paper, housing gains will go untaxed. ''You beauty'' some of you will say.
Here’s where it isn’t great...I got a message last week from a mate who won’t have a job in a childcare centre soon. Not enough staff were willing to get vaccinated, so the centre is closing.
I said, 'surely the business owner wants to keep the joint going'? Nope. Sell the property that it is run out of & make a mint on the gain, which would be better than the profits of the childcare centre anyway.
My mate's words were ‘why work when you can get rich on property?’.
He is partially taking the p!ss but it is a mindset that many adopt. And hey you do you, right?
Given your a 2% chance of making a $180,000 salary in NZ but a better chance of making that gain via a house (tax free), perhaps he is right?
I’ve never got the fascination of not wanting to work, but I’ve been lucky to enjoy my work and also hate sitting still for too long, so I may be biased.
We love our houses us Kiwis, so it is no surprise that money has poured into the market. Especially with huge amounts of borrowing allowed and low interest rates aiding the borrowing.
Things are going the other way as interest rates look to rise though, and we will get to that.
But firstly, what about the sharemarket? It’s not as popular as the housing market and Craigs investments tell us that NZ share prices are down slightly in 2021 and are only 7% above pre-COVID levels, in contrast to house prices which have been up 40% since the end of 2019.
Westpac tells us that ‘’…since March 2020, reductions in borrowing costs have put around $380m back into households’ wallets each quarter.
At the same time, household balance sheets have been boosted by a 40% rise in house prices over the past 18 months…those developments have super- charged household spending over the past year.
Household debt levels have also risen rapidly over this period: New Zealand households are now carrying debt that’s equivalent to 169% of their disposable income, with most of the rise related to mortgage debt on owner-occupied or investment properties’’.
To keep it simple for you, money has been cheap and we’ve spent it. Then we’ve borrowed against the rises in our home prices and spent that too. More cash in the pocket. That wasn’t enough, so we took on more debt and then spent that too. (Making sense why we have inflation?).
But interest rates are on the rise, so house prices ‘should’ level out and maybe even some people return money to things like term deposits instead of housing investments.
With higher interest rates, borrowers are going to have less disposable income and less ability to finance debt.
However, something is lurking in the background and it’s this C-19 thing that I believe we haven’t truly had yet. No one seems to mention this, but as a nation, we haven’t actually had C-19 run through our country in terms of high levels of cases and lots of people being sick.
Sure we have had some cases, but what about when it really spreads? We don’t yet know for certain how our country will cope and what our leaders will do to combat it.
Oh then there is the new variant thing...that probably won’t be the last one, right? (DISCLAIMER I quit science classes in school as soon as I could, so I may not be qualified to guess that a virus mutates).
Hopefully we’ve dodged a bullet, but if we haven’t, I suspect you’ll see more money printing and a very complicated situation about what we do with interest rates when the economy is actually slowing and people are spending less, whilst inflation lingers around.
That’s why our lovely politicians keep conditioning us with ‘‘it’s not a lot of debt compared too…[insert other countries' name here]’’ so that they can falsely lead us into thinking printing more money & creating more debt isn’t a problem & won’t have consequences because ‘comapred to ….’ we are still not as bad as them.
To put it into 5 words: we are addicted to debt.
I don’t think alcoholics anonymous accept an alcoholic telling them that they have everything under control because compared to one of the other AA members, they got sloshed less times than them last week.
When it comes to politicians & debt, get used to hearing ‘but compared to…’. You can't unhear it now. Side note - they all say ''what I would say is'' a lot too, keep an ear out for that.
We are all running our own race and should be building out our destiny based on how we want our future to look. Winners focus on winning, losers focus on winners. In our case we are focusing on and comparing ourselves to other losers.
The destiny we are continuing to build in New Zealand is over inflated house prices and a huge division between the ‘have a house’ and the ‘haven’t a house’.
Can it all come crashing down? I think it will have to be a world event that really rocks our little boat; like a collapse of the Chinese property market or a capitulation of the US economy.
But really as I have explained before, everyone is guessing so just enjoy the ride and together we will learn to find a way through.
Have a good weekend,
Luke
In case the contents of this email are topical, it was first sent on 10th December 2021. |
Last year we were talking about how Kiwis were getting huge household pay rises due to interest rates decreasing.
This year, inflation is here and the Reserve Bank is trying to do something about it.
Let's dig into it and see how it works and what the flow on effects are.
Huge pay cut expected for a number of Kiwis in 2022.
There are two things Kiwis love to gamble on - one is Lotto ($1bil a year) and the other is mortgage interest rates.
Kiwis are obsessed with ‘locking in’ the best interest rate and playing the ‘will they go up or down’ game.
In 2022 this means billions & billions (fair bit more than lotto) of dollars of debt will roll off their current locked in interest rates.
Reserve Bank data suggests that $227.8 billion in mortgages are either floating or due to roll over in the next year.
"This equates to 71% of all lending – a lot of funding which, when refixed, will likely lead to greater mortgage repayments & less disposable income." - CoreLogic chief property economist Kelvin Davidson.
Put simply: these loans will need to be re-fixed at a new, higher interest rate compared to last time they were fixed.
The pay decrease - the increase in interest paid to the bank leading to less money left in the household for spending.
This is money that, in 2021, has been flowing into cafes, art, cars, online shopping, clothing & so on.
Westpac tells us that ‘’…since March 2020, reductions in borrowing costs have put around $380m back into households’ wallets each quarter.
Remember from last week that household debt levels have also risen rapidly over this period: New Zealand households are now carrying debt that’s equivalent to 169% of their disposable income.
The Reserve Bank has signalled increases in the Official Cash Rate which raises interest rates that we pay and encourages less household spending in order to try and put a lid on inflation.
I.e
OLD $600,000 debt at 2.5% = $15k int. per year
NEW $600,000 debt at 4.5% = $27k int. per year
Pay cut of $12k (a net salary decrease) per year.
Of course, this needs to be paid for out of after-tax income.
If this impacts you, do some sums early and be smart about your exposure to debt and when you may be likely to be exposed to larger interest rates.
Start planning what the decrease in household income is going to mean for your budget.
2022 is going to be an interesting year with less money being spent in the economy that a lot of businesses will be relying on.
Last year we were asking whether consumers would use their extra cash (due to interest rate decreases) to pay down debt? The answer looks to be no, according to the data above from Westpac.
This year the question is, will consumers change their behaviour with rates rising? Or will they seek credit cards and the likes of after-pay to continue to maintain their spending habits?
In 12 months' time we will know.
In the meantime, on Tuesday night at 7pm, we are going to dive deep into a stack of ways that we can all make more money and why we may want to do that.
This is how we learn to get back in control of some of the things that are happening out there.
Tuesday 14th December 7pm - pop it in your calendar.
Topic: The More Money Webinar
Time: December 14th, 2021 07:00 PM Auckland, Wellington
I am inviting you to a scheduled Zoom meeting:
Join Zoom Meeting
https://us02web.zoom.us/j/
Have a good weekend and I will see you Tuesday night,
Luke
In case the contents of this email are topical, it was first sent on 17th December 2021. |
Welcome to what will be one of the last weeks of work for a lot of you...you made it!
This week I have a bit of a random thought that I have been pondering and recently posted on social media. I know some of you will have missed this.
The current minimum wage in New Zealand is $20.
2,080 hours per year (52 weeks x 40 hours) = $41,600
It has not yet been announced what the minimum wage will be moved to from the 1st of April 2022. Perhaps it will stay the same...I doubt it when prices have been rising so rapidly.
The last increase (from 1 April 2021) was estimated to boost wages by $216 million. This means more people spending more money within the economy.
As the minimum wage increases in the future, it won't be long before it is $23.
2,080 hours per year at $23 is = $47,840
The increase in minimum wage also changes expectations for workers who sit just above minimum wage.
This is because people see the gap closing between what they are getting paid and what someone on minimum wage is getting paid. Often this leads to them asking to be paid more also, as they can see it to be unfair that they aren't getting an increase.
As we raise these incomes, something else is happening...we are getting people closer and closer to a 30% tax bracket which kicks in from $48,000 of income.
We will need to educate people that this isn’t 30% tax on ALL of their income but only the income above $48,000 (see tax rates below).
Often I see things like ‘all bonuses are taxed at 33%’.
OR hear things like ‘’I remember hearing from someone a few years ago that they 'didn't want a pay rise as they didn't want to pay more tax.'. My mind was blown!’’.
This is all due to our lack of understanding of how the progressive tax system works.
New Zealand has a progressive tax scale, which means as you earn more, you progress into higher tax brackets. But only for the income above that bracket.
Personal income tax rates
$0 - $14,000 10.5%
$14,001 - $48,000 17.5%
$48,001 - $70,000 30%
$70,001 - $180,000 33%
$180,000+ is a 39% tax rate.
This Summer, listen out for what people are talking about when it comes to money, finance and tax and see if you can add some value from all of the things you've learnt this year.
On Tuesday, I recorded a webinar on Making More Money in 2022. You might find this useful to watch over the break. I have uploaded it to YouTube & uploaded the audio version as a podcast:.
https://www.youtube.com/watch?
See you on Christmas eve,
Luke
In case the contents of this email are topical, it was first sent on 24th December 2021. |
Merry Christmas,
Before we get started, maybe some people are making sense of these KTC emails...there has been some amazing feedback, but also I see one of the political parties suggesting we need to do something about the tax rates.
As we said last week, more and more people are about to be in the 30% tax bracket as the brackets haven't been reviewed for a long time (over a decade) so watch this space. As always I will keep you updated and help you understand how it will work if changes are suggested or made.
Right enough about tax, let's bloody well get into the Christmas spirit...
I hope you have an amazing time with your family and loved ones. Christmas certainly means something different to each of us, so make the most of this special time of the year.
Given it is Christmas eve, I can't giveaway what gifts I am handing around this year, but don't worry, the grinch over here didn't get too carried away, I can assure you of that.
If you have been reading since last year, you will know I do some weird stuff around the festive season, including challenging myself to give strangers money.
You might not be in the position to do this, so even starting by exchanging a smile with a stranger in this divided world might be a good idea. If you can go a step further, then brilliant!
I have some cash earmarked for a new challenge this summer. This year I am changing it up and I would like you to think about this too.
If this year has taught us anything, it is that the next generation of entrepreneurs will be more likely to solve bigger problems than the politicians will claim to.
Here’s how you can help the next generation of entrepreneurs...
This summer, when you see kids out on the street selling lemonade, fruits etc., then stop and reward them for their work. You never know who you will inspire.
Money exchanges hands when value exceeds price. Show them that what they are doing is valuable by exchanging a few dollars with them.
Debt won’t be the solution forever and may not be a good teacher for the next generation.
I learnt a lot about business selling feiojas at my gate when flatting at university. I can recall some of those lessons and memories very vividly (some not so much, due to a few too many Tui's but hey...uni life).
I’ve scaled up some of those simple lessons & kept them as foundations for the successful business I am a part of today.
I’ve got some cash ready in the wallet for some budding entrepreneurs. Little do they know i’m going to buy their entire supply and then see if they can solve the next problem…supply chain issues.
P.s yes Karen, we know….wash your hands, scan in, wear a mask, do it safely etc etc etc.
Reminder: I recorded a webinar on Making More Money in 2022. You might find this useful to watch over the break. I have uploaded it to YouTube & uploaded the audio version as a podcast:.
https://www.youtube.com/watch?
Before I go...I think one of the greatest gifts I have received is that of practicing gratefulness. I understand that Xmas can be a tough period for a lot of people and hey, for some of us we just don't get the things we want - all of us can try to write down or think about 3 things we are grateful for this Christmas and why those things are special to you. Even better, if it is a person, let them know.
Now go and enjoy the festive season and I will see you before the year is out.
Have a safe & brilliant Xmas,
Luke
In case the contents of this email are topical, it was first sent on 31st December 2021. |
It's New Years Eve, you made it.
2021 done and dusted, time to tackle 2022. This is the time of the year when a lot of us like to set new goals and really think about what we are up to.
I recorded a podcast for you so that I could share some of the tactics I use when it comes to planning and sticking to goals. I am sure there will be something in there that will get you thinking. Good luck!
Spotify
https://open.spotify.com/
Apple
https://podcasts.apple.com/nz/
To end the year, I want to talk about the vehicle you are in.
I’m not talking about the car you’ve been thrasing for years. I am talking about the vehicle that is taking you to your eventual income and wealth.
If you look at your income earner (your job, business, investments etc) as a vehicle, you can ask yourself whether this vehicle will take you to your ultimate desired destination?
This is a conversation we don’t really like having in New Zealand as it makes us face realities.
First, you need to understand what your goal is.
Let’s say it is to own your own home, buy a rental property, pay off both loans and have a stash set aside in Kiwisaver for when you retire.
By the time you retire, you'll have the pension coming in (hopefully), rental income (this is taxed too, FYI) and be living payment free in your mortgage-free property. Your Kiwisaver would be there for the house repairs and a bit of playing around money.
Now…is your current income source (your vehicle) really taking you there? Is that the vehicle you need to be in to help you arrive at your desired destination?
Perhaps a minimum wage role isn’t the right vehicle to get you there? Perhaps an income capped salary isn’t the right vehicle for your goals either?
It is time to have a realistic conversation with yourself about the vehicle you are in.
I am not a fan of resetting goals to be ‘more realistic’’. How boring…that is the easy way out. I am a fan of resetting thinking about the vehicle you are in so that we don’t compromise our goals.
Do you need to build a plan to change vehicles? Perhaps your goals require you to work an extra shift a week to pay down the mortgage. Maybe you need a new role with a higher salary.
Maybe your goals require you to get into a role that has an uncapped income? A lot of sales roles are like this and that is why salespeople often get paid very well in this country. A lot of Kiwis are scared of sales and selling - GOOD! That means you have an unfair advantage, because if you can get over that and get into one of those roles, you have a higher chance of succeeding because others will simply be too scared to try.
Maybe your goals require you to start with a hard conversation with your employer about your pay or even just a working from home allowance to cover the power bill going up?
Whatever it is, it is time to get real New Zealand. Costs are going up and things are becoming more expensive. If we don’t change the vehicles we are travelling in, we may not arrive at our desired destination.
I know these things can be confronting and some of you will want to bury your head in the sand because ‘this doesn’t apply to me’ or ‘this is too late for me’ or ‘easy for him to say’, but...
To you, I ask you to think of your children, friends, family and loved ones - do you want to teach them that this is possible for them? I am sure you do.
If you are thinking about a higher income, you might find this cheat sheet handy with ideas of ways to make a few bucks: https://docs.google.com/
Next week we are going to look at a friend of mine whose work has made him a millionaire. It required him to take some risks and make sacrifices, but it is a good example of someone who has put their head down and been rewarded for doing so.
Before we go, here is a little tactic I use to help me think bigger. Everytime I see a helicopter I think ‘someone figured out how to build it and someone figured out how to pay for it…they didn’t use excuses to do either of those things’.
In 2022, make a commitment to taking action. Doing. Not just talking.
Activity
Perhaps it is time to set a goal to change the vehicle you are travelling in Jade? I hope you have your best year ever in 2022. You deserve it.
Be good out there tonight,
Luke
In case the contents of this email are topical, it was first sent on 7th January 2022. |
Happy New Year,
I hope you've had a great start to 2022. Did you take some time to set a couple of financial goals for this year?
Last week we were talking about the vehicle we are in and whether that is going to make it when it comes to taking us to our desired destination of financial goals.
I hope it got you thinking and talking. Sometimes those things can be confronting, but now that we are aware of it we can start to brainstorm some solutions of new vehicles.
I want to tell you a story about one of my best mates.
He recently sent through a screenshot of shares that he owns and they had gone past one million dollars in total.
This isn’t a sharesies account. In fact, it is one share and one share only.
It is shares in the company he works for.
You see, my friend decided to take a risk and leave his well-paying job for a role that he saw huge upside in over a decent time period.
If he committed to it and did well, part of his salary would be given to him as shares in the company he was working for.
Don’t get me wrong, we can’t all just ask our bosses for shares in the business, but my friend could see this as possible for him, so he played the long game and went for it.
He could see where the business was going and that he could become a shareholder in that growth. He was happy to dedicate some of his working life to help them achieve their desired outcomes.
All going well, he would achieve his desired outcomes also.
YES, he has worked extremely hard and questioned why he is working so hard at times, but ultimately he could see that to get to his desired destination, these days should and will come.
He has been rewarded with shares in a company that has grown in the time that he has been there and these have paid him a nice dividend (portion of the profits) along the way too.
His shares in the business are now worth over $1million and he hasn’t had to start the business from scratch himself.
There is a little bit of teaching in New Zealand that 'the only way to get ahead is to start your own business' and this lesson proves that that is not always the case.
Starting and running a successful business is a great vehicle to wealth (becasue you are often building an asset you can sell at the same time), but so is working in one that rewards you well.
Keep an eye out for opportunities where you have the ability to earn more than just a dollar amount. Can you get a stake in something that can be sold later too?
What might surprise you is that my mate is only just buying a house. How dear he you may say? Surely that is the first thing he should have done.
No, he's built wealth and been happy to rent this whole time. He tells me that as his pay increased too, they saved the difference as they lived the same lifestyle so that when they bought a house, they needed less debt.
He has now decided to buy a house for his family and has been able to sell some of the shares for cash to then pay a further deposit on his property.
We don’t often hear stories like this so I wanted to bring it to you because I know it will open the eyes of some of you to what is possible and how some people build wealth and achieve their dreams.
Already encountering problems in 2022? Try this...
You don’t always need all of the answers right now, you just need to be open to finding them. Your brain is an amazing device. We have been encouraged to think that our devices will solve all of our problems, but you know what, the brain has been around A LOT longer than all devices and is still there to help you - don’t forget to ask it to!
Take some time to sit in private and write down some solutions to problems that you face. Whether this be financial or any other area of your life, just give your brain a chance.
Write the problem at the top of the page and then just start writing potential solutions to this problem. You’ll be amazed at what you will come up with.
Don’t give up Jade. Chase your goals and dreams, you deserve them.
Before we go - a huge congratulations to Logan Bell who won the $500 investment as part of the draw once we hit 5,000 readers. Logan chose to put the $500 to work in Ethereum. I am going to record a podcast with him soon to find out why. Keep an eye out for that.
Luke
In case the contents of this email are topical, it was first sent on 14th January 2022. |
Happy Friday,
You might have heard this saying before: ‘Your network is your net worth’ and thought it is some throwaway comment.
What about; ‘if they don’t know you, they can’t flow you’.
Or perhaps, ‘it’s not what you know, it is who you know’.
From what I have seen (as much as we might not like it), these sayings are very true and we will all see this playout throughout our lives and probably even use these sayings.
Sometimes these things can work for us and other times against us. Ultimately, you need to build connections over time so that you can get these things working for you.
Of course, there are sayings about how we are the sum of the people we spend the most time with. This seems pretty relevant too. Why spend all of your time with people who aren’t adding any value to your life?
That might sound harsh, but as I’ve said before, it might be worth starting this process by curating your instagram and social media feeds so that the content serves you and lifts you up rather than taking your time and attention away from things that could help you grow.
Every year, I’ve been lucky enough to spend time with people whom I have benefited from the information they’ve given me or the things they’ve taught me.
This isn’t rocket science, it is simply that people who help us grow, help us become more valuable and often this ends up increasing our net worth (assets less liabilities).
This might be a good time to think about where you are working on your LinkedIn connections and building up a network there?
I have solved countless problems for myself and my clients by simply posting ‘Does anybody know somebody who can help with [insert problem here]?’.
You don’t know until you ask. First you need to start building your network so that you can actually ask.
You don’t know when you may need a prior contact from earlier in your life, so find a way to stay connected with them over time. They just might unlock the door that you need opened.
Sometimes it is worth swapping ‘how can I solve this problem’ for ‘who can help me solve this problem?’. People love helping other people. Again you need to be brave enough to ask.
This goes for you too. Find ways to add value to other people's lives. Doing good things for people stacks karma and credit in your favour and if someone asks about you, they’ll remember what you’ve done for them and the type of person you are.
New Zealand is a small country and when you start getting down into industries, you start getting into smaller pools of people. Then, at a company level, there is a high chance someone will remember or know you, so…don’t be a d!ck because it could cost you in the future.
Life is built on top of relationships. Invest some time in the ones you know are going to be important to maintain.
If you want to link up on LinkedIn, you can find me here:
https://www.linkedin.com/in/
Enjoy your weekend.
Luke
In case the contents of this email are topical, it was first sent on 21st January 2022. |
Lately, we’ve been talking about prices going up and most people are probably just skimming past it thinking it doesn’t apply too much to them.
I’ve put together a practical exercise you can do over the weekend.
If you are brave enough, you need to look at EVERY cost in your life. This isn’t fun, but neither is not sleeping or worrying about money, so get this done.
EXERCISE
Go to internet banking and run an export of 2 months of bank transactions, including your credit card + any accounts where you spend money.
In these exports, you’ll find negotiable costs and non-negotiable costs - go through and work out whether that cost can be binned or has to stay.
This is an exercise to get you thinking, not thinking about how boring life is if you are not spending any money at all. If you have to have Gucci shoes for Instagram, it is what it is, go you.
Here are some thoughts:
- Wow that’s a lot of money spent on food. Could we be smarter about that?
- Hmm, do we need to review our savings plan temporarily?
- Power, internet, phone - are these still the right plans for us?
- Am I actually using my gym membership (hint if you aren’t, then you should be - I’m huge on wellness spending, so biased here),
- What even is that insurance? Insurance is used to de-risk potential outcomes in your life. Re-read that 3 times,
- Do you know how consumer finance works because you can use it to your advantage too (Q Cards, GEM Visas etc),
- How many have now, pay next week services do you have? Get them under control,
- The hidden habit. What’s my ‘boredom vice’ - we can often fill boredom by spending money, it’ll show up in your transactions. What is yours?
Think about if you literally had NO INCOME, what changes would you make to each of those expenses you are currently paying?
Look at it this way - every expense you pay is solving a problem. Rent=somewhere to live. Netflix=entertainment. How would you solve these same problems with less or no money?
These are really worthwhile exercises to do to wake yourself up to your spending habits.
TIP: Set financial spending habits that are actually sustainable and that you can commit to. Think long game AND short game. I.e. if you say you won’t spend a dollar for the next month, is that really sustainable and something you can implement to help you in the long term?
EXTRA - Capping the frequency of transactions
Similar to running an export of your banking transactions, some of us still like to print things and get the highlighter out.
Whichever you choose, you will want to run your eye over the statements and see how frequently you are transacting at certain stores/businesses/cafes etc.
As an example, you will note purchase one from Monday at ‘Cafe x’ as 1, then purchase two on Wednesday as 2. Go through and see, in numbers, how many times you are going to the same places.
Then it is up to you to have a discussion with yourself to decide whether those purchases need limits?
What this exercise does is that it helps you understand, in numbers, how many times you actually go somewhere. The ‘I went to ‘Cafe x’ 22 times in April might give you the wake up call that you never intended to go there that many times.
You may then choose to put limits in place for places you frequent. Only 2 lots of McDonalds per month etc.
Set your bare minimums and then try to stick to those.
Sometimes less is more!
Enjoy your weekend.
In case the contents of this email are topical, it was first sent on 28th January 2022. |
From time to time, I will go through the assets that I own and I will question myself about whether they are performing.
I can do this because I keep my monthly financial position (which we learnt about early on in Money Mail - you can see earlier episodes in the blog) and keep track of what assets I have.
Then I go through and query whether the assets I bought (stocks, Kiwisaver & crypto-currencies etc.) are performing to the standard and reasoning which I expected when I purchased them.
As an example, when I did this with my Skycity shares, I decided to sell them and invest in other companies less impacted by a global pandemic. When I bought those shares I didn’t expect the borders to be closed and us to go into a pandemic. They were no longer the assets that I originally purchased.
Buy and hold is a great simplistic strategy, but sometimes, things can change and sometimes our tactics need to change as the world does.
It is ok to change your mind and let go of assets that are no longer performing. DO NOT mistake this for selling shares because they aren’t going up anymore. This is why it is important to think about why you are buying certain things that you buy - the purpose for which they serve you.
You could also do this with things around the house too. Do you really need them? Are they fulfilling the purpose you originally purchased them for? I.e. Do you ever use that treadmill? Do you need the second vacuum cleaner that was on special that time you went shopping?
This also got me thinking about the Keep The Change Night School that I built over a year ago.
It is an asset to people who use it but not many people use it. For it to perform better, I need more people to use it and implement some of the lessons.
As a way to invest in Keep The Change further, I want to ensure more people can access and benefit from the Night School lessons. I have decided to make it free to access for those who really need it.
If you haven’t heard about night school before, it is an online learning tool with exercises, webinars and lessons. This is a bit of what is inside:
Next week I will be sharing with you how you can access this. Please only access it if you will use it.
Now back to other assets that might not be performing. There is a high chance that your Kiwisaver and other shares are getting pretty beat up at the moment.
As humans, we can get very caught up in the negatives a lot more than the positives, so be mindful of that.
Just because the market is volatile, doesn’t necessarily mean that businesses behind the stock market prices aren’t performing. Playing the long game with investing is critical to giving yourself some assurance that investing is something smart for you.
Perhaps this is the year that you (the asset) figure out how to learn 10% more in your job than you knew last year or 10% more in an area that interests you. Control what you can control.
The other thing that you may have noticed is that inflation hit a 3-decade high in the December 2021 quarter. This means that consumer prices rose 5.9% over the year. You probably understand this better than you would have a year ago because we have talked about it a number of times.
We will no doubt hear more and more about this as 2022 goes on and we see volatile share markets and rising interest rates.
This weekend, take a look around at the assets that you own and question whether they are still performing to the standard and reason of which you purchased them for.
Enjoy your weekend.
Luke
In case the contents of this email are topical, it was first sent on 4th February 2022. |
If you haven’t bumped into my passion project ‘Boys Get Paid’, you might find this subject line very confusing.
To bring you up to speed, I am part of a Facebook group that started as 5 friends who needed a way to chat and enjoy our hobby of horse racing.
Now, ladies, before I lose you, it’s just a brand name & a saying…we would have a bet together and, if we won we would say ‘and the boys get paid’. It's just a saying...right, let's carry on.
Today that group is over 21,500 people strong and two Saturdays ago we hosted an event for 850 people (plenty of ladies joined us on the day).
We also run a ‘punters club’ where we pool everyone's money and bet it on behalf of everyone on the night. We had over 7,500 people deposit money from all over the country (and a few Aussies).
This was the 5th year of doing this and we wanted to set a target for a pool of $500,000. We ended up with $660,000 by the time the betting pool closed.
I wanted to share a few things with you that I have learnt from this journey. Firstly:
When I quit my job I told my employer I wasn't sure how I was going to make it work, but I knew I owed it to myself to chase my potential and just try things.
I likened it to jumping from a tall building and, although I didn't know when, I knew my parachute would open before I hit the ground.
Last Saturday, this event generated more revenue than my entire year's salary in the job that I left. The impact I've had is no doubt far greater too. The beauty is that this is my outlet & my passion project on the side of my now '9-5' (is a 9-5 even a saying anymore?).
I don't know who needs to read this, but back yourself. You are capable of so much more than you realise, you just need to get started.
Put your head down and grind for 5 years and see where you land. The parachute will open!
WATCH: The 5 years explained… https://www.youtube.com/watch?
Secondly, you need to figure it out as you go. Do you think I knew everything I needed to know 5 years ago? Of course not, I simply got started and then kept figuring things out as I went. Getting around the right people and trying to make small improvements.
I didn’t know how to run a good event. How could I? I studied accounting - probably close to being rated the most boring profession.
Some people told me that it was the best weekend of their life. Google & YouTube are your friends and sometimes I will google things like ‘how to host an epic event?’. Our access to smart people has never been better.
You don’t need all of the answers at the start, you just need to commit to finding them as you go.
Thirdly, if you are ever in a leadership role (HINT: we all are leaders in the eyes of someone), then lead with your personality. Be yourself and show up as yourself everywhere you go. Authenticity can’t be beaten.
Finally, here are some of the things I have learnt that I can bullet point;
Something a little left field for you this week but hopefully you can take a lesson from there and implement something into your life with the things you are working on.
I recorded a podcast for nextAdvisory podcast listeners with an hour of tactics I implement, that might interest you: https://open.spotify.com/
I will go a little deeper into all of these on the podcast version of Keep The Change (on all podcast platforms) as I know some of you have work to do so get stuck into your Friday.
If gambling/horses aren't your thing, that's fine. Well done for reading this whole thing & remaining open-minded when things don't necessarily interest you. Stay cautiously curious.
If gambling is a problem for you or someone you know, you are not alone. NZ has great support services - put your hand up for help!
Have an outstanding long weekend - I am off down to Mount Maunganui for a couple of days' break.
Take care out there.
Luke
In case the contents of this email are topical, it was first sent on 11th February 2022. |
I was giving someone a hand with their finances and we noticed something pretty alarming.
The cost of petrol and parking for them was over 10% of their total salary.
That means that over 1/10th of their salary is being spent on going to work. If we factor in tax, it is actually 13% of their after tax income.
This is a mix of petrol expenses and car parking. We aren’t even measuring the other costs of a car here: rego, insurance, cleaning, maintenance etc.
Now some would say, just catch the train. Which actually is a great suggestion and an alternative, so we mapped out what that would cost and it is a fair bit cheaper than the car.
Something else to think about - this person actually likes the drive and the commute as it is their 1 hour dedicated learning time each day - a good use of a commute.
If your commute is going to soak up a fair bit of your life & finances, make sure you are using it wisely by learning in that time, networking (calls) or visualising a better life - do something for you!
We know from recent data that transport was the second biggest contributor to inflation for 2021. Statistics New Zealand said during last year the average price of 91 octane petrol increased 30%, from $1.87 per litre to $2.45 during the year.
Given that I think inflation could be sticky - meaning it is keen to stick around, we need to keep an eye on the costs we have.
Perhaps work out your annual cost of transport, insurance, rent, food, entertainment etc. as a percentage of your total salary or annual income. Make a calendar reminder to do this every 6 months and see how things have changed for you.
Here are a few solutions my amazing LinkedIn network added to my post about the cost of transport:
That fourth bullet point is a good reminder to look at the cost of taking a new job with a pay rise. What costs are associated with the new job? I.e. parking etc.
When I moved to Auckland (from Hawera) I made a rookie mistake and moved for the same money. On the first day I realised it took 40 minutes to get to work (used to take me 4mins) and then I had to pay for parking. On the Thursday the city had broken me, I cried…true story…blokes cry too.
For some of you, you will relate to this and I've said it before but it might be worth taking these concerns to your employer, instead of just ‘sucking it up’.
Inflation and the cost of transportation are not their fault, BUT people want to look after good employees, so have the conversation. Good employers are often good problem solvers too.
Perhaps take a solution to the conversation like working from home one or two days a week or asking whether there is some form of non-taxable allowance that could help? Maybe a cheaper parking spot that they know of?
A lot of these emails are written to get you thinking about how you can take some control back when it is being taken from you.
Just like me in Auckland. I could keep crying or I could change my commute and decrease my parking costs by getting up earlier & parking in the streets for free, then I'd go running and work on my health.
You and I can’t control petrol and transport costs, but with awareness of them changing, we can change the actions we take around them changing on us.
I've even invested in an electric scooter to go to and from work from time to time. I could also see this coming somewhat, so in February 2021 I invested into a US Oil fund. That investment is now 60% ahead, 12 months to the day on Wednesday - this effectively offsets my cost of petrol rising.
Hope I got you thinking!
Have an outstanding weekend,
Luke
In case the contents of this email are topical, it was first sent on 18th February 2022. |
We spoke briefly about how January wasn’t very flash for investors.
On the 31st of January I was brave enough to pull up my Financial Position (I suggest you do this monthly). I remembered to do it as I have a calendar reminder (i’ve taught you this tactic).
I started to key in what all of my investments were worth as of 31 January.
It became pretty obvious that the numbers were all less than when I had done this a month ago.
I thought January was going to be a good month as I had saved some extra cash and built back up some savings accounts.
But I had still gone backwards. My ‘networth’, which is your assets less your liabilities, had gone backwards.
$37k of networth gone! Crypto, stocks, kiwisaver, sharesies, it had all sh!t the bed to put it politely.
Did I sh!t the bed too? No. Not literally and not figuratively. This is a time for logic, not emotion.
I think this year (and next) could be pretty bumpy financially, but I expect the next decade to still see more advancement and improvement financially. Especially if I stick to my strategy and do the things that help me to lead a good, happy life.
It’s like looking at a toddler throwing a tanty in the supermarket. Eventually, they settle down, don’t they?
Remember that investing requires long-term thinking. Just like I don’t get too excited when my assets are increasing, I try not to get too unsettled when they are going backwards.
I can’t touch my Kiwisaver for 30 years, so why stress over the swings and roundabouts? This is different if you need your Kiwisaver to buy a house soon (as an example). That’s why you need to tune into smart people like Adam from Compound Wealth who are in that space day in day out having conversations with clients about their finances and kiwisaver profiles.
January was actually one of the worst months for the NZX 50 since March 2020. We all know what happened in March 2020. If we remove that month, then January 2022 was one of the worst months for the NZX 50 since February 2009.
It won’t always be exciting to check your share values, so you need to remember why you bought them in the first place. You’re not gambling, you’re investing.
Don’t get caught up in the trashy news headlines and do anything too rash. You don’t want to let these bumps in the road put you off your investing altogether.
Last week, I made my Keep The Change Night School resource FREE to access for anyone who wants it.
It’s over 20 chapters of learning on an e-platform. There are videos, webinar replays, activities and questions to get you thinking about finances. This might be perfect for someone keen to do some learning.
You or a friend can access it here: https://www.keepthechange.co.nz/nightschool-v2
Have an outstanding weekend,
Luke
In case the contents of this email are topical, it was first sent on 25th February 2022. |
A fair while ago, I completed a test. It wasn’t one you can pass or fail, which is always good.
It was a personality test and it came out with my unique type of personality.
You might have heard of it before, as it is quite popular. It is called the 16 Personalities.
They have a very informative content sequence that you go into, which is an email every couple of weeks specific to your personality type.
A lot of it isn't related to finances and money, but there was a beauty the other day.
They have data that suggest personality traits influence sensibilities when it comes to shopping.
For example, they find that Executives (like me):
- Are unlikely to purchase items they hadn’t planned on getting,
- Prefer shopping at mega-marts or chain stores as opposed to small, independent ones,
- Check out labels to see if there are any unhealthy ingredients during their grocery shopping – more than most other types,
- Are the most likely type to hunt for discounts,
- Say that shopping often makes them feel better (especially turbulent executives).
Some of those things I am not too sure about, but when I really think about it, it is very accurate.
You can do your own 16 Personalities test here (takes about 10 mins):
https://www.16personalities.com
I find these emails very insightful to help me learn more about myself and to know that there are other people out there just as crazy as me.
It also makes you aware of some blindspots….like these ones:
Things can become too rigid, and it can be difficult for family, friends, and co-workers if there’s no room for play or enjoyment.
Guilty as charged….
There is a great quote: ‘know yourself to know others’ and it’s a great reminder that often we are quick to judge or make sense of other people but we need to ask ourselves if we have done the same for ourselves?
Do we know where our money habits come from? Our sayings about money? The risk levels we are keen to take?
Money can be a touchy subject in relationships and I’m not just talking about sexual ones. (I didn’t know what other word to use). I mean ALL relationships. Flatting, friends, mates, business family etc.
We are all different people and have a different lens on the world.
Tools like this help us get better at understanding ourselves and then understanding others.
If you missed a Valentine's Day gift with your loved one, perhaps do the 16 Personalities together and then one more…5 Love Languages. Lads...this will get you more brownie points than an overpriced handbag or unethically sourced fake diamond.
https://www.5lovelanguages.com
Guess what? In March, it is my birthday. I know, exciting huh. I am looking forward to you sending me a bit of bitcoin as I don’t really eat cake. I thought I would do something for all of you.
In March I am releasing 30 audio lessons (podcasts) from 30 stories of my life. Basically, things that have happened for me and I sit down and tell a story that you can hopefully learn from.
I have already recorded 14 so come the 1st of March, you’ll have a 15 minute story every single day for 30 days.
Each one is recorded with no planning, I just hit record and tell you a story. I think you’ll get a good insight into what makes me tick and what mistakes + gains I’ve made in my life. Stay tuned.
Remember that KTC Night School is FREE to access for anyone who wants it.
You or a friend can access it here: https://www.keepthechange.co.nz/nightschool-v2
Have an outstanding weekend,
Luke
In case the contents of this email are topical, it was first sent on 4th March 2022. |
World Wars, market crashes, pandemics, floods, endemics, inflation, protests, business closures, the list goes on.
How did we get here? And what’s the point of carrying on investing when it’s all so messy?
That is no doubt how some people are feeling about their investing right now. You can’t blame some people for thinking like this because it’s pretty rocky out there.
I’m not going to lie, even I've struggled to figure out whether I should continue to invest or maybe just sit on my cash.
But sitting on my excess cash won’t help me in the long term. I need to trust the process and invest in businesses that are paying dividends because that helps subsidise part of my rent.
If you or I weren’t investing or saving what would we do with that money? If you are anything like me before my disciplined days, you would be rinsing it on sh!t you don’t need or food and drink you also don’t need.
Usually we adjust our lifestyle to match our level of income. That's why it is important to pay yourself (saving & investing) first and learn to live off the rest.
The IRD don't take your tax and Kiwisaver at the end of the week, do they? No, they take it as soon as you get paid and you don't even see it.
Here is a cliche term; ‘nothing good happens in your comfort zone’, but it’s pretty accurate.
We love comfort and we seek it. But sometimes I remind myself to run into fear because I know I will gain so much from making it through to the other side.
Here’s another ripper one liner that I thought of earlier in the week which became the idea for this week's lesson.
It’s not always about what you earn, it's about what you learn.
Don’t just look at investing as a way to log back in and see if you’ve ‘earned’ another few bucks.
Some of my most valuable lessons have been from my biggest failures. We can learn from our mistakes (sometimes it takes a few of the same mistakes to learn).
When investing, ask yourself; what did you learn during the process? Who have you become during the process?
It might not be investing in the stock market, but perhaps yourself…that brave question for a raise…that process of finding a new job…that ask you didn’t feel comfortable doing.
These are the moments where we really learn and when we learn, we usually increase our ability to earn.
Where have you come from when you look back at your savings or investing journey?
Who have you become in your pursuit of clearing a credit card? What did you learn during the process?
Let’s be frank, the world is pretty farked right now…but the sun always seems to rise and we go again.
Habits create consistency. Consistency creates results.
The habits we build along the way and the things that we learn are the things that help us be better for our families and communities.
Don’t give up on your good habits just because the world has given up on some of its good habits.
Before you go, remember that when you feel like giving up, it is usually the time you have the most to gain!
A reminder that in March I am releasing 30 audio lessons (podcasts) from 30 stories about my life so far. There are 4 there waiting for you. I'd love to hear your feedback too.
You might enjoy my candid episode (#3) about financing lazy boys and super-king size beds in my early 20's. Why? Because I could...how stupid is that.
Check it out: https://open.spotify.com/
Have the best weekend,
Luke
In case the contents of this email are topical, it was first sent on 11th March 2022. |
This week we had international women's day. I hope you celebrated the best way you know.
On the weekend, I was reading about how women have less money in their Kiwisaver than men.
Straight away my assumption was that this would be because women take less risk, so are probably more likely to be in conservative funds.
I know a lot of males and have grown up as one and know that I can be pretty bloody reckless. So can a lot of my mates. A lot of them like taking a risk too.
My Sharesies account tells me 97% of my investments are high risk. It frustrates me. I can’t work out what the lazy 3% are because I’d probably sell them to take on more risk.
A number of women I've tried to help through business and other ventures often seem more reserved or risk-averse in their thinking. But, of course, this is just my observation and opinion.
This week I was talking with a lady who was considering changing roles. She was trying to make sense of a contract role that paid double their current salary.
In my mind I thought; take it as in 6 months they’d earn what they usually take 12 months to earn. They could save the extra and have 6 months off, or 6 months to find a new job if the contract wasn’t extended.
This person decided to stay in their job as they saw the contract as too risky. Part of this was due to having a mortgage. A good reminder that we all see risk differently and have our own level of tolerance.
Side note - this is also why I hated having a mortgage, because it makes you massively risk-averse and clouds your decision making. That’s the trade off of having a house, I guess!
Anyway, I didn’t want to just assume all ladies are risk-averse, as a lovely lady (my Mother) taught me that assumption is the Mother of all stuff ups.
So I continued reading and learning. Straight away the report told me:
…women are far more likely to invest conservatively.
20% fewer women than men were in a growth fund.
Come on ladies, what are you doing? Don’t let the boys risk it all in Kiwisaver & blindly get taken further ahead. Of course, the boys don’t look so good in their risky funds right now, do they?
The story went on to speak with the co-founder of Hatch who I knew would have some good data as they’d know what gender their users are.
Hatch co-founder Kristen Lunman says women are starting to take control of their funds, but there’s a long way to go.
“Unfortunately part of the bias [with] women and investing that we've grown to accept is that we're not good with money, we spend too much, we're risk averse, the industry was built by men, for men, so women have felt excluded.”
Ladies, you might as well give up after reading those rules...gee whiz they will make you feel down & out.
Remember that a number of lessons ago we learnt that women make most of the financial decisions in a household?
Let’s be honest, plenty of blokes probably wouldn’t even know their password to internet banking if it wasn’t for their lovely lady.
Be careful what bias of others you buy into & decide to own. If you have things that haven’t served you well when it comes to money, it is time to unlearn them. Don’t hold onto them because others have.
Ladies, if you do one thing by the end of this week, it should be to understand if your kiwisaver investment matches your risk profile and perhaps don’t decide this yourself, get some advice.
There is a high chance you are making most of the financial decisions in the household too, but here is my challenge for you:
For two minutes, stop making decisions for everyone else and write down 3 financial decisions you need to make for yourself.
It could be; how to ask for a raise in the next 90 days, how to invest for your kids, how to start investing yourself, whether you need insurance on your life or your partner's life, how to pay less mortgage interest, how to pay your mortgage off faster or how a rich person you know, became rich.
Just pick one thing!
You know there is a lot of fashion associated with shining light on ‘men vs women’ situations, but let's be real, we all need each other and we all love each other. So let’s work together and kick some a$$$$$!
I don’t care if you are a male or a female, you are a human to me. If you need my help at some point and I can genuinely help you, I will try to point you in the right direction.
Thanks to those of you who have been tuning in to my 30 in 30 audio lessons this month. We are up to day 11 and have covered a lot of ground. You might enjoy my life-altering episode (#11) about quitting my job.
Check it out: https://open.spotify.com/
Go well,
Luke
In case the contents of this email are topical, it was first sent on 18th March 2022. |
Firstly, last week's email certainly got some responses. A lot of positive but I also really triggered some people.
I do realise there are other reasons women’s Kiwisavers are lower than men’s. I was simply highlighting one of the ways we could close this gap. A few people messaged me to say that they had reviewed their Kiwisaver and changed their risk appetite, which was good to see.
It’s a highly sensitive topic for a lot of people and it’s not something I am an expert in, so it was great to hear some stories from the readers & listeners.
Onto this week and it is nearly the end of the financial year and that means tax time!!!! How exciting. The accountants out there will start to struggle to sleep because they get so excited.
For most people on PAYE salaries, they don’t need to do too much and you probably don’t care.
BUT a lot of people are investing these days or have other forms of income that need to be disclosed.
I was having a look on the IRD site the other day and I noticed that my Sharesies dividends are included in my MyIR income summary.
Sharesies and share registers are passing on the income and tax information to the IRD for all of us so it means they have it without us having to try and figure out how to notify the IRD.
USUALLY this is the dividend income, NOT any gains or losses from selling your shares as the IRD assume you weren't buying and selling these to make a profit - if you were you'll need to consider your tax obligations.
Most people buy shares hoping for a capital gain and we do not currently have a capital gains tax in New Zealand. Shares are usually a capital asset and any gains the seller gets on the share sale are non-taxable income (as long as the shares were held with the intention of a long-term investment).
Here is a snippet from my MyIR account:
You can see they are keeping the IRD in the loop each month of any dividends i've been paid direct to my Sharesies account.
HOWEVER, there are plenty of different things you can invest in very easily these days. NZ and international shares + funds, to name a few.
You need to be aware that US, Aussie and NZ shares can all be treated differently so whichever platform you invest through, you need to be sure to keep an eye out on what advice they provide you with.
Often, the share investing platforms will send you a tax pack at the end of the year and it will show you what income you've received from the shares you own. You'll want to ensure all of that info is in your tax return, where it needs to be.
NOTE: If you hold overseas shares (excluding Aussie shares) that cost over $50,000(NZD) in total you'll need to be mindful of the specific set of tax rules for these investments. These are the Foreign Investment Fund rules and it would be worth having a Google. It is best to check with an accountant with this sort of stuff.
In terms of general tax returns, after the end of each tax year the IRD will usually:
The IRD work out if you’ve paid the right amount of tax each year by using the information they hold about your income and the tax you’ve paid. (Your employer and sharesies for instance, will pass this information on).
But as above, if you receive an automatically issued income tax assessment, you would still be wise to check it and tell the IRD about anything that is missing. For instance, any income not showing or expenses like income protection insurance you may be eligible to claim.
Summary: the above is all very general information and not specific to your circumstances or intentions Jade. You'll need to dig a little deeper if you've been investing throughout the year to make sure of your obligations for your specific investment types.
Remember that the IRD has very broad information gathering powers. This enables them to look further into your share trading history & records should they wish to. They can even ask investing platforms for details of all of your trades.
I am 18 days into my 30 in 30 audio lessons this month. Thanks for all of the feedback so far and welcome if you've just found Keep The Change. There are around 350 downloads of these podcasts per day.
Have a nice weekend,
Luke
In case the contents of this email are topical, it was first sent on 25th March 2022. |
As I told you last week, it is nearly the end of the financial year and I recently realised that I will achieve one of the goals I set for myself when I quit my job.
For the 2022FY I will pay the IRD more tax than what my entire salary was when I left my job.
Note: the financial year/tax year for most Kiwis in NZ runs from 1 April to 31 March.
I also noticed that the dividends I have received from investments will be over 5% of my entire salary when I left my job too.
Trust me...there were some leeeean years in between today & quitting.
From house sitting (to avoid rent) and finding the cheapest lunchtime meals, I was hunting for a solution to a low cash problem.
It has taken me a number of years, but I have worked my way into the top tax bracket. The bracket that didn't exist when I left my job. There are about 119,000 Kiwis in this tax bracket.
More importantly, this is an income level that a previous version of Luke didn't think was possible. 'only the rich a$$holes earn that', 'the elite' etc.
Well I guess I'm a 'rich a$$hole' and part of 'the elite' then huh? I don't think so...I just learnt that money exchanges hands when value exceeds price. I love to help people and one thing I've noticed is that the more people I help, the more chance my income has to increase.
I don't think I've ever added more value to society than in the 2022FY. I've also given more money than in prior years and helped a number of people too.
I don't tell you this to brag. I tell you this because someone reading this will be inspired to:
When we make major life choices, we can inspire others to do the same or take actions they've been putting off.
Check out this feedback from someone i've been able to help during this time too:
Be bold to share your major life changes and decisions with your friend group, whether these are financial or non-financial, because you don't know who you will encourage.
People are getting bombarded by negativity and doom and gloom a lot, so remember to add some positivity and encouragement to the world where you can.
Now, perhaps not a goal many people would set (who wants to pay heaps of tax???!!!), but one I'm happy to have kicked.
The top tax bracket has about 3% of tax payers in it. You pay a high amount of tax once you get paid a lot. To get paid a lot, you have to deliver a lot of value to a lot of people.
Therefore, my goal was really about contributing a lot of value to the economy and the people I work with.
It has also been interesting to see how my dividends have crept up too, as I've followed my investing strategy and this has reminded me to stay patient with this methodology.
I have a long way to go, but I am ready for the challenge.
Inflation and tax rates are about to become political. It is easy to have an opinion on these matters. It's hard to go out and to be a person to try and solve them.
Remember we live in a country where if you are good enough, you can still achieve a lot and contribute a lot.
It's always easier to expect others to pay. It's hard to challenge ourselves to figure out how we can pay more.
Get after it, it's there for you
I recorded an episode about this in my '30 in 30' audio lessons this month. You can find it here:
https://open.spotify.com/
Have a nice weekend,
Luke
In case the contents of this email are topical, it was first sent on 1st April 2022. |
I was reading an article about money this week…funny that.
I thought you might be interested in some of the things that I saw. It was about the amount of money in different types of bank accounts at the end of December 2021.
Transaction accounts: $52.3billion
Term Deposits: $83.4billion
Savings Accounts: $79.9billion
The transaction accounts have increased in balance by around $25 billion since the start of the pandemic. Transaction accounts are everyday accounts for all of us.
Term deposits have dropped by around $20 billion. This is where people lock up their savings for a certain term (i.e. 6 months). Maybe they’ve become a bit unfashionable with the low interest rates and perhaps people have chosen not to roll them into a new term deposit when they have matured/become accessible.
Savings accounts have increased by around $20 billion since the start of the pandemic. Savings accounts can usually be accessed at any time.
This gets you thinking about what people are thinking?
Perhaps people don’t want their money tied up in term deposits because they want the certainty that they can access it. This makes sense because we’ve been living in so much uncertainty recently.
People may see that the term deposit rates aren’t attractive enough to have cash locked up.
Regardless of what people are thinking about, there is a lot of cash sitting in different bank accounts.
Who has all of this cash and what are they planning on doing with it?
That is pretty hard to know but you’d have to think that someone is going to be chasing it.
Whether that be an influencer trying to push the latest activewear or an investment fund manager offering the next great 10% guaranteed property deal.
It will be very interesting to see what this looks like in a year's time. Remember that this cash is effectively becoming worth less too, as inflation is eroding the ‘real’ value of it (i.e. the same level of cash can buy less as time goes by).
For some of you who like to hustle, you have to understand that people are sitting on large amounts of cash that they can access (it’s not locked up in stock markets or term deposits, for instance).
That means you can access it. Mow their lawns, look after their kids, help around the house etc. If you have value to add to a household, it might be worth asking if they’ll swap some of this cash rotting in a bank account for what you can do for them.
Of course, we know the older generations are collecting a lot of cash and assets. Eventually, this is going to be passed down and a lot of it is already changing hands as the bank of Mum & Dad come to the party for first home buyers.
Month end - March 31 is an accountants orgasm. It's when the financial year end climaxes and they get to start on a whole new experience of the next financial year.
For you it may not feel as explosive, but the end of the month should remind you that it is time to do your month-end process and tally up your assets - liabilities and work out where your money will be allocated next month.
This is an important step to remind you to stay focussed on your finances and review your progress. Don't skip this step - it is very important.
Thanks to everyone who tuned into the daily 30 in 30 podcasts this month. They were a lot of fun and I hope you took some inspiration from them.
Shout out to Matt and the team at Brew Co in The Mount who have been in touch to help support Keep The Change by covering the cost of this e-mail platform that sends the weekly lesson out. How good is that! There's a lesson here for youngsters keen to be influencers. It might take you 99 episodes, posts, tik toks for money to exchange hands. Get it done. When you're in The Mount, grab a bit of food or a refreshment from Brew Co.
Crush the weekend,
Luke
In case the contents of this email are topical, it was first sent on 8th April 2022. |
100 weeks into Money Mail.
You might remember that when I started this project I asked myself if I thought I could do 100 lessons? If not, I shouldn’t start.
It’s a bit of a decision-making framework I think about and I use it to test how ‘into’ something I really am, as I can have a number of ideas every week, so I have to be careful of shiny object syndrome.
I see Keep The Change as a way that I can give back in a unique way, as I believe that education is often what people truly need and what moves the dial.
I didn’t just want to write these for my mates and the odd person who spoke about Keep The Change, so every month I invest my own money into growing the audience via social media ads.
Once the 31st of March was out of the way, it allowed me to review what cost Keep The Change has been and what money has come in for the financial year.
I want to share this with you because I think that we live in a time where people look at social media channels and assume everyone is getting some sort of Kimmy K type influencer salary to run it.
Remember I told you visibility is a fake metric for success? Don’t make assumptions.
We also live in a world where people can consume A LOT of content for free and often it is subsidised by advertisers. This advertising dollar makes the content possible, but not everybody has advertisers.
This free content all over the internet gives us a false sense of expectation of what we think we deserve from other content producers.
In the 2022 financial Year (1 April to 31 March 2022) I collected around $5,000 in income for KTC. This is made up of people's donations / contributions as well as some night school + KTC lesson payments. There was no ‘pay to attend’ KTC webinar in 2022.
I spent just over $12,000 on social media adverts to get KTC in front of people (hello if that's how you found KTC). I had to pay for someone's time to help get these ads running. A few hundred bucks for an email address, then there is a website plus a content platform (for night school) & a website domain.
The podcasting equipment I already had, so we won’t count that. Or the time to write and record 12 months of lessons + podcasts - that’s too hard to quantify.
All up, over $15,000 in costs for the 12 months.
The accountant in me needs to tell you that is a net loss of $10,000 (keeping numbers round) but you probably worked that out yourself Jade. Note: This loss can offset profits & income from other sources of income i have.
It cost me $10,000 to run KTC for the year and obviously a stack of my time.
Is this then a good use of my time and my money when I could be allocating it to other projects or invest it in some loose NFT project?
Perhaps not when looking at those figures in isolation.
BUT I knew this would be the case when I started and I could have done more to chase down income (reducing the loss) if I wanted to so that's on me to navigate and get serious about should I decide to.
I see this as investing in my future growth by investing in other people's growth and the eventual karma. I know that this $10,000 loss will come back around in work i’ll capture in other areas of my life or opportunities I wouldn’t have had if it wasn’t for Keep The Change.
Plus, I love being able to help a lot of people who want to be able to learn and that gives me fulfilment - which is hard to quantify or put a price on.
I don’t know where Keep The Change will go in the long term but I am willing to look and explore that.
It is also a bit like therapy articulating my thoughts each week as I am often thinking about this stuff.
For you, this financial year, maybe it's not about making a donation. There may be causes that you really care about that you can donate your time and expertise to instead of just donating money.
Yes, it might be costly to you, but you don’t know what the return on investment is on the other side for the people whose lives you’ll improve.
When recording the 30 in 30, 3 of the most listened to episodes were:
Check them out over the weekend.
Cheers to 100 lessons. If you're new around here, you can check out past episodes on the Keepthechange.co.nz/blog or via the Keep The Change podcast on all podcast platforms.
My $10,000...let's look it as more of an investment than a cost Jade.
Thanks for reading and thanks for sharing! Keep learning.
100 not out,
Luke
In case the contents of this email are topical, it was first sent on 15th April 2022.
|
The beauty of getting 100 lessons into Keep The Change is that we’ve built up an awesome community of smart people.
I then put something on instagram around whether anyone knew anything more about this specific model.
On Sunday morning, I had a complete info pack on the model in my inbox from another reader.
I was reading up about Kāinga Ora’s first home partner programme.
To summarise it really quickly for you, Kāinga Ora (govt department) have a first home partner offering that helps you get into your first home. They do this by purchasing a percentage of the house you want to buy and you finance the rest with the bank.
For example, you may have saved 10% of the purchase price of a home and a participating bank is willing to lend you 75%. Kāinga Ora then contributes 15% to purchase the home with you in return for a 15% share of ownership in the home - Kāinga Ora.
With these types of things, there are eligibility requirements and you can find all of them here:
A few of the key ones:
I have also been told that the home you choose must be a new build or off-plan. The model is designed around increasing the number of new homes in New Zealand.
Now, before you get too carried away, the max contribution they can make towards a home purchase is 25% or $200,000 - whichever comes to the lower amount.
How do you pay? Nothing is for free in this world and, of course, you need to pay Kāinga Ora back at some stage.
You will need to do your best to purchase the share of the home owned by Kāinga Ora within the first 15 years of ownership and must have purchased the share in full by the 25th anniversary from the date of settlement on the home - Kāinga Ora.
As your home increases in value, you’ll have to pay extra back. This will be based on the percentage of ownership by Kāinga Ora.
I.e. if you end up getting the maximum $200,000 loan under the First Home Partner Scheme and the home you buy increases in value by 10%, it will cost you $220,000 to buy back Kāinga Ora’’s share of your home.
You aren’t paying interest on this Kāinga Ora portion, but if you want to think about the cost of this debt (as it is debt), then you need to consider the potential increase in the price of a property which translates into more debt for you.
Many people won’t think about the cost of debt because they’ll just be excited by the opportunity to get access to more credit to ensure they can get into their first home.
Of course, many people will hope that house prices just keep going to the moon and when they sell the property, they will buy out Kāinga Ora and pay off the new debt amount from the sale proceeds.
You can pay down the Kāinga Ora debt throughout the home ownership time period too. Just like you pay down debt to the bank.
Apparently, if you use this model, you will need to meet annually with a Kāinga Ora Relationship Manager. They will work with you to review the financial circumstances of your household and work towards the goal of achieving full home ownership.
I don’t know how they are going to scale that by the number of users of the scheme nor how qualified these people will be (i.e. financial advisors) but these are details most of us won’t be too worried about.
This is an interesting ‘scheme’, as many would argue it is just helping people who can’t afford things to get them ahead of time and pushing up the cost of housing, whilst others would celebrate it as an amazing scheme allowing people to achieve the ultimate Kiwi dream.
For further details and a guide from someone who has helped people through the process, check out this link: https://smproperty.co.nz/
The shared ownership agreement with Kāinga Ora is around 30 pages long, so it’s hard to get all of the details into an email. If you are really interested in the nitty gritty, then check this out: https://kaingaora.govt.nz/
Feel free to forward this to someone who it might be useful for.
Luke |
In case the contents of this email are topical, it was first sent on 22nd April 2022. |
[Money Mail 102: L0tto...the great heist?]
It’s interesting how so many parents like to preach the message of hard work to their children but then line up for a L0tto ticket.
We had better not beat up on our parents too much. It's only human nature, we all love a quick win.
But how much of a heist is L0tto? Let's take a fun look at it and get educated.
The odds of winning Powerball (when buying one line) are about 1 in 38.3 million. So you’re dreaming if you think you will win.
But you’re creaming yourself if you do, so I get it.
Fun fact, I once won $1,000 on scratchies on a morning tea break with a mate of mine. We asked for 333 more $3 scratchies. The teller wasn’t impressed. Don’t worry, we took the cash.
Another fun fact: you don’t need to scratch them and get that niggly scratchy stuff under your finger nails or over your carpet. Get the teller to scan the barcode...that’s no fun I hear you say!!
Extra, fun fact. If you buy, say 20 of them (or 333 of them) they can scan the first and the last barcodes and tell you if any in the middle won too. I know a mind-blowing way to quickly see how stupid your purchase was right?
You are probably thinking ‘Wow Luke, how do you know so much about scratchies?’. I wish I could tell you I used to work for L0tto, but it’s probably more obvious that I bought too many hoping for some easy cash. I am human too.
Bloody hell, I was supposed to be talking about L0tto but here I am confessing my sinful lunch time activities when I hated my job and was hoping for a distraction away from the office.
Back to it….for every dollar spent on L0tto, 55cents is kept back for prizes. 23cents is given to the NZ lottery Grants Board and used to ‘build sustainable communities around New Zealand’.
The government sneak about 12cents in the dollar for tax…shock! Even though L0tto is basically a redistribution of wealth from everyone to the winner, the government is still taking a nice cut.
Don’t worry, the winner isn’t paying tax on their winnings. [This is not tax advice…].
But what about us losers who haven’t won the jackpot? What about if we just saved that cash?
I am going to guesstimate that the average spend is probably twenty bucks.
If you invested $20 per week at a 5% growth rate and did this for 40 years, you’d have over $130,000.
Cool story Luke, but I don’t want $130k. I want the Ferrari and the Bach now brother!
Yeah, fair enough. $130k doesn’t sound overly exciting when you are playing for $40million.
But that $130k only really cost $41,600 which is 40 years of $20 a week.
If you can find a 10% return, you’ll be looking at over half a million after 40 years.
Some people play the Wednesday version of L0tto too. Let's say $40 a week for 40 years, compounding annually at 10%, you've got over $1,000,000.
For some of you, it might be time to give up on the L0tto dream and redirect that to your Kiwisaver and enjoy a better retirement.
Enough with the practical tips, let's look at some stats...how many tickets sell? Back in 2020 L0tto said this:
"For a $5m jackpot we'd typically sell around a million tickets...when the jackpot is high[er], more people play, which can see a doubling in the number of tickets sold."
Kiwis love to buy a l0tto ticket. Because I am a geek, I dug into their annual report and found that:
L0tto sales for the year ended 30 June 2021 were $1.508 billion (including GST). These sales were the highest in L0tto NZ’s history and 8.9% up from the prior year. Well sh!t who would have thought L0tto sales would crank during a pandemic!
Geeky extra lesson - the 30th of June is often ‘balance date’/‘year-end’ for government entities.
Interestingly, around 1 in 3 dollars of those sales were done via MyL0tto (online).
Anyone remember the ‘Must be won’ $50million draw in August 2020? Surely some of you bought a ticket because more than 2,000 tickets a minute were bought in the lead up to the draw. Around 2.5 million tickets sold in total.
There were no First Division winners that night, so 10 people each won $5million when taking home Division Two.
I love researching how L0tto are going and often read their annual report (I know…what a life) because I think it has some fascinating insights as to how Kiwis live and how they will say one thing but then do another.
From a business perspective, they’ve had to activate online sales (they now have 1.4million Kiwis registered on MyL0tto) and they would have one of the biggest customer bases in Kiwi business, which gives them a lot of data.
I have no beef with them and am not here to run them down. I am just showing you some of the things you may have always wondered about.
Ultimately, if people want to buy tickets, that’s for them to decide. Like anything, bad things are bad in the hands of the wrong people.
I’m just suggesting you consider the concept of ‘delaying gratification’ and chasing some longer-term gains with the money you’ve worked hard for.
You’re statistically more likely to be handing it to someone else in the community than you are to be towing that boat you can’t drive in the overpriced Ford Ranger you can’t back.
Get real, and aim to get rich for sure, not quickly.
IF you do win…get some financial advice because you won’t want to waste the opportunity.
Right, I am off to buy a scratchie….
Have a winning weekend,
Luke
In case the contents of this email are topical, it was first sent on 29th April 2022. |
Righto how many of you went out and bought a scratchy or l0tto ticket?
Last week's Money Mail was a popular one. Probably due to the fact L0tto is so well known. For those wondering, I had to use a 0 not an o as the s p a m filter picked up the $1.5billion dollar L word.
How many of you went out and invested an extra $20 or $40?
Given that inflation is at record highs (annual inflation has hit 6.9% for the year to March 31), there are probably many of you feeling that it’s impossible to invest or save right now.
I don't blame you, we are in very testing times.
Last week a reader explained how they had always put aside 1% of their income into an investment fund.
They did this to build up a rainy day account. They never stopped putting in the 1% and ended up never really needing the rainy day account. Decades on, they have an entirely different looking retirement.
It’s inspiring how these small decisions we make and commit to over long periods of time can give us a completely different life.
If you’re struggling to make ends meet right now, think about saving 1% or investing the same just to keep your habit going. Don’t give up.
Remember, everything starts with a decision.
Recently, our reserve bank increased the official cash rate by 0.5%, which is very rare but was expected by many. Interest rates from the banks end up going up (most had already increased rates) and people are faced with higher mortgage costs.
If you are a long-term reader of Money Mail, none of this should surprise you as we’ve spoken above the reserve bank, the official cash rate and inflation months and months ago, because it was clear all of this was coming. If you are wondering how we got here, you’ve got some prior reading to catch up on. There is a back catalogue of podcasts or blogs on the website.
As you know, the reserve bank increases the official cash rates to try and slow down inflation.
The USA are looking to do the same. This sent the sharemarket into a bit of a tail spin as higher interest rates can mean fewer profits for companies and big investors can favour other investment types.
The powers that be in the states are talking tough about fighting inflation and doing something to help, so in-turn the markets react.
This is going to be tough for them because today we learnt that U.S. GDP fell 1.4% for the March quarter. The first quarterly fall since early in the pandemic. This is a major turn around from the final quarter of 2021 that saw 6.9% growth in USA the economy / GDP.
Earlier in the year we spoke about how this was going to be a bumpy year for investors and it looks like the rollercoaster is headed for full speed.
If you invest in tech type stocks in the USA you’ve probably seen your portfolio get smashed this year.
So far this year we’ve already seen; new variants, China lock downs, massive NZ protests, war and Elon buying Twitter. This world just keeps bringing us ‘unprecedented’ events!!!
Back to New Zealand and there is a lot of chat around how housing prices are set to drop. Even if they do, it’s hard to see them eroding the entire gains that the finanical settings allowed to occur over the last two years (up to 45% for some).
But that’s no help for those who bought at the top and are faced with high levels of debt and higher interest rates. If I were these people, I’d be watching the Keep The Change ‘more money’ webinar (or listen to the audio via the podcast) to get a wise up on ways to bring more income into my household because the boring ‘buy one less latte’ chat won’t get you out of this hole!
For those of you who are still looking at buying (if it is what you really want), you shouldn’t give up. You need to build a plan as to how and when it will be possible and then work to that plan.
Actually speak to a mortgage advisor and understand the lay of the land plus where you stand.
Don’t just buy into the current narrative that housing is 'too risky' and 'going to crash' etc. Remember 12 months the narrative was the reverse and everyone was looking down their noses at those not heading to an open home on the weekend.
There will be a lot of people giving up right now because they’ve heard or read that ‘’it’s out of reach’’ and that may well be for some, but not for everyone. If you want something bad enough, figure out how to make that happen and how you can sustainably manage that situation.
You and I may well see houses in zoos around New Zealand soon as they seem to be a protected species.
As much as the Reserve Bank can chat about bringing the house price down, it gets propped up everywhere you look. I.e. letting people use their retirement funds (Kiwisaver) to buy a house and the recently discussed Kainga Ora partnership scheme, to name a couple from our recent lessons. Of course, there are a number of elements that impact this market.
As a nation, we say one thing (we want sustainable/stable house prices and enough of them) but we do another; watch the prices get artificially increased by offering early access & solutions to non-affordability.
The housing market will be an interesting watch this year.
Whatever you invested your wealth in over the last couple of years, we are all in for a bumpy ole ride.
A bumpy ride usually means we lose the odd person to car sickness, but together we make it to the other side. This is a chance to learn and to learn about ourselves.
Keep your eyes and ears open because it is literally all happening out there in the world right now.
Have a good weekend - I'll be watching out the window finishing my COVID isolation...it finally got me.
Don't worry, I am ok :)
Stay safe,
Luke
In case the contents of this email are topical, it was first sent on 6th May 2022. |
Last week we learnt that in the United States their GDP growth for the first quarter was actually a drop of 1.4%. This wasn’t expected and the anticipation was that there would be 1% growth.
People don’t like to see drops in quarterly GDP growth. It gets people talking about the R word.
Recession.
Often, a recession is defined as two quarters of negative growth. This is the ‘technical’ definition of a recession.
But more plainly, a recession is generally a decline in economic activity. Fewer people spending and transacting in the economy.
The USA has had one quarter of decline and now we need to wait and see what happens in the April to June quarter.
Us humans don’t really like the thought of recession because we like to be continually growing and moving forward. We are keen to focus on negative news too, so recessions really stick out.
On NZ shores, we may see similar chats firing up as interest rates rise and more people feel the squeeze on their finances.
Around 50% of people aren’t yet feeling the impact of the increasing interest rates because they haven’t gone to re-fix their loans yet.
A number of the wage subsidies have been wound down now and businesses won’t be able to rely on these to cushion the economic downturns like they have with the pandemic downturns.
Credit is getting trickier to access now and obviously more expensive. Homeowners and would-be home buyers know all about this.
During the pandemic, businesses borrowed over $2billion dollars from the government at 0% interest to prop up their businesses. They’ll need to start repaying this and paying 3% interest on this in time (probably cheap now compared to other forms of debt).
Everywhere you look, access to cheap funds is looking harder to achieve.
If we add in falling house prices, we may see the reverse wealth effect where people feel less wealthy, so don't go and get tax-free debt from the bank to buy a spa bath or build a deck.
You can only speculate that all of this will lead to less transacting and less spending by the people of New Zealand and perhaps we will start to see some negative growth in our economy too.
The reserve bank has already acknowledged signs of a slowdown, but has also said that inflation is too high for comfort. They don’t want to take any chances on inflation, so they’ll have to increase rates (they probably should have started sooner, so it's hard to take this too seriously).
This almost sounds like they will be comfortable with negative growth and potentially a recession, so by the time we get there I would expect that we will be told a recession isn’t actually bad and we can all just chill out.
Much like inflation, we will hear that it is a 'global problem' and necessary to return to some form of normal. I am guessing here. Let's wait and see.
The problem with this sort of mentality is we can become blase about these sorts of things and don't alter our actions to get us into a better position. Just because your neighbours don't care about the weeds in their garden, does that mean you should't care about your weeds?
We often teach clients that you can create a recession in your business whenever you like. Stop taking actions that you know work and stop fighting back. Sit idle and do nothing. Wait for the good times again.
Unfortunately, the world doesn't work like this (just read the news for a couple of days) and just like the weather, we go through seasons. You can't control the seasons, but you can control how you let the seasons impact you.
This is no different for you and I. If we just sit around not doing anything and not doing the things we know we need to do, we end up in a rut.
No matter what ends up happening in the economy, you need to remember that you can still control the actions that you take and someone, somewhere will have a dollar to transact with. Again, your job is to figure out who this person is & how you can get them transacting with you.
Have a good weekend,
Luke
In case the contents of this email are topical, it was first sent on 13th May 2022. |
Welcome to Friday!
Last week we were talking about recessions and what they are. We've been looking at prices going up and costs increasing for all of us too.
We spoke about how it can be hard to invest when we are struggling financially and when it is so volatile we get nervy to do so.
This brings me back to investing in your greatest asset...yourself.
For many of us, we give up on learning once we leave school or university. Successful people often reference how important learning has been for their journey toward success.
When I put together the 30 in 30 podcast series, one of the most mentioned podcasts was around investing in yourself.
Investing in businesses and deals seems complicated. It is something that not all of us are familiar with, but I like to remind people to keep it simple.
Start by investing in yourself.
That might be understanding your risk tolerance & your stress tolerance. I.e. you might be the sort of person who needs a rainy day fund to feel less anxious when unexpected events happen.
A rainy day fund is where you put money aside for a rainy day so you know you are covered when it p!sses down. Because it will rain and when it rains it pours.
Or you might be like ‘I don’t need to worry about that, I’d just use my credit card or ask my parents for help’ for instance.
Two completely different approaches and attitudes toward risk / financial pressure.
We are all different and that is why we need to work out more about ourselves.
In the 30 in 30 episode I go through some of the different ways I have invested in myself and explain how they have helped or hindered me.
You can check it out here (it is 40 minutes):
https://open.spotify.com/episode/4La306cuKlVczi6nLiKDYl?si=vwIBcndUQh-64Sm_0aL4VQ
Some of the things we discussed are:
A question for you…do you allocate any of your budget to learning and investing in yourself?
I have a rule that when I see a book that I know I should read, I don't let the price stop me. I know I have wasted $30 to $50 numerous times in my life on things that aren't good for me. I try to remind myself that the knowledge in that book could unlock a new chapter for me, so the $30 to $50 investment has to be worth it.
We often talk to business owners who have a bigger entertainment budget than their education budget and we ask which is more important?
A lot of business owners believe that investing in people is buying them beers and shouting them food. That’s all good and well for some people, but not everyone wants the calories, they want the increased capacity received from learning.
You are no different in your own life. Remember that you are your greatest asset. If you are not spending time investing in yourself, then who do you expect is going to be investing in you?
My strategy is that a bet on myself will pay more in the long run than any company will on the stock exchange.
Here are a couple of extra points to think about which we discussed last time we looked at investing in ourselves.
You may want to upskill yourself in a different area and consider a new career. This is more possible in this day in age than ever before. Of course, this can look unattractive as we think we are going backward compared to staying in our current role or on that path...but where is that path taking you in 5 or 10 years' time?
I hope the podcast gives you some ideas about how you can invest in yourself.
Next week we will be talking budgets and I'm not talking mine or yours, I am talking a BIG budget. The govt will release their budget on the 19th of May. Hopefully, I can provide some insight for you to help you understand it.
Have a good weekend,
Luke
In case the contents of this email are topical, it was first sent on 20th May 2022. |
Yesterday, the NZ government released their budget for the next financial year. Remember the government financial year ends on the 30th of June.
The budget gets a lot of people talking and debating about what should or shouldn’t be there. What is fair and what isn’t? How do we even define fair?
Recently, I listened to a politician speak (I won’t name them as we all may overlay our bias toward that party or politician) and they said something that stuck out to me.
They explained that we need to move away from thinking along the lines of ‘what's in it for me?’ and instead think about what sort of person you want to be yourself and what sort of values we want to live by as a nation.
This is all pretty deep stuff and I'd guess that most people never sit down to think about their own values, let alone a nation's values. We have spoken about values before, so maybe this is why it stood out to me.
In parts of my role, we work with businesses to clearly define the values that govern their business. These values help the business owner with decision making, how to act, hiring and setting standards. There is no reason why we can’t do this exercise individually.
It does seem like a lot of chat recently is centred around ‘what’s in it for me?’. Even articles about yesterday's budget were titled 'The Budget - whats in it for you?'. Naturally, how we think, right?
With an election coming up in 2023, we will only see and hear more of this.
After all, a politician's key job is to look after you and I. Just kidding, it is to get re-elected. Apologies to any politicians reading this. We know you are well intentioned etc etc etc.
What I have noticed is that we don’t stop to ask too many questions either. There has been plenty of chat lately about removing the top 39% tax bracket. I think a lot of people forget that this was only introduced from the 1st of April 2021 so it’s only been in for one financial year.
When this rate was introduced it was thought that 2% of our working population would fall into this new tax rate but they underestimated this by 44,000 people. They’ve collected way more tax than they had expected.
I’ve not seen many people say ‘hey what did we do with all of that new tax? What is that being spent on?’.
Also, as wages have risen, people are moving up tax brackets and consequently paying higher taxes (more on this below).
Yesterday we got a bit of an insight as to what our country will be spending money on and here is a bit of a summary taken from One News updates:
New 'cost of living payment' for people earning up to $70k ($350 administered by the IRD from the 1st of August. The payment will be available to eligible individuals who earned up to $70,000 during the period from 1 April 2021 to 31 March 2022. No need to apply, you'll be paid if eligible. Can't be receiving the winter energy payment(most beneficiaries)).
The fuel tax and road user charge cut, as well as half-price public transport is to be extended for another two months.
Ongoing half-price public transport for community service card holders (I think students can get these).
Urgent new law to go through Parliament to try to get down grocery prices by introducing more competition.
$3.1b for Health NZ over two years, $168m for Māori Health Authority over four years, $191m over two years to Pharmac to buy medicines, 248 new paramedics.
Scrapping rule that denies sole parents on benefits, their child support payment.
Emergency dental grants increased from $300 to $1000.
House price caps for First Home Loans to be removed.
There is something in there for 2 million Kiwis directly as this is the number of people estimated to be eligible for the $350 cost of living payment.
For many, this will be soaked up by rising inflation and increasing interest rates.
If we think about this some more, the tax threshold changes from 17.5% to 30% above $48,000. In the 2022 financial year, if you received a $1,000 pay rise to take you to $49,000, the extra $1,000 is taxed at 30% and you will pay $300 tax on that $1,000.
A number of people have received pay rises as their incomes have increased. For people over $48,000 who did, the ‘cost of living payment’ will effectively refund them just over 1 year's tax on $1,000 of their income.
This would even include a number of people who are on minimum wage and do some overtime.
Hey at least this is something to be grateful for right? Although temporary, I am sure that this will be of great help to some New Zealanders.
For some of you, you may not necessarily NEED it, so perhaps think about how you can use it to speed up your financial goals - i.e. clearing debt or investing. Set calendar reminders ahead of the payments so that you don't miss it going into your bank account and fritter it away.
We can dig into some of these other points in further lessons, but for now...
There is a high chance that this budget isn’t as important as YOUR budget. How the government spends its income is important because it is tax payers (and future taxpayers) money, but YOUR budget is more important.
This week, there will be people who spend more time focussing on the country's budget than they will on their own.
Not you, though you know how important it is to manage your income and outgoings. If you don't take time to review your budget and cash position each month, then why not?
Crush it out there,
Luke
In case the contents of this email are topical, it was first sent on 27th May 2022. |
This week, the Reserve Bank raised the Official Cash Rate by .5% to 2%. This is now a 6 year high for the OCR.
We’ve been over some of this before, so a summary of the basics really quick for you.
OCR: Official Cash Rate
Reserve Bank: A central bank (or the Reserve Bank) is there to protect the value of money, keep the system running, keep prices stable and ensure money is flowing through the economy.
Inflation: prices going up (currently at a rate of 6.9%)
Big dog (Governor) at the Reserve Bank: Adrian Orr.
Inflation target rate: 1 to 3%
The theory is that the Reserve Bank raise the OCR, which effectively sees mortgage rates and savings rates increase.
This means more money for those who are saving as they get paid more interest income and less money for those with mortgages as they have to pay more in interest rates.
The thinking being that the more people have to spend on mortgage interest, they’ll have less disposable income to spend on lattes and fireworks (honestly, you just can’t know what people do in their spare time these days).
Now Adrian (the governor of the Reserve Bank) is basically like ‘you Kiwis need to tone it down and spend less because we need to get this inflation under control’.
Adrian is worried that inflation could stick around and you'll ask for more wages (i've been suggesting you think about this for 18 months) and then the places you work for will raise their prices and the places you spend your money will too. Then you will ask for more wages again. Adrian doesn't want this cycle to repeat as inflation sticks around.
As the OCR goes up, mortgage interest rates will too. The test rates rise too and this is the rate which the banks are assessing you on when deciding on lending you money. ‘Could your budget handle a 7% interest rate?’ for instance. This slows lending down because as rates rise, fewer people can afford debt.
Now for the scary bit. This week Adrian and his team were a bit like The Rock laying the smack down on us kiwis to cut spending and they basically said they would continue to raise the OCR.
"The committee agreed to continue to lift the OCR at pace to a level that will confidently bring consumer price inflation to within the target range," the Reserve Bank said.
Remember the target range is 1 to 3%. This is believed to be healthy inflation. Given that it is currently at 6.9%, we’ve got a bit to do to get there, don't we?
This then gets confusing because last week, when the minister of debt, Grant Robertson, released the budget, he and others were telling everyone that inflation is a global problem and due to overseas factors.
You and I don’t have enough to unpack that today, but I will write about that for you in a couple of weeks and tell you a story about a couple of blokes who walk into a bar…no, it’s not a joke.
This week's forecasts from the RBNZ gave us a heads up on further 50bps (basis point) increases this year and a hint that they will take the OCR towards 3.5% by the end of this year, and 4% by 2024.
This would signal that people really need to be ready for 6 to 7% interest rates on their mortgages. Not good news for recent homeowners who bought in the height of the market or those with a stack of debt.
The Reserve Bank do think Kiwis are well placed to weather the storm, but if you’re anything like me, you’re questioning whether paying $52 for a fresh fade this week was a smart idea (sh!t my ears are cold). We will all be watching our pennies a bit closer over the next little while - perhaps right into 2023.
Thinking back to last week's budget where those who earn under $70,000 and will be receiving $350. Well, if they have a mortgage, that $350 is probably going straight to the bank / interest payments now.
When writing this (24 hours on from the announcement), none of the main banks have raised their interest rates that you and I pay. This suggests that they already had these prices factored into their interest rates. Surely there will be some movement next week.
The RBNZ forecast that inflation will get back to its target zone around the end of 2023. Then they might be able to start exploring OCR cuts again, which may see interest rates decrease.
We’ve said it before, their predictions haven’t been the best, so you just don’t know. This is a crazy time to be alive and you can’t predict what could happen.
What does look pretty certain is that we are not close to the end of OCR increases and therefore rising mortgage rates. This will naturally keep property prices flattening and decreasing.
Adrian was pretty clear that 2% interest rates were a one-off period of history and 'not the norm' and also said that people shouldn't always expect house prices to rise.
Remember recently you read here that around 1 in 2 mortgages are still on old cheap rates and will be coming up for ‘re-fixing’ this year where they will have to lock in a new, more expensive rate. This has a huge impact on household disposable income and tough choices have to be made.
I had a client mention this week that their 24month fixed mortgage term was about to finish and that 2.69% rate was now going to be closer to 5.5% when they re-fix it.
Sometimes, with interest rates, we don't want to play the game of 'the best rate', we want to chase certainty so we know exactly what we are paying and for how long. Then we can budget for it.
Hopefully, you are getting the hang of this OCR thing now. Perhaps we can explore it when they raise it again in July. We also get some new inflation numbers in July too.
I could be completely wrong, but my hunch is that the RBNZ crew are raising interest rates quickly so that if we head into a global recession, they can decrease rates again and actually have some wriggle room. Could be wrong, could be spot on. I guess we will find out later this year.
I told you to buckle up at the start of this year. I hope you did. We are only heading into June.
The end of the month signals a great reminder to review your cash incoming and outgoing for next month as well as work through your financial position. If you have a mortgage with a rate change coming up, you really need to be budgeting for the impact on your outgoings.
If you don’t have the KTC templates, sing out. Or hit this link & go to 'Financial Position':
https://drive.google.com/drive/u/1/folders/1djmETm-76k4gEwb9EupQ_Hx0x4BtGT0Y
Have a wicked weekend,
Luke
In case the contents of this email are topical, it was first sent on 3rd June 2022. |
It is no secret that inflation is here and it is ugly. We are being told that it is due to things that are out of our control. Mostly international factors and supply chain disruptions.
"They (New Zealanders) can see the war in Ukraine, they've heard about the supply chain constraints…’’ - Grant Robertson.
Inflation is raging around the world. Especially in those countries who put a lot of money into supply during the pandemic.
"This is a global phenomenon. It's driven by supply chain constraints, the impacts of Covid, the war in Ukraine. Everywhere around the world, we're seeing this. The UK and the US are up over 8 percent now. So, this is something that the whole world is dealing with."- Grant Robertson.
Basically, nothing we have done has caused inflation by the sounds of that?
So, I thought I might tell you a story…
A man (Dan) walks into a bar and tries to order a beer. The bar person is busy on homes .Co.nz checking their house price. The bar person excitedly tells Dan that they have made more today from the house going up than the wages earnt pouring beers.
Shocked, Dan checks his own house value and notices the same thing. Dan then decides to order two bottles of champagne instead of two of the usual; lion red crate bottles.
30 minutes later, Dan’s friend turns up late.
‘Sorry mate, I was at the bank securing some finance for my new deck and spa pool we are getting put in. Anyway, who the fook ordered this champagne?’.
Dan says ‘It’s ours, haven’t you seen house prices?’.
His friend says ‘Bloody oath maaaate that’s why we’re building the deck!’.
15 minutes later, to their surprise, their tradie mate rolls in: ‘Lads! Keen for another bottle of the good stuff?’ And proceeds to pay in cash.
Dan chips in with the classic gag; ‘What are you doing here? Isn’t there a housing shortage for you to sort? And where the hell did the cash come from?’.
The tradie says ‘Oh this client of mine, he’s creaming it, so pays me in cash’.
The lads are intrigued ‘But where does he get his cash from?’.
The tradie says ‘I think he’s in the stock market but don’t ask questions, right fellas?’.
The tradie doesn’t stay long and mentions ‘I’m off to pick up some new tools & materials with my new Ford ranger’.
The lads joke ‘Suppose you’re paying cash?’.
The tradie isn’t having any of that banter and says ‘Pfft don’t be silly, didn’t you see the government lent out cash to businesses at zero percent? About $2 billion in total, they reckon’.
The tradie arrives to pick up the tools and Jane behind the counter says, ‘You’re just too late sorry, another tradie just bought them and was willing to pay 20% more than you’.
The tradie says ‘I know him and he can’t afford that. I know he hasn’t paid his PAYE for months’. Jane says ‘Well he mentioned something about a resurgence support payment he had to spend. Oh and also, his Dad was with him and paid the difference, he has rental properties apparently’.
The tradie is fuming so, jumps in the Ranger (he was able to buy this on asset finance with a small deposit) and heads to a supplier down the road: ‘Oi Gemma! Give me everything you’ve got and more. I’ll pay a premium too, especially if you’ve got any spare gib’.
‘You beauty’ says Gemma, who then says ‘load it up yourself. I am going to a house auction’.
The tradies says ‘Sweet Gem let me know when you need a deck built!’.
Gemma laughs 'Haha we'll need to get one first. The damn parents of the millennials keep bidding up the prices of the houses we are trying to buy'.
Meanwhile, the lads from the start of the story head home to their partners. Dan gets asked ‘Why the hell were you at the pub posting bottles of champagne on instragram you ponce? We have the kids Xmas presents to buy’.
Dan is bemused at his partner's tone. ‘Don’t worry hon, I’ve got this sorted. I extended the credit card. The bank extended it because of the house price!’.
Dan’s partner says ‘But you’ve been on the wage subsidy for 6 weeks?’.
Dan says ‘I know right. Ben the barber told me they got one too and they'd been on a wage subsidy for way longer than me! I thought I would try our luck and bingo, I love the bank. Such GCs! Oh and wait until I tell you about this after pay thing I signed up to for us’.
Then Dan’s parents come around with a bottle of red. Luckily, Dan has sobered up from the pub but he’s still a little tipsy.
‘What’s that cheap sh!t Papa? Go and get a bottle of the good stuff out of the pantry’.
Dan’s Dad says ‘Haven’t you heard we could be headed for inflation my son?’.
Dan looks up from his Sharesies account on the iPhone he financed through Spark and bites back ‘Grow up Dad, I was at the pub and a fella there called Adrian reckoned it would be transitory anyway’.
This story may or may not be made up of true events. It is, however set before the invasion of Ukraine and when all of the above mentioned were paying close to $3 a litre for petrol.
Remember from last week that the inflation target in New Zealand is between 1-3%. In the June quarter of 2021 it was 3.3%. Then to September 2021 it was 4.9% and, to December 2021 it was 5.9%.
There we have it. Sure, we have some global factors, but remember that there was a lot of access to credit for quite some time. That meant more money was chasing fewer goods. Some of this money was created out of thin air too. Perhaps, just perhaps, this makes up some of our inflation too?
If the powers that be can’t identify (or be honest) about the causes of inflation, how do you think they will identify the solutions?
To be fair, if you were in charge you’d probably do the same. It’s classic below the line human behaviour that we are all guilty of at times:
Blame - ‘the war overseas did this’
Excuse - ‘it’s a global phenomenon’
Deny - ‘it’s transitory, it’ll blow over’
You need to think about what you can do to protect yourself and your family.
- Review spending
- Review your debt levels and interest rates on that debt
- Review your RELIANCE on afterpay/finance cards
- Review your mortgage interest rate exposure
- Explore opportunities to make more money
- Ask loved ones how they are coping & if you can help
- Look after each other out there,
Luke
In case the contents of this email are topical, it was first sent on 10th June 2022. |
Last week's story was a popular one. Thanks for the emails, messages and even a phone call!
It has been a long time since we looked at the average Kiwi income, so this week I thought we would do that.
With the minimum wage rising year after year, inflation baked in for 12 months now and people asking for pay rises, we’ve seen an increase in the average income in New Zealand.
Some people get really picky about this and start talking about medians, means, averages, worker averages, non-worker averages etc etc etc.
Let’s ignore all of that and base the below off what I believe the median income from earning a salary or wage will end up being in New Zealand when new data is released.
For some context, some people believe it to be around $56,000. Immigration New Zealand said it was $53,040 back in February 2020 (we have had 2 minimum wage rises, a tight labour market and inflation in that time).
The median New Zealand income is changing quickly due to the economic circumstances we have explored many times already.
I believe we are heading toward a median income for Kiwi workers of around $59,000 so let’s work through that:
Income
$59,000
Less: Tax + ACC
$11,581.40
Less: Kiwisaver 3%
$1,770
Leaves You
$45,648.6
$45.6k to last you 52 weeks. This is around $875 per week.
What about our costs?
This includes things like: rent (or mortgage repayments), power, phone, internet and insurance, fuel, food, miscellaneous items, kids' activities, school fees and daycare, vehicle and pets.
What about the extras?
Paying down debt. Savings - we save some money, right?, Holidays, birthdays, Christmas, things like doctor and dentist visits.
Got a student loan?
We haven’t even factored in the 12% student loan repayments for a degree in the above figures. If you have a student loan, on an income of $59,000, you'd be losing around $4,527.84 to loan repayments.
Don’t forget the latest season's clothing items and the new iphone right?
With costs increasing so quickly (remember that compared to 12 months ago, Kiwis are spending on average an extra $4000 to $5000 on general spending like food, rent and petrol), it is no wonder that many Kiwis are living paycheck to paycheck.
OR Kiwis are relying on get now pay later offerings to give themselves a bit of extra room in their budget. Last week's 'did you know' revealed that 8.9% of people are behind on their get now pay later finance solutions.
Don't be the next person to increase that percentage. Try to remove your reliance on extra credit as a form of extra income. It gets expensive!
Now to cover the extra $4,000 to $5,000 on general spending, after tax and kiwisaver, we need around another $7,000 in income to cover those expenses, after tax.
I.e. if you were being paid $52,000 12 months ago, but are now being paid $59,000 this year, you probably don't feel any further ahead as your after-tax pay rise is mostly being soaked up by the increase in costs over the course of a year.
$52,000 after tax, ACC and 3% Kiwisaver becomes; $41,060.80
$59,000 after tax, ACC and 3% Kiwisaver becomes; $45,648.60
To explore what a gross salary (before tax) looks like once you’ve paid tax, you can play with this tax calculator here: https://www.paye.net.nz
I often use this calculator with clients when working through their expected income & tax for the financial year. You can even factor in student loan repayments and increased Kiwisaver amounts.
Activity
- Have a think about what a large salary is to you?
- Use the above calculator to check what that income level is after tax
- What is your income goal and has today’s Money Mail made you question it?
- Start to think about how you might be able to add income to your life
Be good,
Luke
In case the contents of this email are topical, it was first sent on 17th June 2022. |
Last year, I got asked by someone if they could have access to Keep The Change night school. They explained that they would struggle to pay for it.
I offered free access in return for a piece of feedback each time they worked through a chapter of the night school.
This would allow me to see what people were learning from the material and what I could improve or explain better.
During the process I got a number of emails and I could tell that night school really got them thinking and they were taking this seriously, which impressed me.
A few weeks ago, I was about to have some dinner before going back to work to record the KTC podcast when I got a call from an unknown number. Side note here: I know that a lot of younger people seem to sh!t the bed when they get a phone call from a random number.
‘Who is it? OMG it’s scary’. I don’t know who taught us this, but it seems odd. We’ve let ourselves get to the point of being scared of who’s on the other end of a phone call.
I flip it and get excited and look at it as ‘who could this be?’, ‘could this be the opportunity i’ve been waiting for?’, ‘I can deal with any phone call that I get’.
99% of the time it won’t be that exciting, but hey why be scared of an unknown number? Back yourself, pick that sh!t up and if you don’t want to talk to them just explain that you thought it was someone you expected a call from and you don’t have time to talk right now.
Back to my call…it was the person who had been given access to keep the change night school last year.
They wanted to explain how they had paid off not one, not two, not three, but four credit cards!
They’d JUST cancelled the final card. They even had an emergency savings account set up for the first time ever also.
Simply, they wanted to ring and say thank you.
The content helped them see that their relationship with money needed to change and the relationship they were in also needed to change.
Sometimes we have to find alternative solutions because we can’t just magic up 4 less credit cards without sacrifice.
This person had to first review their spending in order to cut some spending. They also had to go home to their parents and explain the situation they were in. The parents were willing to help, which is amazing, and I can appreciate not everyone will have this option.
What they would usually spend on rent they could now pay off credit card debt. That’s exactly what they did and their parents effectively monitored this.
You may not be able to move home, but perhaps you can move in with a friend. Do 6 months house sitting. Do something to bring your living costs down.
OR maybe you’re in a position where you can have a boarder at your house to bring in some cash.
During the process, our night school graduate realised that over time they had spent over $7,000 on interest and credit card fees, which was the total value of the 4 credit card debt also.
Credit cards can be killers when they are working against us and can very easily get out of control.
Perhaps it’s time to think about one thing you want to tidy up when it comes to money Jade?
Maybe it's time to ask for some help or start googling how other people have solved similar problems. Ideas are great to get us started and then we must do the work.
Maybe you want to level up your financial knowledge and work through KTC night school. It’s currently free and you can access it here to learn more:
KTC Night School: https://www.
Apologies if it asks you to enter your credit card details but it won't charge you anything, the product is set to $0.
Before you go, I know a few of you love your economic learning and I have a video for you to watch this weekend.
It has over 14million views in only 3 months. It's from the legend Ray Dalio (billionaire, world's largest hedge fund) and will help you understand what is going on out there. Head's up: it isn't pretty but hey you're a realist Jade.
Check it out here:
https://youtu.be/xguam0TKMw8
Have a learning weekend,
Luke
In case the contents of this email are topical, it was first sent on 24th June 2022. |
With the recent market volatility, it’ll mean plenty of us have a lot less left in our Kiwisaver accounts than even just 6 months ago.
I’ve been regularly contributing to mine and every month when I take a look, the market's retreat is basically eroding my contributions.
Of course, I can't access mine for 30 odd years, so the above doesn’t mean too much.
But it will for some of you who are planning to buy a home and use your Kiwisaver.
If you are thinking of using your Kiwisaver to buy, you hopefully learnt from earlier Money Mail lessons to consider having your fund in a cash portfolio so that the market fluctuations don’t kill it.
If you haven’t thought about this, you need to speak about this with a Kiwisaver expert ASAP.
A huge number of first home buyers empty their Kiwisavers to buy their first property.
Let's take a look at how common that is and the impact it has on balances.
In the year to June 2021, nearly $1.6 billion was withdrawn from KiwiSaver accounts to buy a first home. In the year to June 2020 just under $1.2billion was withdrawn. A fairly large increase as FOMO took hold of the housing market.
As the housing market has cooled off a bit and with interest rates increasing, I would guess that to June 2022 it might end up being between $1.1billion and $1.3billion.
We spoke about this very briefly recently when funds that had originally been earmarked for retirement have now been allowed to be withdrawn to buy property. Billions of dollars out of retirement funds into housing, effectively pushing the price of housing up.
New research conducted on behalf of the Retirement Commission found that these withdrawals had a massive impact on future balances for young Kiwis.
We’ve learnt about compounding and as this money is taken out of Kiwisaver, it can’t compound growth year on year and, over a long time period, this adds up.
The research suggested that Kiwisaver balances are only a third of what they could be for people who had withdrawn to buy a house or failed to contribute consistently.
From the Retirement Commission: The average KiwiSaver balance is $29,022. The findings also reveal 40% of KiwiSaver members have a balance of less than $10,000.
• 19% of those with less than $10,000 are aged 17 and under
• 24% of those with less than $10,000 are aged 18-25
• 22% of those with less than $10,000 are aged 26-35
• However, 21% of those aged 51-65 also have less than $10,000 and they may not have saved as much as they would have liked for their retirement.
It’s bumpy out there for us Kiwisaver contributors and this is a good reminder to ensure your Kiwisaver matches up with what stage of life you are at.
For some of you who don’t contribute, it might be time to ask yourself why you don’t or why you stopped? Have your circumstances changed?
Don’t leave your retirement responsibility in the hands of others. Get it sorted whilst you have years to do so.
For myself personally, I reviewed my own Kiwisaver during the week and made some changes. I have also asked myself the question of whether I should voluntarily contribute more in these volatile times and thank myself for doing so in 30 years' time.
Kiwisaver is a great forced savings plan which doesn't allow you to be tempted to dip in. Once it's in (for me), it's riding the market for at least another 30 years.
Remember that you'll want to have contributed $1,042.86 to your Kiwisaver by the 30th of June. This will mean that the government will contribute a 50% return on this being $521.43.
Right now, it's pretty hard to get a 50% return out there. You can check your contribution by logging in to your MyIR portal and selecting Kiwisaver contributions.
Don't forget, Adam's team at Compound Wealth will help you if you get stuck with your Kiwisaver.
https://www.compoundwealth.co.nz
Keep The Change is now on Tik Tok - you can follow here:
https://vt.tiktok.com/ZSdc9BXLw/
Be safe this long Matariki weekend,
Luke
In case the contents of this email are topical, it was first sent on 1st July 2022. |
An early one this morning as I wing my way down to Wellington.
I am speaking to 250 Year 11 lads at Wellington college regarding finance and life lessons.
I thought I would try and summarise my hour-long presentation into bullet points for you. This will give you an idea of what I will be covering. Here goes:
How the progressive tax system in New Zealand works (including tax rates) and what the median income is after tax. We will go through some examples of after-tax income to see what is left after tax and Kiwisaver.
What Kiwisaver is and how it works over a long period of time, as well as the ability to use it to buy your first home.
Credit cards / BNPL / Consumer finance - the 7th wonder of the world for those people who need to get now and worry about it later. We’ve all fallen into these traps so I will outline how to avoid them and how they keep you from hunting other opportunities.
Investing and saving - what is the difference and why start in the first place? I have a great slide on Warren Buffet's wealth accumulating over time to show the importance of compounding.
The current economy of NZ - this could put them to sleep so I will need to sexy up inflation, helicopter money payments (cost of living) & all things global right now.
Life - it will come for you, embrace it. This is a blank slide because I don’t know what troubles these young men will face, but it is GUARANTEED that life will throw some curveballs and how they deal with those will determine outcomes in other areas of their lives. I will share stories of death and sudden life shocks as well as how to react to those.
Confidence and self confidence - something I see people struggle with every week. Somehow, we’ve not learnt how to be confident and how to train ourselves to be more confident. You might not make the first 15, but that doesn’t mean you don’t matter and can’t change the world. Failing doesn’t make you a 'failure'.
Visibility is a fake metric for success - want to be an influencer? Cool story but their lives probably suck at times too. Stop getting caught up in comparison to how other people are living their lives on social media.
You are powerful - don’t give it away. When we grow up, we get taught we can be whatever we want to be. A fireman or firewomen, an astronaut. BUT somewhere along the lines, we get taught we have to be practical and ‘you can’t do that’. Fook that! We will discuss doubt and fear and how our upbringings can be a place of strength and inspiration, not a reason to not try.
Some hacks that may help - being grateful, setting goals and reminders, recording affirmations, asking questions and having cold showers (train yourself to do what you don’t want to do).
A reminder that the country needs these lads to step up and go on to contribute, lead, dream, entertain, think, create, produce etc. Get after it!
That is a pretty high level overview of what I will be covering today and no doubt some of them just don't’ care, but hey, maybe in 10 years' time, 1 of them will say ‘I remember when you came and spoke at school’ and that’ll make it all worthwhile.
Remember we can’t help everyone because a lot of people don’t want to be helped. But I believe we should try and help those who want a nudge in the right direction.
Speaking of a nudge in the right direction, I made a video for Tik Tok about how to look up if you are owed unclaimed money. You can watch it here: https://vt.tiktok.com/ZSdKs4yRg/?k=1
It racked up over a quarter of a million views and so many people googled 'unclaimed money' that on Wednesday, if you only typed in 'u' to google, it suggested that you wanted to search for 'unclaimed money IRD' as the video had explained to do.
The IRD probably hate me (more) now. My bad!
Enjoy your weekend. Go the All Blacks, go the Warriors.
Wish me luck,
Luke
In case the contents of this email are topical, it was first sent on 8th July 2022. |
Firstly, thanks to all of you who dropped me a line last week or left a comment. It was really cool to spend some time back at a school and just see how things look these days. A brief visit but great to be able to help out in a small way.
I don’t think any of the year 11 boys fell asleep but I did have to give a couple a little mid-speech tune up. Plenty of the boys were interested but plenty were unsure about it all too. This is life at that age and pretty representative of all ages, not just young men.
Onto this week and we are now 6 months into the year and we have a very different year than last year.
Here are a few things we are hearing:
🔹 We are headed for a recession - we could already be there as we’ve had two quarters in 2022 but we don’t have the confirmation for the second quarter (to 30 June 2022) that it was a negative growth quarter that will make it an official recession.
🔹 Google trends tell us there are massive searches for the term recession, so it is deep into people's thinking.
🔹 Business confidence is at the lowest level since 2020. 62% of respondents to a survey think that conditions will deteriorate in the coming year compared with 34% in the previous survey.
🔹 The average value of NZ homes has declined by $24,491 over the last 3 months. Average values in much of Auckland declined by more than $100,000: CoreLogic. Remember, houses were up 45% on average over the last 2 years.
🔹 The Reserve Bank is set to raise the Official Cash Rate to tackle inflation further this week.
🔹 People are falling further behind on their Buy Now Pay Later schemes.
🔹 People are increasingly behind on their consumer credit cards too.
🔹 ASB thinks inflation will be around for longer than other officials predict.
🔹 The government are having to distribute helicopter money to help people with the cost of living.
I can’t keep going because it sounds too ugly. However, reading that, you would have to say the tide really has turned on the economy since Christmas time.
Interestingly though, on the weekend I noticed that The All Blacks game was sold out and The Warriors game was too. Weeks earlier, the Super Rugby final was sold out and the Tonga vs NZ league game was the same.
People are still out and about and trying to live their lives. Us humans, we love hope and we love to have things to look forward to.
This is a good reminder for us that all of the data can point one way, yet people still want to get on with it and that's what I encourage you to do. I am not talking about spending for the sake of spending or spending money you don’t have.
I am referring to continuing to invest, find ways to save, think about extra income, continue to look after your health, to be happy, to live, to learn, and support those around you.
Give yourself something to be excited about and have hope for. I recently booked a trip to America that I have been planning for years and although it is a year away I am finding myself getting excited about it and thinking about it.
You see, the huge narrative risk we have around all of the above data and a potential recession is that when the data comes out and the ‘BREAKING NEWS’ articles tell us we are in a recession, it could have already been here for months.
BUT, people will freak out and they will stop and that is where we have a self-fulfilling prophecy of people living in the narrative, making it worse.
We don’t know yet whether we are DEFINITELY in a recession or if we are, how long it will go on for, but for some people they’ll live it in their heads by choice. This is something we all need to be careful of.
Analyse the real risks to your own situation instead of getting lost in all of the headlines and new data points.
We should never waste a recession. Mikey (mortgage advisor) from Guardian Smith and I recently sat down and discussed this over a 2 part podcast chat. You can find the first podcast here:
https://open.spotify.com/episode/6iM8tq2Y7AzGUn6V9rqTPz?si=b72wV-KnQ8et-CoANOlPzw
Remember last weeks Tik Tok video about how to look up if you are owed unclaimed money? You can watch it here: https://vt.tiktok.com/ZSdKs4yRg/?k=1
Well, it ended up being the talk of a few radio stations and even Fair Go did a piece on it. Especially for those people who previously had bonus bonds (we talked about this ages ago). Check it out!
There is also $130million unclaimed by Christchurch residents whose insurance claims after the earthquake were underpaid. More here:
https://www.1news.co.nz/2022/07/07/money-from-heaven-130m-of-chch-earthquake-insurance-unclaimed/
Have a great weekend,
Luke
In case the contents of this email are topical, it was first sent on 15th July 2022. |
Last week I was skimming through LinkedIn and saw a post about a store in Porirua, Wellington, where everything is FREE!.
Say what!?
The Founder Dee Glentworth setup a store called FreeForAll with the aim of reducing the amount of perfectly good household items going to the landfill.
From the FreeForAll website: ‘’More than half of New Zealand households send items to landfill that could still be used, resulting in up to 75% of landfill being made up of usable items…it is crazy that thousands of Kiwis go without the most basic household essentials, including clothing, furniture and toys yet these are the very things that are being thrown out’’.
‘’FreeForAll partners with local community groups, schools, businesses, op shops and the community itself to save household items from landfill and redistribute them to the community. We are reducing waste while supporting everyday New Zealanders’’.
Check it out here: https://www.freeforall.co.nz
This will be a gamechanger for some people in the area as, for a $5 entry fee, you can take as many items as you want or need.
FreeForAll has the vision to be in every community across New Zealand, which is a huge ambition but something you could see it happening over time.
It’s always amazing to see what can be achieved by someone who looks at a problem and then decides to do something about it.
New Zealanders really get in behind these sorts of things too and corporate partners have offered financial support as well as everyday Kiwis donating.
On the theme of recession busting tips after last weeks edition, I have another resource for you.
This week we've seen
🔹 The Reserve Bank increase the OCR by another 50 basis points or 0.5%
🔹 USA inflation is at highs not seen since 1981 (it's over 9%)
🔹 ANZ believes upcoming NZ inflation will be announced at over 7%
🔹 Household net worth fell by $42billion (1.7%) during April to June quarter
🔹 NZers spent nearly every dollar earnt in this last quarter
So one smart New Zealander from the Bay Of Plenty has made up a cheat sheet on how you can analyse some of your life costs and potentially save some money.
It is available in a pdf download which you can open here:
https://drive.google.com/file/d/1UvLIoJA2s1mfhkB_y7wTPC0-ZL8HFZGe/view
Note, this is not my work but I rate it highly!
The Tik Tok video on unclaimed money is the gift that keeps on giving. Stuff have now done a story which you can read here:
https://www.stuff.co.nz/business/129244292/my-guide-to-how-to-get-your-unclaimed-money-from-inland-revenue
The IRD are definitely going to hate the enquiry they are getting...whoops!
Before we go, 6,000 readers, outstanding. Welcome to any recent readers.
I have also been making short videos on Instagram to get people thinking. If you don't follow KTC on Insta, you can watch them here: https://www.instagram.com/keepthechange_nz/
Have a winning weekend,
Luke
In case the contents of this email are topical, it was first sent on 22nd of July 2022. |
In August, September and October, the government will be paying a total of $350 to around 2.1 million kiwis who earn $70,000 or less.
This is based on the individual gross income received in the 2022 financial year (ended 31 March 2022) and not calculated on household income. I.e. a family of 4 all working, earning less than $70,000 may receive 4x payments - 1 each.
A bit more on the criteria, as I know some of you will ask instead of looking it up :).
You:
🔹 earned $70,000 or less in the period 1 April 2021 to 31 March 2022
🔹 are not entitled to receive Winter Energy Payment by receiving the NZ Super or a qualifying benefit from Ministry of Social Development (MSD)
🔹are aged 18 or older
🔹 are both a New Zealand tax resident and present here
🔹 are not in prison or deceased.
Now, let’s get geeky and think about this $350 which you don’t pay tax on. If we were to put 30% tax on it (this is the tax rate people earning above $48,000 pay), then this is like getting a $455 pay rise.
What is that as a percentage of income:
🔹 $48,000 earners getting an extra $455 is a 0.94% pay rise
🔹 $70,000 earners getting an extra $455 is a 0.65% pay rise
The Reserve Bank of New Zealand told us this week that inflation is currently a naughty 7.3% which means our money is buying fewer goods and services.
A less than 1% pay rise is going to help a lot of people and give them a boost, but it’s not really going to tackle inflation, is it?
If anything, this is a sexy sugar hit over 3 months to keep people spending and keep our recessionary risk a little further at bay.
I will go on the record and also say I believe this is a trial to see how this goes. This won’t be the last time we see a payment like this.
80% of people will probably spend this money on whatever they want and hey, that’s up to them. BUT I know some of you will be thinking ‘hmmm what smart thing could I do with this money?’.
Here are 5 practical things you could think about doing with your payment. These are designed to get you thinking and you may have smarter ideas. They are also not financial advice.
1. Invest the money. Finally, set up sharesies or hatch? Invest it for your children or your future self.
2. Buy bitcoin? WTF Luke! I know, but seriously, this is what millions of Americans did. If you’ve wanted to learn how that process works without risking your money, you’ve now got a free shot with $350. Sure, it could go to $0 but at least you’ve satisfied that itch and learnt along the way.
3. Use it to educate yourself. Start a side hustle. Buy books. Buy a course. Get a new professional photo done for socials / LinkedIn. Update your CV with a copywriter. Make yourself more valuable with the money.
4. Pay off some debt? Boring but practical. See you later BNPL. See you later credit card. Be wise and kill some debt.
5. Kiwisaver contribution. Slam it in there and let the market take it for a ride until you are 65 or buying your first home. A future you may thank you for it.
BONUS: ever wanted a Koru membership or something similar?
You hate the 5 ideas above and know deep down you’ll spend it.
Maybe pool it with your partner and use it to buy something you’ve previously thought to be too luxurious?
Pool it & become a Koru member for 12 months and every time you and your partner fly, get to the airport early and eat and drink as much as you can - you do you.
This email was designed to get you thinking about what to do with this money because it’s going to be coming very soon.
Set a calendar reminder to remind you to check your account throughout August, September and October and make sure it doesn’t just evaporate into day to day spending.
Have a brilliant weekend,
Luke
In case the contents of this email are topical, it was first sent on 29th of July 2022. |
When I grew up, my parents taught me that property doubled in value every 10 years.
Judging by this graph below, they were pretty right.
Just over 10 years ago, I started my first public practice accounting job. In that decade I have seen a number of changes to the property rules which, I think, over time, will have an impact on the value of houses.
MOST of these changes have been designed to decrease the appeal of a rental property as an investment. Some of the major ones have only been implemented over the last few years and are still being implemented.
When I first started out in accounting, it was the most fashionable time to have a rental property because people could literally game the system in the following way:
Have a rental property with a lot of debt stacked against it (using equity in their own home to secure rental lending) and claim something called depreciation on that property.
Depreciation is a non-cash expense that reflects an assets value decreasing. This was based on a percentage of the house value.
So people (Sally & Bob) would have a rental statement looking something like this:
Rental income $20,0000
less Expenses (accounting fees, bank fees, depreciation, insurance, interest expense, repairs, rates, travel (for inspections of course). = say $40,000
That means they made a loss of $20,000 maintaining their rental property for people to live in.
Sally and Bob would put a $10,000 loss into each of their tax returns and this would offset their PAYE income, meaning they’d get a nice refund as they'd paid too much tax.
Sally and Bob would use these 2 refunds to pay down the mortgage or repair the property. Repair the fireplace or curtains, for instance.
The key point here is to REPAIR the rental property and not improve it. As the repair is a tax-deductible expense, you can add to your expenses in the next financial year, isn’t it? Yes!
This repair would ‘without knowing’ (wink wink) increase the value of the property. If Sally and Bob were to sell the property (in a system where houses always increase - see graph above) they’d also make a capital gain on that rental property and not pay tax on that gain.
If Sally and Bob were smart they wouldn’t sell but they’d get another property and rinse and repeat the above.
OK, now you can see why property was so sexy.
Shortly after I started out in the big wide world (2011) of talking rental properties with clients, the rules got rid of claiming depreciation as that made no sense when all properties go up in value.
That was one expense gone. Note: you can still claim depreciation on the chattels of a rental property, so rental owners often get these valued.
In 2015, the rules changed again, kind of. They said that if you sold your rental property within 2 years, then you’d be paying tax. These were called 'bright line rules'.
But these rules didn’t do jack because people had been buying to hold for 10 years, weren’t they? That’s what their parents taught them to do!
These rules were subsequently extended to 5 years in 2018 and then 10 years in 2021. 10 years is more like it isn’t it? These rules exclude the family home, some new builds and a few others - always get advice when selling.
The bright line rules were there to make some people pay tax on gains on rentals. And they have captured a fair few people's sales and therefore tax.
Now, I need to take you back to 2019-2020 where new “ring-fencing rental losses” came in. This means deductions for residential properties are ring-fenced so they can only be used against income from that property.
In other words, from the 2019-20 income year, new ring-fencing rules mean people cannot use rental losses to offset other income like salary and wages.
No more putting the losses in ole Sally or Bob’s tax return to get a refund to repair the property. Daaammmit Sally and Bob said to their accountant.
This was actually a pretty big change because the loss would just carry forward to more profitable rental years.
Now another big change in 2021. Remember our expenses above? Well now we’ve said to Sally and Bob that you can’t be claiming your interest as a tax-deductible expense going forward as it will be fazed out.
For residential rental property purchased on or after 27 March 2021, interest cannot be claimed as an expense from 1 October 2021, unless an exclusion or exemption applies.
This is the first year of completing sets of rental accounts (in the 2022FY ended 31 March 2022) where people aren’t able to claim 100% of their interest expenses. People can still claim a % but it is being decreased over the next 5 years. Any loss is carried forward.
In 10 years, I've witnessed some pretty major changes to rental property tax rules. The major ones are only really a couple of years old, so they will take some time to have an impact.
Whether these will slow down the excitement of investing in rental properties is yet to be seen in true data, but the rules of the game have changed and the ‘property doubles every 10 years’ chat may still be a thing due to other reasons (kiwis obsession with home ownership and 500 likes on social media when you buy a home) but the benefits of rental investing aren’t there like they were 10 years ago.
Of note is the fact that interest rates are a lot higher now and debt levels too. Buying a rental now has fewer tax incentives attached to it, but it’s also harder. Losses (higher interest) will be larger and servicing of debt harder. You may be able to use those losses (carried forward as we learnt) to offset any gains triggered when selling (under the bright line rules).
This email isn’t to tell you property is a bad investment, it is to teach you that, just like sport, the rules can change.
You may not like tax and accounting, but you need to understand the rules that govern the sport of property because, for a long time, it has been Kiwis favourite.
There are always fine details with any tax situation, so don’t treat the above as tax advice or email me to tell me I forget to mention some minuscule rule people wouldn’t have cared about.
For younger people, the next time your parents ask you why you haven’t bought a house yet, ask them why didn’t they buy 3 given it was stacked in their favour and they all knew they’d double every 10 years?
I hope that this has given you a good understanding of property changes over the last 10 years. There are more but this will get you thinking about the key changes.
Mikey and I sat down and recorded a podcast on these rules plus some other things pushing back against housing and you can check that out here:
https://open.spotify.com/episode/64NIicwSn6eEgbXQx2Y3BN?si=mSEdpmBaT4SyktnrVDMl7
Point to ponder: over the last few decades, real estate and mortgage advisory have been great careers to get rich in. The income for both of these roles is based on a % of the property sale or the debt needed to finance one.
Because house prices have increased faster than the cost of living (food, housing etc.) these people have been able to get ahead faster than other jobs. Of course, you still need to be good at it.
Finally, property values as per that graph above look exciting, but remember what underpins them. DEBT! House prices have gone up, mortgages to buy them have too.
Have a proper(ty) weekend. Poor Dad joke.
Luke
In case the contents of this email are topical, it was first sent on 5th of August 2022. |
Last week's lesson was a real cracker, as property lessons always are. Who knew so many people were interested in property tax rules?
This week we are going to look at the latest fad out there 75 hard. I haven’t done it and don’t want to trigger those people who have.
For those who don’t know, 75 hard is a worldwide fad where you stick to a diet, don’t drink, have no treats, workout twice a day and drink 4.5L of water each day. All of this for 75 days.
It doesn’t take a genius to realise that triggering these people would be a dumb idea, as the 3% who make it through are ripped beasts ready to karate chop my face off after they've finished their 2nd work out for the day and put away 4L of water.
How do people get into this stuff? It’s simple, right…people are looking for a transformation.
They are at point A and want to go to point B. Everyone’s points A’s and B’s are different.
These types of programmes / fads work for a lot of people, BUT a lot of people just won’t make it through.
The truth is, a transformation doesn’t need to be hard and take 75 days. It needs you to identify a pattern that you’re in and say ‘fark this, I’ve had enough. I am changing the pattern’.
What I like to call a circuit breaker. 75 hard seems like the latest circuit breaker to grab onto.
The problem is, most people want to go from never exercising to having a 6-pack - oh baby, 75 hard sounds like the solution. Or with finances, from broke to rich as their transformation.
Why then do 97% of people not make it through (disclaimer I've guessed it's 97% but it's probably a higher % who don't complete it).
We can't simply go from dysfunction to high performing. Broke to rich. Not exercising to being ripped. Watch more here: https://www.instagram.com/reel/Cga7I33FEWf/
We need more stability first. Better financial habits. Better diet and exercise habits.
Stability of thinking too.
Did you know that 90% of your thoughts are the exact same as the day before?
Oh and 80% of all of your thoughts are negative...great!
You and I are basically going round and round in circles thinking, over and over and over instead of catching yourself doing exactly this.
Dramatising the outcome of not being able to pay our credit card bill, afford retirement, buy a round this weekend and the list goes on. Remember everyone’s A and B are different.
Where are you now (A) and where do you want to be (B)?
The simple solution is to stop and to take note of these thoughts and write them down.
Then decide on 1 piece of action you could take to stop one of these financial worries.
These actions should help you move further from A and move closer to B.
This helps you build progress and momentum. We are wired to be negative, but happiness comes from progress.
Even making a decision to tidy up a BNPL balance is a rewarding feeling for the brain. Follow this up with action and a plan and you’re on the right track.
75 days of deleting 4.5L of water and working out like an olympian might be overkill or it might be what you need, but is your circuit breaker too complicated and too unsustainable?
What area of your financial life can you identify that you need a circuit breaker for?
• Maybe it’s not using BNPL for 30 days
• Perhaps it should be a month off the booze and invest every beer missed instead
• A month of starting your morning completely different to usual. I.e. no more sh!t podcasts, but an educational one instead
• No more doom and gloom news for a week?
• No more ignoring your debt and actually eyeballing it all and making a plan to clear it
• Finally sending an email to ask for a pay review
You know what you are worrying about. It's the same as yesterday. Write it down and get comfortable with it on the piece of paper and then write down an action you can take to make progress on this.
Where are you now (A) and where do you want to be (B)?
A circuit breaker may be just what you need to help you see what things you could be doing differently.
Remember, why do something so difficult to then unwind it all on day 76? Think about stability and consistent habits.
Have a brilliant weekend.
Luke
In case the contents of this email are topical, it was first sent on 12th of August 2022. |
Last week I was speaking to one of my clients about an app that their children can use to learn more about money.
I had recently been reading about this but hadn’t spoken to anyone who had used it.
The app is a kiwi app called SquareOne. They don’t know that I am writing this but I am always keen to highlight tech that is helping bridge the gap between financial literacy and illiteracy.
This app is pretty epic. It let my client get a debit card for their child and put money on it.
That sounds a little too simple I know. But this is where it gets exciting.
To get dollars on the card, the child can earn based on doing tasks around the house.
Throwback to your pocket money days and unloading the dishwasher for $0.5. For me it was sweeping the garage out.
Each task can have an amount of money allocated to it so that once the task is completed the money goes from Mum or Dad’s SquareOne account onto the child's square one card for spending.
From here, Mum and Dad can set restrictions on the amount that their child can spend at specific stores. So that they don’t blow all of their cash at the local dairy on sherbert and then get really upset, they can’t then go to a movie with their friends.
If your child has their own device, they can download and log in to SquareOne themselves or access it on your device.
We are quite clearly moving to a more cashless society and this tool allows parents to teach their children about money and have some of the conversations that are needed to get kids thinking.
The app allows kids to save in ‘pockets’ as well, so that you can start to teach them about saving and allocating money to different things that they may want in their lives.
This may help children speed up their understanding of the value of money when comparing their savings to certain goods they may desire to have one day (just like you and I!).
The app has safeguards in place, like no names or numbers on the cards as a fraud deterrent, and you can temporarily lock and unlock the child's card. R18 merchants are blocked.
You can check this app out here: https://www.getsquareone.app
Back to the home front and this week we made it to the main stream...the news.
https://www.1news.co.nz/2022/08/09/some-kiwis-turning-to-tiktok-for-financial-advice/
Kemeys told 1News he gets a lot of engagement on the app, with one video about unclaimed money getting more than half a million views.
‘’I think people are learning a lot which is cool.”
Kemeys said there’s no way for TikTok users to know his content is legitimate unless they dig deeper and research him.
“I think people are pretty good these days at digging and saying is this person full of sh!t or are they not.”
“There’s a lot of confusing information out there for people but I feel like young people are quite good at what could be a scam and what might not be,” he said.
➡️ it’s awesome the number of people who are really into learning about their finances. It’s becoming increasingly important and more people have woken up to that.
I had been lazy with Tik Tok as I had a bit of social fatigue; ‘not another platform’ so a bit slow to jump on, but if you’ve got a valuable message it is a great platform to get that in front of more people.
Have a good weekend.
Luke
In case the contents of this email are topical, it was first sent on 19th of August 2022. |
Welcome and tuck into this piece of reflection from me.
Last week I posted a video about an exercise where you review your income from 5 years ago and start thinking about where you want it to be in 5 years' time.
Watch here: https://www.instagram.com/p/ChRHv8rlibP/
This is partly because this is what I did many years ago.
5 years ago, my business partner and I sat in Fiji tipping over a couple of Fiji golds, scheming how to build a $1,000,000 business.
At the time, we had no clients, no revenue, but we did have a relentless desire to make it happen.
I was financially pretty cooked at the time too, as we'd had a prior start-up business that required profits to be reinvested into the business.
I’ve done all the cool sh!t to get the badges that don’t really mean sh!t but everyone collects:
➖ I’ve slept in my car (how cold is sleeping in a car!),
➖ I’ve worked from the library (actually a great hack - highly recommend),
➖ I’ve had to move home (highly rate this, you build a cool connection with your parents when older and more mature),
➖ I’ve seen the concern on my parents' faces at how hard I was pushing myself (out the door at 4.45am and home at 9pm type vibes a few times too many),
➖ I’ve turned to the wrong vices for relief (short cuts, stress relief, poor behaviour etc.).
Those things are small, necessary moments that fuel you.
This week it is now 5 years since that trip to Fiji. We’ve built 95% of what we set out to build those 5 short years ago.
We even copped 2 years of economic turmoil and choose not to participate or take a dollar of government support (this is one of the things i'm most proud of).
I don’t own a property, but I’ve built a more valuable asset.
I now sit in the top 1% of earners in NZ.
I’m now statistically rich!
You know what? The financial side doesn’t mean sh!t, it’s who I’ve become during the process that has made me feel unbelievable.
I don’t tell you this to brag.
I tell you this to inspire the 3% of you who will get goosebumps reading this sh!t
To the other 97%, I THANK YOU because I’ve had SO MUCH support and encouragement along the way.
I’ve felt your eyeballs, your support and often your expectations and I’ve loved it.
I’ve tried so hard to give back along those 5 years and help via different outputs.
The next 5 years look completely different and I think the economy is keen to give a few of us a hiding.
I can’t wait to swing back and help more people do the same.
⚠️ I don’t want you to do my journey if you don’t want it. That’s stupid.
What I do want you to know is that YOU can DRAMATICALLY change your life in 5 years. First you may have to take a few steps back to take leaps forward.
Of course, as you go, the goal posts move and you reset goals, but as you progress, it gives you this incredibly powerful aura. Especially when you realise how capable you are of solving problems in your life.
My business partner and I go away every year and reset our business goals for the next 12 months and that includes income levels. We work backward to what we need to do to achieve this, we then head back to our business and get after it.
We work with businesses to do exactly this and it is amazing to see the progress they make once they have some clear direction and are surrounded by people that want to see them achieve it.
There is no reason that you can't do this exercise for yourself and take some time to think about what you want to be earning in 1 year, 3 years, 5 years and beyond.
How are you going to do this? That is also the important part to start thinking about.
Start with the belief that you can and then start building out the how.
There is a lot of 'NZ is sh!t' type chat out there at the moment and, yes, things are tough, BUT we still live in a country where if you are really good at something, you can do really well.
Every one of us is really good at something and often we aren't even aware of how valuable that thing is to other people.
Don't give up that belief!
Have a reflective weekend.
Luke
In case the contents of this email are topical, it was first sent on 26th of August 2022. |
Last week the Reserve Bank raised the OCR again. If you want to learn about that, you can in earlier editions. In summary, this rise is designed to continue to get on top of inflation.
What was more important to me last week was the fact that the Reserve Bank said that they expect inflation to be above the targeted rate (1 to 3%) until June 2024.
Let me show you this so that you understand:
To the June quarter of 2021 inflation was 3.3%
To September 2021 it was 4.9%
To December 2021 it was 5.9%
To March 2022 it was 6.9%
To June 2022 it was 7.3% (we are here)
To September 2022 it will be above 3%
To December 2022 it will be above 3%
To March 2023 it will be above 3%
To June 2023 it will be above 3%
To September 2023 it will be above 3%
To December 2023 it will be above 3%
To March 2024 it will be above 3%
To June 2024 it will be above 3%
We are being told to get ready for another 2 whole years of price rises before this settles down (if it does). Of course, things always change, but if the above doesn’t make you want to do something about your income level and outgoings, I'm not sure what else I can do for you.
People will spend more time on social media defending their reasoning or belief of why inflation is here, than defending themselves. ‘’It’s a global problem’’ - yeah it’s still a fooking problem! ‘’Oh but this political party…’’ dribble dribble dribble. This type of chat won’t help you or your family.
When I say people can defend themselves, I mean defend their purchasing power.
That’s why today we are going to focus on what we can actually do when it comes to inflation.
I don’t see any of the economists or financial advisors teaching anyone this…why? Because most of them are employee’s and not entrepreneurs. Few of them know how to make money from scratch. They either write about the market or ride the market.
So take this life-changing lesson from a Chartered Accountant (the most boring of the financial dudes) who has started businesses, runs a million dollar business and advises hundreds of businesses, you don’t need to be an entrepreneur to do this, you just have to take a bit of action and use the tools you don’t even see that are already at your ready.
Here’s how to do it.
PART A
• Take your income level for the year (say $60,000 as an example) and x by 10%
• You now have your target extra income to ideally earn from outside of your current employment
• Divide this by 12 - this is now your monthly target. I.e. $500 per month of extra income
(Note: if you move from hobby to business you should target 15% as you’ll lose 30% + to tax).
Now we need to find where we are going to get this from?
PART B
• Start by selling something you don’t use on social media to learn the belief that you can make money outside of your job or current income stream
• This helps you get closer to the target of month one and gets your momentum going & belief up
• Every month we need a calendar reminder to track our progress toward our target (brains love progress)
Bonus: do this with a friend to build some accountability
‘’Oh but Luke I don’t know how to sell anything online’’…get this in ya!
PART C
• Facebook marketplace for your item to get you started. Done.
• Now we need to think about what we can offer and to who. Then, we can use this framework:
Think about what you are prepared to do, not what you could do. I.e Yes, you could start any number of businesses but don’t overcomplicate it. Are you prepared to clean your neighbour's house?
• Go to all of your social media accounts and use these 2 frameworks…
1. ‘’I’m looking for [type of person you can help] to help them with [what you can do for them]. Know anyone? DM me’’.
‘’I’m looking for [busy homeowners] to help them with [cleaning their house]. Know anyone? DM me’’.
‘’I’m looking for [students struggling with maths] to help them with [maths tutoring]. Know anyone? DM me’’.
2. ‘’Do you know anyone who needs help with [what you can do for people]? DM me’’.
‘’Do you know anyone who needs help with [a logo for their website]? DM me’’.
‘’Do you know anyone who needs help with [organising their next event]? DM me’’.
• Once you’ve got someone interested, get some extra work / income across the line and then refine the above process.
I guarantee the above 2 frameworks will get someone to reply if you are solving a problem for someone. I.e. giving time back to a busy parent.
Video: https://www.instagram.com/reel/ChjGSs8lTbT/?igshid=N2NmMDY0OWE=
Part D
• This is a little bit extra for experts but I know a lot of you will ignore my advice above about what to offer and want to just sit brainstorming about what you ‘could do’. Here’s a framework to better do that
• What’s your job? Can you do some of this extra on the side? I.e. graphic design. Be mindful of your employer and remember we want to learn to earn
• What's the most exciting part of your day? This is often an insight into where your passion lies. I.e. it could be going to the gym or pilates, not your job
• What browsers do you still have open on your phone? What’s your most visited website(s)?
• Check your search history for the internet and YouTube. What insights are here?
What podcasts don’t you shut up about? How come? What clues are here about your passions?
• Now this is always trickier because you are going deeper but once you figure it out, you can go back to the framework in Part C.
I.e. for a graphic designer who loves the gym.
‘’I’m looking for [Personal Trainers] to help them with [design for their website/instagram]. Know anyone? DM me’’.
Video: https://www.instagram.com/reel/ChlyGgvF3iS/?igshid=N2NmMDY0OWE=
Business owners
You’re in the firing line too because you are going to be who the staff come to and say ‘hey ahh so my friend said they got a pay rise because of inflation, so yeah, give me a pay rise?’.
Remember all the people above online defending their favourite political allegiance or reason why inflation is here? They’ll be the first ones asking you for a pay rise!
If you don’t know your numbers & margins, you’re at huge risk of your business profitability declining or raising prices too often that your customers go looking elsewhere.
Simply giving people a pay rise to combat inflation doesn’t teach anyone anything. Sure, we all thought it was a good idea in the short term as we were sold that this was ‘transitory’. BUT teaching people skills is way more valuable for them.
You can use the above framework to teach your staff new tools to increase or improve their income.
Video: https://www.instagram.com/reel/ChihMcbrKTn/?igshid=MDJmNzVkMjY=
Summary
• Inflation is here and it’s crushing your purchasing power.
• The Reserve Bank literally told us they expect it to be here for years.
• You can sit online and debate inflation with other people about why/how/who.
• OR, you can get in control yourself and start to fight back against inflation.
• You’ll learn in the process and you’ll earn too.
• Don’t wait for the Reserve bank or your employer to try and sort this for you.
• Do this with a friend and stick to it for 12 months and see what you learn.
Remember, you might ask your employer for another 3% but what if they ask you the same thing? Can you give them another 3%? How are you going to do that? This goes both ways!
Written with love for every one of you and your family to help you get through.
F*&k inflation,
Luke
In case the contents of this email are topical, it was first sent on 2nd of September 2022. |
I thought we were going to discuss a new tax in the form of gst on kiwisaver fees. This would have impacted every single one of us in Kiwisaver because we all pay management fees.
Looks like that one is off the table after some strong opposition.
It's interesting how a tax that could impact millions of kiwis gets reversed within 18 hours.
A tax that impacts asset holders (again millions of kiwis) via 'a capital gains tax' is also taken off the table (for now...).
But a tax that impacts only 3% of people (earning over $180,000) is brought in and any chat about removing it is 'looking after rich voters'.
As always, we all want more for the country, but no one wants to pay the bill!
And more importantly, no politician wants to lose their votes.
Enough about them, they won't help us, we have to help ourselves and each other.
Last week, I gave you the ultimate guide to fighting back against inflation. I really hope you took something practical from it.
This week, I have 3 practical goals I want you to achieve before Xmas:
- Get rid of a credit card even if you owe nothing on it
- Get rid of get now worry about it later (BNPL)
- Make $500 to help you cover Xmas presents
Wow, that’s some list Luke, I hear you say.
We have 4 months to do this, which is 1/3rd of the year.
Why do we need to do this?
Inflation is here, as you know, and all through the pandemic and lock down you were encouraged to spend.
‘Shop local’
’Support small business’
‘Continue to spend to support the economy’
All were fair enough and great ideas. BUT these things programmed the minds of consumers.
We now have a problem of rising prices and last week we learnt that these will be here for some time.
The reserve bank wants people to stop spending and to decrease consumption. But we have been conditioned to do this. It was rammed down our throats and we’re addicted to consumption.
That's why the reserve bank is jacking up interest rates and telling us to chill out on the spend.
Remember that 50 something percent of mortgage borrowers still aren’t paying the new interest rates but before the year is out, they will be.
That means disposable cash is going to get squeezed and there will be less money to spend for mortgage holders, especially leading in Christmas.
What are these people going to do? Stop spending you assume? Wouldn’t count on it, they’ll probably reach for more credit than ever before.
More credit card debt, more personal loans and more buy now pay later. She’ll be right maaaate.
That’s why my challenge to you is to remove the temptation before it starts to call your name.
Get rid of your credit or at least reduce the limit so that you can avoid going into debt this Christmas.
Stop living on BNPL schemes that are scheming you with clever marketing and a dopamine hit to spend. You’re smarter than that, aren’t you?
Oh but Luke I’ll get to Christmas and won’t have any access to cash to spend? Well, that takes us to goal 3.
Last week we learnt how we can make some extra cash so you have no excuses. People have been messaging me with the practical ways they’ve made extra cash. The only thing that’s stopped you is actually DOING IT!
4 months to make $500 to cover some festive fun. You might even set a bigger target. But divide this by 4 and do it month to month. You can do it!
Remember that I have added a question and answer form to the bottom of the email and these questions will be turned into podcasts.
Before you go, I know some of you will have been sucked into how 'amazing' BNPL is so watch this: https://www.instagram.com/p/Ch-icfvhUpo/
Have an amazing weekend,
Luke
In case the contents of this email are topical, it was first sent on 8th of September 2022.
When I started writing these emails, the median income in NZ was around $52,000. Today it’s around $61,000.
Prices have gone up and wages have too.
I thought $100,000 was basically like winning the lotto in New Zealand, surely? This was my thinking 10 years ago and things have changed, as you know.
The last couple of weeks we've been looking at ways to encourage people to think about how they can earn more. Please get through this content as I think it is going to become even more and more important.
We are yet to discuss the proposed income protection scheme which, from what I understand, will be compulsory (if passed) and you will lose a % of your income, further decreasing your disposable income. I will write about this for you soon.
Anyway, let’s remind ourselves of what $100k looks like after tax:
Income $100,000
Less: Tax + ACC $25,380
Less: Kiwisaver 4% $4,000
Leaves You $70,620
$1,358.08 in your hand per week of the year.
10% Savings Let’s say you take on the rule of saving 10% of that $70,620. You’ll save $7,062 per year. Ignoring interest, growth and inflation, that will give you $70,620 after 10 years. (+$40,000 in Kiwisaver).
Your costs have increased by quite a lot too. Rent/interest rates, power, phone, internet, insurance, food, activities, kids, school fees, vehicles, pets, clothing, birthdays, festi’s, Christmas, health...it goes on.
No matter what you earn, right now, you are feeling this and we are all getting squeezed.
For many, both of those are really hard.
For too many years, we’ve had people tell us we have a low wage economy but there never seems to be much explanation of how we solve this.
As always, we have to look to ourselves to figure out what we can each individually do to get some of our purchasing power back.
Times have changed and we need to learn how we fit all of our expenses into our after-tax level of income.
I know this will sound scary for a lot of you because, statistically, 8/9 people won’t be earning this right now.
I spoke to a client this week who has taken on a border at $200 per week. That’s $10,400 per year.
Your exercise this week is to write down at the top of a page either one of these two: • ‘How could I make $100,000?’ • ‘How could I make an extra 10% of my income?’ Then you want to write down all of the answers your brain gives you. Every single one of them.
You may choose not to do all of these, but you will ideally pick something on this page and practice it.
The skills you learn by bringing in new income are empowering and they will stay with you for life. They can, of course, be taught too.
Don't underestimate yourself, Luke |
In case the contents of this email are topical, it was first sent on 16th of September 2022. |
In case the contents of this email are topical, it was first sent on 23rd of September 2022.
Last week we looked at the scary topic of retirement & how much it is said to be needed to retire.
This week I thought we could look at one way the country is trying to prepare.
It is called the ‘NZ Super fund’ which is, to be fair, a pretty super fund because they’ve achieved a return of 9.65% per annum since the fund started in 2003.
How does that compare to your Sharesies or Kiwisaver account?
But this fund isn’t called super because of the returns.
It’s actually the New Zealand superannuation fund which is there to prepare the country for the cost of retirement.
The New Zealand Superannuation Fund invests Government capital contributions, and the returns from those investments, to contribute to the Government's cost of paying superannuation entitlements in the future - NZ Super website.
Unfortunately, you can’t get these dudes to invest your spare $10,000 and hope for a 9.65% return each year as they don’t invest people’s private savings. If you could, you probably wouldn't worry about inflation as they'd be beating it.
Basically the fund is like a giant Sharesies account where they invest amounts of money from the government (NZ taxpayers) to then invest, to generate a return. Those returns are used to subsidise the increase in costs. In this case, the increase in cost of retirement/superannuation.
We have an ageing population so the fund, which was started in 2003, is very important.
Your Kiwisaver is effectively the same thing but as an individual. I do wonder that, eventually superannuation will be means tested based on Kiwisaver levels or some other metric, because there just won’t be enough tax money to give out to people over 65 years of age.
Many of you will hope that I am wrong. I guess we will have to wait and see.
Younger people may resent paying for older people’s superannuation when they can’t fund their own lives. So could it be something we eventually see change? It's hard to know when and what that may look like.
Now back to the super fund and you might be surprised to learn that there is only $57 billion in there. For context, the top 10 richest NZers are rumoured to have a combined wealth of $32billion.
Kiwisaver had a combined balance of around $85billion at 31 December 2021.
In the super funds 2022 financial year (which ends 30 June), their fund went backward by $3.3billion. Ugly. Even they can’t escape the wrath of the rollercoaster markets!
That might make you feel a little better about the dip in your Kiwisaver or Sharesies account.
Now before you go and say ‘ahhh that’s why I don’t invest’, remember that they’ve averaged a near 10% return for 20 years straight. In their 2021 financial year they returned a huge 30% on their fund - that is nuts!
The fund has also recovered since their 30 June reporting date and is at around $58.3 billion.
It is expected that the government will start drawing from this fund from the year 2030 and beyond.
So what can you learn from this?
You could be doing the same. Either via kiwisaver or your own form of retirement investing. Especially if you are younger, you have more time (in the market) on your side.
Investing for your future, today. Getting a return along the way and then drawing down from your fund once you need to.
I think you can actually read the funds report and get an insight into how they split out their investment portfolio - this might be interesting to some of you. You can even do this with some of the kiwisaver providers.
The funds ups and down are a good reminder that when investing you will see gains and dips. It is no different for the big players!
Remember that we are looking for someone who wants to start a side hustle and wants us to support them to get through the first 12 months.
Here is a link to the application form that you can use to apply (closes today):
Have a super weekend, Luke |
In case the contents of this email are topical, it was first sent on 30th of September 2022. |
In case the contents of this email are topical, it was first sent on 7th October 2022.
Last week really hit the spot for a lot of you when we discussed the concept of productivity.
Our dirty kiwi secret that we suck at. Kiwis work more and produce less than workers in the average OECD economy. Consequently, lower wages and lower wealth.
We simplified the concept of productivity to thinking about how we could get some time back into our days because, as we know, time is money, right?
If we can put a bit of time back into our week, perhaps the week will feel better for us. This concept has certainly changed my life and made it a different life.
Along my journey, I went pretty full noise and built my physical location around the 3 things I would go to most regularly which were; the gym & sauna, work and the supermarket.
Getting to and from the 3 most common places I go to was going to be where I lost most time to travelling, so I plonked myself right in the middle of those 3 things.
Every week, shoppers spend about 41 minutes in a grocery store. Around 35 hours a year.
We moved to online ordering and picking up our groceries via click and collect. Saving even more time because we usually order the same food and pick it up when it suits us, avoiding going inside the supermarket.
Just like saving money, saving time is a concept and something you have to WANT TO DO in order to see the ways you can save.
Remember, time is your most valuable resource, so don’t judge people who buy their time back. I used to do that and then I realised how they thought vs how I was thinking and how I seemed a lot more stressed and time poor. Perhaps I was the one doing something that could be changed?
Here are some more of the ways I have put time back into my day in order to spend that time on the things I want to do. I hope they get you thinking. Remember: you do you, these are IDEAS.
• Set my life up to reduce travel where possible
I am ALWAYS looking for ways to save time. I’ve wired myself that way now.
Years ago it was ‘spend time to save money’. I’ve gone the other way now; spend money to save time.
Finally, this one is huge; how you start your day is usually how your day will go.
• Up and into something negative? This is very hard to come back from
Finally, before you go down the rabbit hole of automation removing peoples' jobs just ask yourself whether it was a good use of people's time to stand and direct traffic before the traffic light?
And yes, I know some of you love 'going to the supermarket' for one working week of your year, you don't need to email me to tell me this :).
Be even more productive, Luke |
In case the contents of this email are topical, it was first sent on 14th October 2022.
Some time ago, I mentioned an insurance scheme that the government is looking to introduce.
This was an announcement quite some time ago (Budget 2021) and is still not yet confirmed. BUT the hunch is that it will become something because it’s a pretty good legacy for a government in power to leave.
So what the hell is it?
It is a levy paid for by employees (you and I) and employers (many of you) at 1.39 percent of total wages. If you’re on the median income of $61,000, you’ll be $847.90 out of pocket each year.
What it means is that if you're made redundant or if you can't keep working, the scheme kicks in and pays 80% of your wage for 6 months. I did read that this would be capped at a maximum of about $2,000 a week before tax.
For the first 4 weeks, your employer would pay you 80% of your wage and then the scheme would kick in.
That’s quite a lot of time and the purpose is that it gives you some breathing room to look for another job and not rush into something.
Of course, people (employers and employees) will no doubt find ways to game the system. The ole agreed upon redundancy, which would give an employee 6 months to find a new job.
But by design you’d have to think that it is there to protect people in the event of another big black swan.
A big black swan like the pandemic. Where a lot of people went onto some form of government support (funded by taxes and debt) to prop up their income.
Some people are looking at this ‘levy’ as a tax because the employee will lose a percentage of their income and have less disposable income. Perhaps people will then want pay rises when they realise their take-home income has decreased?
The more you earn, the more you pay, BUT it is capped. The levy will have a maximum earnings cap, initially set at $130,911. If you earn that amount, you'll be paying $1,819.66 annually to the scheme.
Employers are also expected to pay too, so they are no doubt going to pass those costs on to consumers over time to make up for the extra cost to them. Inflation anyone?
There are plenty of arguments for and against this proposal and one of the things I think is great about it (when used genuinely) is that it will severely decrease the financial and emotional stress of a household should someone be made redundant.
We know that people aren’t prepared with emergency funds and spare cash, so I do fear that people often rush into jobs they had no intention of having in order to maintain their status quo.
For some of the ins and outs of it, ACC are going to need some new staff because they will be the ones administering it and if you use the scheme you’ll be assigned a case manager to help you return to work. It might not be a 6 or 7 month bender on the Playstation and you may be held accountable.
According to MBIE, every year, more than 100,000 New Zealanders are made redundant, laid off, or have to stop working because of a health condition or disability. I would guess that will increase with such a safety net in place.
Of course, there will be some people that will never access the scheme in their life but be expected to pay and have their employers pay too. Those people are going to feel pretty ripped off by this.
What I do think is interesting is that this will be compulsory. Kiwisaver on the other hand, is voluntary. You'd assume the income insurance scheme will never be used by a lot of Kiwis, but Kiwisaver will. It makes you wonder why Kiwisaver isn't compulsory?
Grant Robertson has said that the Government hoped to introduce the legislation before the year is out and pass it before the next election rolls around.
My bet is that we will be seeing this refined and passed through.
Watch this space, |
In case the contents of this email are topical, it was first sent on 21st October 2022.
It’s fair to say we all probably know what inflation is by now.
If you’ve been to book an overseas flight recently, you’d have learnt about inflation! It even stopped one trip for myself because I couldn’t make sense of the price.
This week the Reserve bank undercooked their forecast for inflation and it came in at 7.2%. Even bank economists were off the mark - but are we surprised Jade?
There had been chat about inflation cooling but we only saw a 0.1% drop from the prior quarter.
Remember that inflation is going to be here for some time, so we need to understand it and keep an eye on the impact on it for ourselves personally.
This means that we may see an even larger increase in the official cash rate than we have seen in prior lifts.
We have seen jumps of 0.5% for the last 5 rises of the official cash rate. Now it may be time for a 0.75% increase. The next increase or announcement is set for November so we will find out soon enough.
This means higher interest rates for all of us with debt. Debt becomes more expensive. We then have less money left over to spend.
I know we have discussed this many times now Jade but I know that sometimes this stuff doesn’t make sense until you really see it happening and it is happening.
For those of you with property you’ll probably continue to see falls in prices as less people can afford to take on borrowing in the bigger cities where the cost of living is even higher.
The Real Estate Institute of NZ said that in September, only 4,943 residential properties were sold. You have to go back to 2010 to see the last times sales were less than 5,000 in a September.
Share investors aren’t without pain either, as the NZ market and global markets take hit after hit.
As interest rates increase, people consider the likes of term deposits more as they are attracted by the interest returns on their cash.
Those people sitting on cash are still getting beat up because inflation is eroding their purchasing power too.
We are all getting beat up!
As I’ve taught you before, one of the only ways to fight back against inflation is to learn ways to increase your income.
With spare funds, perhaps this is a time to be storing cash and trying to find a bit of interest income to offset the fact that inflation is devaluing the value of that money as by the end of your savings term, the money will be worth less.
It doesn’t feel safe to be blindly putting it into shares or property like we all were in 2020.
At the start of this year I said get ready for a bumpy ride and it looks like 2023 will be no different.
Higher interest rates will be well and truly biting in 2023 & disposable incomes will be down.
I wonder if we will see something break Jade?
June quarter of 2021 inflation was 3.3% To September 2021 it was 4.9% To December 2021 it was 5.9% To March 2022 it was 6.9% To June 2022 it was 7.3% To September 2022 it was 7.2% (we are here) To December 2022 it will be above 3% To March 2023 it will be above 3% To June 2023 it will be above 3% To September 2023 it will be above 3% To December 2023 it will be above 3% To March 2024 it will be above 3% To June 2024 it will be above 3%
On we rumble, Luke |
In case the contents of this email are topical, it was first sent on 28th October 2022.
Let’s have a quick look at why you got Monday off (some of you) as a public holiday.
Do you know what Labour day is about? It seems it isn’t well known, but people love a day off.
From the NZ History site:
There you have it Jade enjoy your 8 hour day and I hope you enjoyed your day off on Monday.
The concept of a work-life balance still rolls on today. A very confusing subject and one that everyone has their own definition of.
In New Zealand, we seem to be busier than ever and all feel pretty time-poor but, we also get given a lot of days off.
146 days where we don't necessarily need to be at work. Divide this by 365 days of the year.
40% of the year, people in full-time employment are not required to be at work.
Becoming more valuable is a choice and it isn’t the responsibility of your employer or your customers. It is something you have to do.
Life is busy and we need to figure out how we can fit this in, otherwise it doesn't happen, so use those 146 days wisely.
As a young fella I was always putting my hand up to work on public holidays. I was very smart. Unfortunately, that same smart Luke would p!ss the extra income up against the wall instead of doing something smart like investing it or paying down debt Jade.
Not many of us actually sit down and work out how we are going to use public holidays and weekends to our advantage. We have just been taught from a young age that this is a 'day off'. Hey, maybe you need a day off or want to spend it with the family or doing something valuable to you - go you.
If you're at work for 60% of your year, working on their dreams, goals and vision then at least spend some time thinking about how the 40% of time you get, away from work can be used. Luke |
In case the contents of this email are topical, it was first sent on 4th November 2022.
As the cost of living starts to bite, we get to test ourselves.
Do we do what we know is right deep down - be careful with our spending and look to clear debt, avoid BNPL and build an emergency fund?
OR do we do what we’ve been conditioned to for years: consume?
The true cost of living isn’t even here yet as the market adjusts to higher interest rates.
Don’t forget it’s not only home owners who will cop higher interest rates, but businesses also. They’ll look to pass on those interest costs to you and I, to protect their margins.
My expectation is that over Christmas and summer, consumer credit will balloon as people can’t help but spend and put it on the ole credit card or BNPL.
Get now, worry about it later right?
It’s already happening and we haven’t got to the silly season. Credit bureau Centrix reports that personal loan demand spiked in August to hit a 10-month high. The demand for personal loans outpaced levels last seen in 2021.
Some other key stats that may open your eyes from the August report: - The number of consumer lending accounts in arrears is up 8% from a year ago
From this data you can see that people prioritise rent and mortgage repayments to ensure they don’t lose what is most important to them; their home or place to live.
But the first thing to be missed is consumer debt, BNPL and car loans.
This is where BNPL and credit cards are so dangerous as you ‘feel’ like you can get away with it.
You don’t pay & nothing really happens. It’s in the credit providers' interest that you don’t pay so that the stinging interest & late payment penalties kick in. That’s where they make their money.
This is why I suggest you remove the temptation and GET RID of BNPL, drop your credit card limit.
You don’t know what 2023 has instore for you so tidy this sh!t up whilst you have the chance.
Wean yourself off of consumer debt. Consumer = consumption. Usually you use debt to buy dumb sh!t. You’re smarter than that.
This takes a change in mindset from consumption (which is the only reason many people use debt outside of ‘emergencies’) to storage. Delaying gratification - one of the concepts we know successful people have to master.
Build up that emergency fund and see what it’s like to have some spare ammunition sitting there if a battle knocks on your door like a sick child or broken-down car.
You’ll be blown away at the peace of mind an emergency fund and no consumer debt can provide for you.
Reverse some consumption and sell stuff around your house that you don’t use to clear some of that BNPL.
No one snorts their first line of cocaine expecting to be a cocaine addict. But it happens!
No one signs up to a BNPL dealer expecting to be getting smashed by late payment fees and high interest because their circumstances changed. But it happens and 9 out of 100 people are currently behind on their payments.
Delete the dealer off your phone.
Remember that if you are going to have difficulty making repayments on your debt, that you need to contact the lender/provider as soon as possible to try and arrange a solution or restructuring of the debt.
In a recent survey of BNPL users, of those who ran in to trouble with BNPL, only 24% of people asked for help. It’s ok to ask for help, so get it done.
Be good out there, Luke |
In case the contents of this email are topical, it was first sent on 10th November 2022.
[Money Mail 131: The politicians mind f@rk us] |
In case the contents of this email are topical, it was first sent on 18th November 2022. I just voluntarily upped my Kiwisaver contributions.
Why would I do this?
A few weeks ago we talked about how there may be a new levy coming which is designed to protect us if we are to be made redundant. We’d receive 80% of our income for up to 6 months.
Something like KiwiSaver, which nearly everyone of us will use, is voluntary, however.
We know from prior lessons that Kiwis are behind on their savings for retirement but it’s one of those things we sweep under the carpet a little bit.
The average balance for KiwiSaver is around $30,000. Not likely to go far in retirement right?
Do you know what your KiwiSaver balance is Jade?
I went looking into balances per age bracket and that took me further down a rabbithole of using an online calculator to predict my balance by the time I get to 65.
When running some calculations, I wasn’t overly impressed with the figure that I saw & I don’t know what value that money will have in over 30 years' time when I am eligible to access it either.
I have learnt that money gives you options. Yes, I may not be able to touch this money for some time, but that is the whole point - forced savings.
Many people see a mortgage as a form of a forced savings account as you have no choice but to make your repayments.
Saving for our retirement has still been introduced as mostly voluntary.
By encouraging myself to increase my contributions today, I am giving my future self more options. I don’t know what those are yet, but money will give me options and that’s what I want.
Further to that, these forced savings will look good to the bank when / if I go to borrow, as I will be able to explain that that is a lever I can pull by stopping those extra contributions to focus on debt repayments should I need to.
I’ve done this to give my future self options and to use the advantage of compounding given I have decades to ride the market.
I am not suggesting that you need to do the same as me, but I want you to think about the fact that here in New Zealand it is voluntary to contribute to KiwiSaver and many people don’t contribute at all.
Who are these people leaving their retirement plans in the hands of?
Even if you do contribute here in NZ, you only need to contribute 3% and your employer will do the same, plus the government may kick in a maximum of around $520 per year.
If we look across the ditch to Australia, it is compulsory and they are moving toward a minimum contribution of 12%. From July 2022 the superannuation guarantee rate (basically equivalent to our minimum kiwisaver contribution rate) has increased to 10.5%. An increase of 0.5%. The super rate will increase a further 0.5% each year until it reaches 12% in 2025.
I know a lot of people won’t be able to contribute further at the moment due to the cost of living and now interest rates are going up.
For instance, when someone with a student loan no longer needs to pay their student loan back and they get 12% of their income back - what are you going to do with this? You were forced to pay 12% back on your student loan and now you get to choose what to do with the extra cash.
Perhaps it’s time to think about your retirement more seriously?
Your homework this week is to:
As always, these emails are designed to get you thinking.
Luke |
In case the contents of this email are topical, it was first sent on 25th November 2022.
Apparently there are discounts everywhere today. The ole black Friday sales are in full swing.
Black Friday has become a very popular day of buying in New Zealand & outperforms the fashionable ‘Boxing Day’ sales. Boxing Day was the country’s biggest sales day of the year.
So what the hell is it? Time to consult Google.
It is believed by many that the term Black Friday derives from the concept that businesses operate at a financial loss, or are “in the red,” until the day after Thanksgiving (America), when massive sales finally allow them to turn a profit, or put them “in the black.”
Let's be honest, you probably don't even know what Thanksgiving is?
To many of us, Black Friday is just another day where there are a stack of sales.
Bargain hunters are out in full swing ready to buy items at a discount - much like Boxing Day sales, except this time we are copying Americans.
It’s a big deal over there. In America, businesses made an estimated $30 to $40 billion in sales during the 2021 Black Friday.
Nearly 13% of all retail sales in the United States occur between Black Friday and Christmas. That’s a lot of spending.
Here in NZ, e-commerce giant Mighty Ape have said that Black Friday has been their biggest sales day of the year for the past 5 years.
It will be interesting to see if this year is different as the cost of living war rages on.
Especially after the Reserve Bank lifted the Official Cash Rate by the biggest amount in history this week.
The Official Cash Rate is a tool used to hopefully cool inflation by decreasing the disposable income households will have by increasing the amount of interest they pay.
They are begging you to stop spending so much New Zealand.
The scary(ish) part: the Reserve Bank’s new forecast expects the OCR will hit 5.5% by the middle of 2023. They expect it to stay at 5.5% for another 15 months before it starts to decline.
This means higher debt servicing costs for longer.
You need to be forecasting the impact of rising debt costs on your personal finances.
Back to the sales and PriceSpy data suggests that 42% of Kiwis do not intend to buy anything in this year's Black Friday sales. This is an increase of 13% since last year.
Time will tell.
You need to remember that these sales aren’t designed for you, they are designed for the businesses using them, who in turn use you and you in turn often use money you didn’t necessarily intend on spending.
Worse still, you may use money that isn’t even yours. BNPL, credit cards anyone?
Before you pull the trigger on that black Friday purchase today, think: I get it I am sounding like a true accountant. ‘Don’t spend any money’, ‘Don’t have any fun’.
This is why you suddenly have to go to the toilet at BBQ’s when someone tells you that they are an accountant because they are a 12 out of 10 likelihood of being boring.
So yes, I can appreciate that this email sounds pretty grinchy but, know your own profile and where you’re at with your financial goals before you help a business achieve theirs.
Quite simply; have you got your sh!t together?
If inflation and higher interest rates continue to chew up your disposable income, stop practicing the habits of consuming that a low interest environment has taught us.
Avoid going into debt to consume just to try and make someone else happy or impress someone on social media or to ‘take advantage’ of a Black Friday special.
Go shopping when you need something, not when you’re bored.
Have a smart weekend, Luke |
In case the contents of this email are topical, it was first sent on 2nd December 2022.
With all this doom and gloom it’s a good reminder to consider the currencies you’re collecting.
Last week, the Reserve Bank Governor General Adrian Orr told us to expect a recession in 2023.
He said that the reserve bank was deliberately ‘engineering’ a recession in the hope of slowing down spending & bringing inflation under control.
Remember from earlier lessons that a recession is a fairly decent contraction in the country's economic activity. The timeframe is usually a period of several months.
This may see some people lose their jobs BUT remember a lot of businesses are screaming out for workers, so hopefully, people losing their jobs can find another one quickly. Note: this won’t necessarily help inflation.
These people could be reallocated to other areas of the economy where their skills and labour are better utilised (I don’t make the rules - this is just ‘how it works’).
For most people, the talk of a recession encourages them to spend less, contract, recede, restrict, go inward, fear, worry and retract.
And that’s exactly what it’s designed to do and what the reserve bank is asking: stop spending and consuming!!! Monitor your pennies.
However, this is why for months, in these lessons, we’ve been looking at new forms of income, handling inflation, considering boarders, flat mates, side hustles, building our value, learning, being awake to what’s coming, getting mentally ready and thinking about combating a recession, not being fearful of it.
A recession is not a time for growth. Apparently, it is a time of severe contraction.
This is a good time to remember that it’s not always about house prices, economic growth, net worth & bank balances.
How about stacking and growing these currencies:
One definition of growth is ‘the process of increasing in size’. It doesn’t say anything about GDP or the economy.
Just because a recession may be the measurement of whether our economy is or isn’t growing doesn’t mean you can’t Jade.
We all have areas in our lives where we can still improve WAY MORE than what a growth rate is of an economy or GDP.
In fact, when we grow through times of retraction and others choose not to, we make further gains than those people.
Now is not a time to get yourself ready to give up and wait for all of this to blow over. A recession is part of an economic cycle. Each month I calculate and track my net worth. My assets minus my liabilities.
For months of this year I have been making progress in many areas of my life, but my net worth is not increasing. I can’t control the markets, inflation, house prices, KiwiSaver.
But I haven’t fallen into the trap of purely measuring my life’s progress based on my monthly net worth figure.
That is all measuring gross domestic product and economic growth is - one measurement.
Remember fear sells because we all attracted to it. The headlines will keep coming and the worry will be deep inside all of us. If you can’t handle them, focus on what you can control and keep moving forward.
What currency will you choose to build, grow and stack during a recession?
Keep growing, Luke |
In case the contents of this email are topical, it was first sent on 9th December 2022.
On the 2nd of September I told you to tick the following 3 goals off before Xmas. A reminder:
This week, I have 3 practical goals I want you to achieve before Xmas:
• Get rid of a credit card even if you owe nothing on it • Get rid of get now worry about it later (BNPL) • Make $500 to help you cover Xmas presents
That was a short 3 months ago. I hope that 3 months has been kind to you Jade.
In that time, the Official Cash Rate (which under pins what we pay for most of the money that we borrow) has gone up by over 40% from 3% to 4.25%.
You will know by now that debt is becoming more expensive to access.
That means that fewer people will be able to access debt because it becomes too risky from a lending lens to expect you or I to be able to pay it all back.
For those who have already ticked it up and are in the repayment cycle, debt gets harder to get on top of.
When we have debt and the interest rate rises, we lose more of our disposable income to paying off the interest component rather than paying down the actual debt. The debt to get the thing that we actually wanted.
When you used your BNPL, credit card or consumer finance, I am sure you didn’t want the interest they were offering you? You wanted the good or service you actually purchased.
Rates were often cheap or non-existent on this debt, so hey give me the good or service and I’ll worry about the interest later (if any).
In September I wanted to give you a head start because I could see these rate rises coming. If you’re into this sh!t, anyone could. It didn’t take a genius.
Even if rates didn’t rise, you’re still getting smacked with higher costs through inflation = less disposable income unless your income is rising, but even if it is, you’re probably losing a good chunk of that to tax.
The point of September's email was to get ahead of the crowd and slowly decrease our reliance on these debt products and get out of the habit of using them.
Removing our access to these sexy debt tools as they simply teach us bad habits.
We each come up with many reasons and love the ‘incentives’ to use these debt products, like delaying payment, splitting payments, no fees, no interest, 36 months to repay, rewards and the list goes on.
All of these are based around us spending. Spending money we haven’t earnt yet. Borrowing from your future self. Using your future wages. Asking tomorrow’s you if today’s you can spend their money. How many more ways do you want it explained?
I too have had a $15k credit card, consumer credit, a car loan. You name it I’ve used it. I know how this goes. It’s all nice and innocent until you are stuck in the cycle of repaying the debt.
When my credit card was interest free, my $500 repayment cleared $500 of the balance (realistically it free’d up $500 of more sh!t spending).
But something else was happening. Something even more costly that I couldn’t count the cost of for many years.
When you pay down debt, you CAN NOT use that money to invest in your future and make smart choices. Because you are tidying up your past choices.
For me, I missed out on buying Xero shares. $0.60cents at the time, they went to over $100 a share in the future.
Would I have timed the top and bottom perfectly? Of course not.
The point is that I COULD NOT invest in these shares even if I wanted to as I was still tidying up past decisions, clearing debt from buying sh!t that I didn’t really need.
We haven’t seen levels of inflation like this for a long time and we haven’t seen an official cash rate around the 4% mark since 2008 when it was in free fall post the global financial crisis.
How long will it stay there? Who knows?
But there are always opportunities that will come into your life. And when your first priority is clearing debt, you are stuck in the past, not progressing into the future taking those opportunities.
We’ve had the sweet sweet taste of cheap, interest-free, no-consequences debt all around us for so long with a very low official cash rate. But that has turned, very quickly.
Make sure your habits and behaviour change too.
Be very careful what you use debt for and what interest rate you’re paying on it.
Have a brilliant weekend Luke |
In case the contents of this email are topical, it was first sent on 16th December 2022.
Tis the season to be jolly and often we extend that expectation to our employer.
Employers can get a bad wrap for not looking after their staff or being stingy. Especially at Christmas time.
This is easy to do when we compare our employment environments to our peers. We don’t know what’s happening behind the numbers, so try not to assume the business you’re working for ‘is killing it’.
You’ve no idea what’s on the line for the business owner. Often it’s their family home.
The other problem your employer has is that they are actually discouraged from helping their staff.
Discouraged you say. What the hell would we do that for?
Well, discouraged by another tax you’ve probably never heard of called Fringe Benefit Tax.
Before I teach you about that, please know that this week's newsletter will reach even more people due to sponsorship from EC Credit Control: a specialist debt resolution agency for businesses - thank you legends.
Basically, if your employer gives you things, they need to pay tax. Things like access to a motor vehicle to use privately, an interest-free loan, free or subsidised goods or services, contributions to insurance and basically a catch all for any ‘unclassified fringe benefits’.
At Christmas time, wouldn’t we want to celebrate our team's contribution and sometimes go a little above and beyond and get them something?
If your employer does, there’s a high chance it’s costing them a lot more than just the present because there may be FBT.
Here’s a few examples where the IRD get their grinch on:
I need to point out before one of my fellow timesheet heroes does (most accountants have to keep a time sheet for every 6 minutes of their day - and you thought you were micromanaged Jade!) that there is an ‘exemption’.
This is called the de minimis exemption. This exemption means that some Xmas gifts (other than cash & cash redeemable vouchers) may not be subject to these rules IF no employee has received more than $300 of benefits in a quarter. The total unclassified benefits provided to ALL employees must be less than $22,500 in the previous 12 months too.
Side note: do you think these de minimis exemption figures have been inflation adjusted (discussed recently)? Of course not.
For Xmas gifts to staff, it really matters what employers get staff and for what value. They need to be careful not to attract FBT.
What about a little cash bonus? You can’t be doing that! That will need to be returned through the PAYE system and tax paid on it like your normal wages or salaries.
What about buttering up your customers/clients with a cheeky Xmas hamper? That’s fine but your employer most likely can’t claim the whole expense, only half of it as an entertainment expense (different rules again!).
If we ignore Xmas and think about how this also discourages employers from looking after their staff, check this out:
I had a client who wanted to give all of their staff medical insurance to ensure they had cover. They not only paid the bill but now have to pay over $40k in fringe benefit tax for providing subsidised insurance.
Another client wanted to subsidise their team's gym memberships to contribute to their overall health: again, taxed by way of FBT.
These rules are designed to capture crafty ways to remunerate your staff outside of a salary.
But in a day and age where employers are being pressed to really look after their team members, you can see how they go to and then learn the true cost of doing so. This often stops them from doing what they had planned - the employee misses out.
FBT rates are really high too and can be over 60% of the total value of the benefit.
The government expects to collect over $650million from fringe benefit tax each year.
These rules are quite tricky and also very misunderstood, so the non-compliance (some probably quite genuine) would be quite high.
There you go Jade you've just learnt more about tax this week than most accounting students will have.
Have a great weekend Luke |
In case the contents of this email are topical, it was first sent on 23rd December 2022.
It’s too late to talk about Christmas savings tips, but I hope the lessons this year have prepared you well for this crazy spending time of the year.
I hope you have an amazing time with your families and loved ones.
We’ll keep it quick today…I know you are clocking off for the year. Good on you!
A quick lesson from last year:
It can be a tricky time of the year as we scroll socials and talk to others about what they got or gave for Christmas.
I think this time of year is such an important time to be grateful for what you do have.
Even if you don’t FEEL like you have a lot of money, or the fancy Christmas that someone else is having on social media, there is richness around you.
Having a family, love, health, education and modern-day tools like the internet, puts us at an unfair advantage to a lot of people.
A quick resource that may completely change your next Christmas:
Before we explore that, please know that this week's newsletter will reach even more people due to sponsorship from EC Credit Control: a specialist debt resolution agency for businesses - thank you legends. One of the greatest presents I have seen given is the ability to understand your loved ones.
Did you know that we all have ways that we want to be loved? We often then confuse giving love by doing the things we want.
Sounds tricky, right? What it means is that you may REALLY LOVE receiving gifts and that makes you feel loved. In turn, you think that showing someone love means you need to give them a gift. For them, it could be the last thing they want for them to feel loved.
Understanding yourself will help you understand others. The 5 Love Languages help you do this.
‘’The 5 Love Languages is a simple and effective way to strengthen your connections, so you can experience greater joy and harmony in all of your relationships’’ - their website.
The concept is that there are 5: - Love language #1: Words of affirmation
https://5lovelanguages.com
My final gift to you is the gift of understanding tax rules (sorry not sorry):
The tax rules in NZ do not favour employees: one of the key things we do not learn about money growing up.
Perhaps this is why so many people want to contract or freelance rather than be employed. People are slowly learning.
When you’re an employee you are basically limited to 2 tax deductible expenses: ✅ Income protection insurance ✅ Costs associated with filing your tax return
When you’re in business or generating income you can claim A LOT of the expenses that relate to you generating income. Of course, there must be a relationship between the income and the expense.
Understanding tax RULES is fundamental to running business, property deals, investments and employment.
The tried and true path of: school, degree, workforce has set up hundreds of thousands of people to NEVER learn tax rules.
Life is one big game. You may want to study the rules that govern it and learn to play within them.
I put together a 30 minute podcast to explain this in further detail: https://open.spotify.com/episode/6GddWeYz5HtT7XO4J7NJdE?si=Jd82MCtuTFa_LhMqbcA60A
Finally, Christmas can be a stressful time for many. Don’t give it the stress it doesn’t deserve.
Merry Christmas, Luke |
In case the contents of this email are topical, it was first sent on 23rd December 2022.
Have you noticed the same thing?
But I know that I am moving in the right direction and I believe that is the main thing. Progress over perfection. This means I don’t give up.
It’s easy to underestimate how long things do actually take and how consistent you have to stay.
This time of the year is a time where people start to think about setting goals.
Here are a few things that have helped me inch closer to achieving my goals: - Writing goals down regularly to keep them front of mind
These tactics have helped me stay a bit more dialed in on goals in a busy & distracting world.
Years ago, when I was trying to kill my $15,000 credit card, I had a process which followed this methodology where I would clear a portion every pay and then decrease the limit. I could see the progress I was making. Pay day was my reminder to clear a piece of the debt.
When I was trying to stack $100,000 to reset my savings thermostat (I would always hover around $10k to $12k) I would transfer money to a separate bank account and then physically write down every transfer with a tally.
Writing it down and having the tally did something for me. It’s hard to explain but it felt good and kept me hungry.
If you are constantly struggling to stay on track with goals, then try to dig into why? What small tactics could you change to increase the likelihood of success?
One of the hard things to accept when you set yourself a goal is that it won’t just happen for you.
You can manifest, visualise and all of that cool stuff but at some stage you’ll often need to ask.
Asking can take many shapes and forms, but it’s scary because we are scared of being told no and also rejection.
ASKING beats HOPE every time. It’s great to have hope, but remember you need to start asking.
If you want a pay rise and don’t want to wait until your review, you’ll need to ask.
If you want help, you’ll need to ask.
Asking could be the simplest hack you’re overlooking. Get better at it and you’ll get better outcomes.
Have a think about what financial goal you want to set for 2023?
Perhaps you could pick something to solve that currently gives you a form of anxiety or stress or consumes your thinking. If you do solve this imagine how much ‘mental rent’ you are going to save.
HACK: Instead of thinking about HOW YOU will achieve your goal, have a think about WHO can help you achieve it? Go on, ask them!
If you need to get into some budgeting and net worth tracking and you haven’t used my budgeting tools previously, feel free to make a copy or download them and make them your own.
There is dummy data in there to help you see how it works and a video explaining how to use it also.
The link is a folder from within the ‘Keep The Change’ content and has budgeting templates: https://drive.google.com/drive/u/1/folders/1djmETm-76k4gEwb9EupQ_Hx0x4BtGT0Y
Yes, budgeting does suck a bit, but so does living pay check to pay check.
Bring on 2023, Luke |
In case the contents of this email are topical, it was first sent on 6th January 2023.
As I write this, it is 9am, New Years morning. |
In case the contents of this email are topical, it was first sent on 13th January 2023.
Unemployment is at a record low. In New Zealand, unemployment is currently at 3.3% and historically sits between 4.5 to 5.5%.
That means that businesses are crying out for workers. The talent pool is reduced as most people are flat out in their role.
Interestingly, we are hearing stories of businesses laying people off, but I am not hearing the other side where people are saying they can’t find work.
Everywhere I go, no matter what type of business I speak to, they say ‘I just can’t find the staff’.
For those who want to work, perhaps they are finding another job quite quickly? I guess we will have to keep an eye on the unemployment data going forward because it is expected to rise.
Where the hell is this unemployment going to come from?
I had to read ASB’s latest quarterly economic forecast for insight. Their chief economist, Nick Tuffley, says it's going to come mainly from a growing population ‘missing out on work while job creation stalls in a weak economy’.
The cost of labour (wages and salaries) has increased significantly, which increases a business's operating costs and, eventually, these businesses get to the point where they just can’t afford to hire anymore.
We were told to decrease our spending, but at Xmas time, Christmas Eve and Boxing Day sales beat records. People didn’t listen, did they Jade?
Most people make changes when they are FORCED to, so we have a long way to go.
Whilst businesses and employers are screaming out for workers, remember that you can use this to your advantage.
This could be your chance to get some extra income in the next 6 months, if this is your goal.
Use your social media accounts to offer your time (if you want to) to people who need resource.
It might be helping a seasonal business over Summer. A few hours on a weekend? Helping a smaller business with some writing, marketing, design, advertising, HR, financial skills. A bit of hair cutting? What about relief milking? A few deliveries?
Many smaller businesses can not afford to hire full-time staff members, so they don’t list jobs on seek or TradeMe. They use word of mouth to hope that someone will come along willing to do 5 to 10 hours.
You can be deliberate and get in front of these people by using your social networks, saying things like:
A brilliant hack is to go into local Facebook groups and do exactly this.
Your 2 hands and a willingness to work are often valuable too, as people need you. Their urgency and necessity to get the work done may surprise you as to what they are willing to pay.
Remember that the true impact of these rising interest rates won’t be felt until later in the year and there will be people currently not working because they can make ends meet but higher interest and mortgage repayments will see them return to the labour force.
In 6 months' time you will be competing with more people looking for work and extra cash.
Use these first 6 months of the year to your advantage. Stay ahead of the economy.
Luke |
In case the contents of this email are topical, it was first sent on 20th January 2023.
Yesterday was a tough day for a lot of New Zealanders. Wait Jade that was yesterday's shocking announcement wasn't it?
Another sign that inflation is well and truly baked in and our next inflation announcement might not be pretty. By now you know that means increasing interest rates further.
I called it the ‘Side Hustle Webinar’. Those 2 words get thrashed a bit too much these days and I think they almost have a negative connotation.
So in December 2021 I doubled down and created ‘The More Money’ webinar. This one was again FREE but only 1 hour long.
I could see what was coming in the economy and I wanted to get people ready and in control of their incomes before interest rates and inflation started to make them feel helpless.
We are in that world now, with high inflation and high interest rates.
Keep The Change was nowhere near as big then and most people will have missed these 2 pieces of content.
In these two webinars I cover the why and how of a ’side hustle’ or adding more income.
You can find the first recording at this link: https://www.keepthechange.co.
You can find the second recording at this link:
These webinars are a good example of investing in yourself by learning.
Often, people fall into the 'perfect idea' trap where they falsely believe that they need to think of the next invisible coffee cup to earn a new form of income.
You don't need to build the next social media platform to make some extra cash.
The market wants what it wants, not what you want to give it. Don’t do what you want, do what the market wants you to do.
Think about solving problems and giving the market what it wants. These days we can even go on social media and ask people if they'd like what we are thinking about doing before doing it.
Ideas suck without execution, so don't get stuck in the perfect idea phase...that doesn't work.
If your goal is to increase your income in 2023, I highly suggest you devour these two webinars and then take action. Don’t solely rely on a pay rise or raise at your work.
In these webinars, there is also a piece on mindset and taking responsibility that will improve your life dramatically AND an exercise from the KTC Night School to get you thinking about your own income levels over the last 5 years also.
These options require less initial investment, experience or training, and they can be started quickly.
https://open.spotify.com/
Have a great weekend, Luke |
In case the contents of this email are topical, it was first sent on 27th January 2023.
Every month I go through a process of calculating my net worth. A lot of you will hopefully have picked up this habit too.
Your total assets minus your total liabilities. In accounting, we call this a balance sheet or a statement of financial position. Your bank will most likely ask for your one when you borrow.
It’s a great way to keep an eye on what is happening in your financial life, monthly. What assets do you have? What liabilities/debts do you have?
From there, you can make choices and changes. I.e. increasing assets or decreasing debts.
Paying down debt is a great play at present with interest rates being so high meaning you get a guaranteed return.
Obviously, for most people, they hope that over time their assets will trend up and debts trend down.
Statistics New Zealand regularly do the same calculation for all New Zealand households too.
They have just released data for the end of September 2022. It says that household net worth sits at $2,250 billion. This is all assets owned by Kiwi households less the value of all their debts.
It was $2,428 billion in December 2021 which was the height of the asset(s) bubble and before things started to really turn.
If you’ve been worried about your house price, shares or KiwiSaver, you’re not the only one.
In the first nine months of 2022, household net worth dropped by $179.4 billion (7.4)%.
When Statistics NZ release the December 2022 data you could be pretty sure it would have dropped again. Perhaps kiwis will have lost $225billion plus in 2022?
This is happening because house prices continue to drop, stock markets do too and household debt is increasing.
But does it really matter unless you’re trying to leverage off your asset prices? Or needing the wealth soon?
Asset values going down isn’t great for the ‘wealth effect’ where we ‘feel’ like we are less ‘wealthy’ but often for many of us, we may over think it, because if we zoom out we are still making progress over time.
That’s why consistent healthy habits are so important to combat us from freaking out periodically throughout the year.
Remember too that during that real bubbly time we all got so hooked on, (from March 2020 to December 2021) household net worth went up by $620 billion.
The other interesting data from Stats NZ was around savings for kiwi households. Back in March 2022 people were really struggling to save any of their disposable income and basically everything earnt was spent.
What about you Jade? Have you been able to increase your savings?
The June & September ‘saving ratio’ data suggests that savings are on the way up.
The saving ratio, which compares household savings to net disposable income, is at 3.9%, up from 3.1% in the June quarter. An increase in the saving ratio means that households are saving relatively more of their disposable income - Stats NZ.
Of course, this week, Stats NZ also told us that inflation for the December 2022 quarter was 1.4%. Meaning our annual inflation rate at the end of the year sits at 7.2%.
I think that money really is on the minds of a lot more Kiwis right now and that’s a good and bad thing.
We know it can be a great source of worry for many people and something we can be a bit ashamed to ask for help around.
Again, never be too ashamed to ask for help.
Have a brilliant weekend, Luke |
In case the contents of this email are topical, it was first sent on 3 February 2023.
Before we start this week I just want to say a big thanks for reading and listening. January saw over 14,000 listeners of the podcasts. Awesome to see during a holiday month.
One of my favourite parts of my role is getting to speak to Kiwis who want to do something BIG.
Luke Nicholls is one of the young fellas behind Keyhook, which is built to help landlords better manage their rental property.
It literally does everything a property manager does but for a fraction of the price & via technology.
You can collect the rent, do inspections, get your repairs sorted and even fulfil the initial bond/tenancy process via their solution.
It’s all done through an app that they’ve purpose built from scratch.
I said to Luke ‘you’re going to end up being the biggest property manager in NZ?’ and he quickly corrected me, ‘no, the globe’.
As kiwis, we aren’t often taught to think BIG and we stick to our own levels of ‘humble’, ‘little ole NZ’ thinking.
This is obviously both good and bad for us at times. But Luke and his team have decided to tackle the world and not just stick to New Zealand.
This is going to be an interesting journey to follow because they only started in 2019 and have refined their solution (and continue to) before launching more publicly (after a lot of testing) in late 2022.
They already have thousands of users and haven’t pushed too hard on the marketing front yet.
Keyhook is focussed on a better experience for the tenant too.
At Keyhook, we believe tenancies are a two-way partnership and are most successful when there is effective communication and cooperation between the landlord and the tenant.
With features like Guided Remote Inspections and One-Click Maintenance, Keyhook enables tenants to be proactive in looking after the wellbeing of their homes, and enables landlords to provide a safe, compliant home to their tenants - Keyhook.
This is a good example of seeing a gap in the market and having a crack at providing a solution.
Building a platform is no easy task though! You need a good product, investment, a team, awareness and a lot of hustle.
This property technology solution is already years in the making and only just starting, so don’t be fooled when you think starting something ‘tech’ based can be simple and won’t take more energy than you anticipate.
From what I see, this technology looks to have the ability to entirely disrupt the property management space and Luke explains this on the podcast I recorded with him.
Check out the podcast here:
Most landlords will be focussed on the financial side of the solution which makes sense.
I am excited to see where these young kiwis take this. Hopefully they can scale this to the world and we have another kiwi success story to inspire a generation of entrepreneurs and bigger thinkers.
Keyhook are also hiring like crazy too so if tech and the start up world is your thing, check them out.
The team have also said if you want to try it out you can for 3 months completely free - just use the code “KTC” when prompted for a promo.
I don’t have a rental property so you’ll have to tell me what you think of it!
Have a big thinking weekend, Luke |
In case the contents of this email are topical, it was first sent on 10 February 2023.
'Just save 10% of every dollar you earn'.
Something you may have heard and learned. There are a couple of flaws in this:
Those 2 things aside, let’s look at why this may continue to keep us thinking too small.
Why? Because we’ve somehow accepted paying the government more than we pay / keep for ourselves.
Before you blow up about me being anti paying tax, that is not the lesson here. The lesson is to think about what you’re saving and how you can increase it.
Your target could AT LEAST be to save as much as you pay in tax.
So let’s rumble Jade…
Let’s take someone who earns $70,000 before tax.
$15,000 in tax divided by $70,000 in income is 21.4%
21.4% of total income handed over in taxes and ACC before you even get to play with it.
But you were taught to simply save 10% of every dollar you earn.
This same person will most probably save 10% of the $55,000 (after tax), which is $5,500. We are $1,500 short already (see point 1 at the top).
$5,500 in savings divided by $70,000 is 7.86%, which means we aren’t even hitting 10%.
We’ve accepted handing over 3x more in taxes than what we can save for ourselves. Of course, we save, to do with, what we like (including setting ourselves up for retirement etc).
This is why I am always so big on lessons around increasing your household income.
We won’t go into all of the ways you can earn some extra money because we’ve done that in previous lessons.
But this is why I mention it often. You need to get in the habit of trying to find new ways to make income that isn’t costing you heaps or risking what you already have.
For 1/3rd of people, they will be paying down a mortgage. This will be viewed by many as a form of saving as they are repaying debt. That’s fine if that is how you would like to measure it.
Some people will also receive money from the government in various ways which we have explored in previous lessons. Ultimately, they are receiving some of their taxes back, decreasing their percentage paid.
You may want to run the numbers on your annual income and see what the tax is as a percentage of your income. Are you able to save more than you pay in tax?
There is a simple calculator here: https://www.paye.net.nz
Perhaps this could be your financial goal for 2023 or for future years Jade.
We have to re-set our ceilings, our plateaus, our paradigms. This requires new teaching, new thinking and new solutions.
Sometimes old lessons like ‘save 10% of every dollar you earn’ are interpreted wrong and slightly misguided.
Finally, this week, we learnt that the minimum wage will increase to $22.70 per hour from the 1st of April 2023. An increase of $1.50 per hour.
Perhaps we will see changes to the tax thresholds at the upcoming elections. BUT REMEMBER these changes will probably need legislation and time to be introduced so they might not be ready for the 1st of April 2024, no matter what, Government gets in.
Be bold out there, Luke |
In case the contents of this email are topical, it was first sent on 17 February 2023.
You’ve no doubt heard that if you work hard, you’ll be able to get ahead.
I really grasped this concept growing up and I thought; ‘if I out work people I will crush it’. From an early age I ripped straight into work.
If there was over time, ya boy was working it. Any chance to stack some more paper and out work those who didn’t want it.
The massive problem I had was I hadn’t learnt to be a good saver and all of the stuff I now bang on about. I earnt plenty but didn’t know how to keep it.
My habit of hard work rewarded me, but I hadn’t built good financial habits yet.
Part of the reason I would blow it was because I would want to ‘reward myself’ for how hard I was working. I thought that was the done thing to do. Why not!
As I got older, I could tell something was broken and it wasn’t JUST hard work that would be needed to change the trajectory of my life.
I started to think about sports stars, wealthy people, high income earners, people who retire early.
What did they know that I didn’t? Did they just work really hard and someone notice and give them plenty of cash?
Maybe they didn’t p!ss away what they did earn or tick up lazy boys for their flat?
I discovered that these people DID know something I DIDN’T and we will look at this below.
But firstly, as recently as Jan 2023 I noticed that the ‘hard work’ methodology is still alive & well.
‘’If you work hard, you should be able to get ahead. Some people are working multiple jobs, but they feel they aren't getting ahead’’ - new Prime Minister Chris Hipkins on day 1 in the job.
Surely, we should be able to get ahead when we work hard? (Side note: what is ‘getting ahead?’).
But remember, humans are wired to do the least possible for the maximum possible return.
Back to my life-changing discovery and it is that it’s not just about ‘working hard’ it’s about ‘adding value’.
''You can’t just work hard. You have to work smart''. Who has heard that?
Well, what the hell is working smart? I had to go and study that.
Once I grasped it, I thought, 'well sh!t why not do both'? I love hard work, have for years. Now I need to learn about this 'add value' thing.
Because people pay for value.
Whilst researching, I stumbled across Bob Proctor’s law of compensation.
This law states that the amount of money you will earn will always be in exact ratio to these 3 things:
Ok, ok it’s not just about doing overtime and ‘working hard’. I needed to focus on these 3 things.
If this Bob dude was right, he was making me realise that I could easily be replaced as a paper boy, in a factory, in a superette, in a distribution centre. I didn’t even need to be that good to do these things either.
I now knew that I needed to keep looking for something in high demand, get really good at it and be so good it would be hard to replace me.
Now remember from above, humans are wired to do as little as possible and hope for the maximum possible return. This is human nature.
Therefore, we most probably won’t increase our ability to do something without understanding this. And it makes sense why those people with massive levels of ability get remunerated appropriately in their chosen field.
You’ve got to train yourself out of the ‘do the minimum required’ if you genuinely want more from your life. The beauty is many people never will, so you’re then more likely to succeed and achieve more than you realise is possible, if you do.
Perhaps you are reading this, thinking you want to ‘get ahead’ or simply be paid more. What can you do as part of that 3 point framework of the law of compensation to increase your likelihood?
Simply doing more hours like I thought was the play may not be the right thing to do.
If you don’t like Bob’s rule, check out what one of the richest people in the world says:
"You are paid in direct proportion to the difficulty of the problems you solve." --Elon Musk
That’s why if you want A LOT, it’s wise to get very good at solving very HARD problems.
Hopefully that got you thinking, Luke |
In case the contents of this email are topical, it was first sent on 24 February 2023.
One of these hit a bit differently.
It is really hard to provide insight, ideas and advice to people in that situation. I also understand that I am not that person nor that profile.
I know my suggestions won’t always speak to that person. We often relate to people who are ‘like us’.
A reader reached out to me with what they did when they found themselves as a solo parent, with 2 young kids (2 and 5) and I thought I would share this with you.
Enjoy!
My story – I married at 21, had kids young (first child at 23). I went from early success in property investment to losing everything and having nothing on my own with two young kids to support, back to building my position up again through property.
I bought my very first property at 20 on my own, a small unit in Mt Eden. Using the equity in Mt Eden in less than a year my partner and I bought a place in, Grey Lynn which we moved into and had our first child. I rented Mt Eden out. Then we bought a town house in Te Atatu Peninsula and another house in Green Bay. Each time we bought we rented the old place out and moved into the new one. By 24 years old we had our family home with no debt and three rentals all well and truly paying for themselves all with good equity. We didn’t need 40% deposit down for a rental and the properties we were buying were cashflow positive from the start. It was a buyers market, and it was a rising market. I was working in banking so knew exactly what would and wouldn’t get approved by the Bank. We were doing the hacks like floor plan changes without moving anything structural to get another bedroom. My husband was a sparkie and handy on the practical side, I found the properties and took care of the finance, admin, property management and design work.
Fast forward three or so years and after a series of bad decisions [bad decisions removed to keep this anonymous]…We separated with nothing to show. I was living with two young kids (2 & 5) to support on my own.
I know what it’s like to be living off nothing yet I don’t look back on that period of my life as a negative patch. It gave me strength. I flatted in Mt Eden with an awesome bunch of people to keep costs down. I learnt to make do with very little. There was zero fat in the budget for anything but we had heaps of fun and the kids had lots of my time. We ate good healthy food. My oldest went to a great school and my youngest was at home full time with me. It’s a time of life that both the kids and I look back on with really good memories. I don’t think my friends noticed that I had less than them at that time. I think the kids knew that their situation was different than most of their friends but they were happy.
I went back to work a couple of years later when my youngest was four and my financial situation improved each step I made from there.
I’ve spent my whole working life in finance so I have 25 years of money experience and that’s given me insight into so many different people’s financial situations. From sending demand and working with clients in debt recovery, consumer debt consolidation loans, home loans right through to working with ultra wealthy family office clients some of whom are billionaires, many of whom had hundreds of millions.
There are lots of things like side hustles, paying down consumer debt etc that you have already covered. What I learnt as a single parent to add to that:
NUMBER ONE THING - You need to have hope that things can be different and confidence in your ability to get you there. In research speak, self-efficacy.
You need to believe that if you consistently put in the work to improve yourself, educate yourself, learn from others who have been in your situation, make mistakes and pick yourself back up again, that if you do all of those things and you are consistent about it that there is absolutely hope for a different better financial future. That you will find a way. If you don’t have belief in your abilities, you’ll get stuck where you are.
Researchers, Martin Seligman and Steven Maier came up with the concept of ‘learned helplessness’ in the 60’s. The theory is used to explain why, when someone is repeatedly exposed to failure or a lack of control over a negative outcome often they will lose hope. So even when they are in a situation where they do have control over the outcome they will remain paralysed.
There are plenty of people who have grown up with learned helplessness with money. They will be in situations where they do have control over the outcome, but they will remain paralysed and get the outcome they are trying to avoid because they don’t believe it can be different. They can’t see a way out. They don’t see opportunities when they show up because they are blind to them.
I see people who have no hope or confidence in their ability to ever own a house and it shows up in them not starting the savings journey for a deposit because it seems unsurmountable.
It shows up in them not exploring other ideas for home ownership, like going in with a group to get a foot in the door or financing a tiny home or any number of different options. If you don’t have confidence you don’t see options, you just see a closed door.
It shows up in them continuing the same bad financial habits because they think they can never get out of the situation they are in so they don't bother trying.
If you don’t have hope and confidence in your own ability to get you there, find someone who's been in your situation and who knows it can be done.
A great place to start when reading about mindset would be Man’s Ultimate Search for Meaning by Viktor Frankl and anything from Carol Dweck or Tony Robbins.
If you work on this one step you’ll figure out all the other steps by yourself. Because you won’t give up or stop looking for options.
You don’t need to start your journey to a better financial future with knowing how you’re going to get there. You need to start with hope that it’s possible and confidence in your ability that you’ll find a way to get there.
Put your own oxygen mask on first.
Look after your health, your emotional wellbeing, yourself as an individual.
As a parent, you aren’t doing your kids any favours if you run yourself into burnout by not filling your own cup. See it as setting an example of how you want them to look after themselves.
I see this so often with single mums that they give so much that there is nothing left and that’s not healthy for anyone.
You’ll be better off in all aspects including financially if you look after yourself because you’ll be in a more resourceful headspace.
If you are trying to change your situation, change can take time. The first period of working towards something is always the hardest with the least amount of traction.
Just stick at it and don’t give up. At some point you will have a break through and then the pace of change compounds.
For me it was getting back into property. While you are paying off debt you are working against compounding interest, once you’ve built up some assets that compounding interest is working for you. Thankfully I didn’t take on any consumer debt so I didn’t have anything to pay off but saving my deposit for my next house took time and progress was so slow. It was frustrating that I felt like it was going to take so long to build things back up again. The thing is, it did take a while at the beginning but I would never have imagined where I would be in five years time or in ten years time. A lot can change.
Take extreme ownership of all the outcomes in your life. Keep your focus on what is within your power to control.
You might not like where you are in life right now. It might not be your fault. It might not be fair. If you want to get ahead then focusing on whose fault it is, or what’s unfair, or whatever injustice life has dealt you will only keep you stuck right where you are.
Just take ownership that you're going to be the one to get yourself out of it. If what you want is to improve your situation, what matters is where you are right now and what you can do about it. You can’t always chose your situation. You chose your response to the situation.
Get on with life and play the hand you have. Focus on what is within your control to change.
The quicker you can move on and do this, the quicker you can start working towards your goals.
A couple of really good books if this resonates are Extreme Ownership by Jocko Willink and “Can’t Hurt Me” by David Goggins.
There are seasons in life and it’s ok to be in a financial ‘winter’ particularly if you want to prioritise other things like family.
When my marriage first broke up I had two young kids to support 2 & 5. I could have gone out and gotten work at that time but I decided to stay at home. In hindsight, I’m really glad I took a couple of years to regroup, focus on my family and find myself again before re- entering the workforce.
I was reeling from the shock of the break up. I wasn’t in the right headspace to go out and find a job. But in my head, I always knew that it was just a season and that it wasn’t permanent.
It’s ok to accept that you are in a particular financial situation now but also be using that winter to prepare yourself for the next growth phase.
Invest in yourself.
If you are in a ‘winter’ you can still use this time to soak up every bit of information you can, to better yourself for when spring comes.
While I had my time off I did most of the papers towards a Dip Bus. I served people around me in the ways that I could and while that didn’t bring in anything financially during that particular time, it meant I felt good about the contribution I was making and I think life gives back to you tenfold when you have the attitude of looking for ways you can help others.
Learn new bankable skills for when you do return to the workforce. Use free online learning like Khan Academy.
Seek out financial education and support. There are so many resources available to help single mothers improve their financial literacy. Sign up to blogs, commit to reading financial books. Look for financial education classes, or mentoring programs in your community. Go to a budget adviser or a financial adviser. Ask for free money programmes and courses at your bank. A great starter would be the Robert Kiyosaki Rich Dad Poor Dad books or websites like sorted.co.nz.
Hard times can make you stronger and less fearful.
If I can survive on nothing supporting two kids then there is nothing to fear financially as I’ve already faced my worst case financial scenario and it was still a great life. I was very blessed in that I had a brilliant support network.
The less you need, the more well off you are.
Read Essentialism by Greg McKeown. It applies to life in general but should be also applied to finance. It’s about stripping your life back to only the few things that are very important or essential, both in terms of your time, your work but also your possessions and your spending. When applying this to finance it’s not about frugality, it’s about being intentional about what you want to spend on and cutting out anything you don't. Buying quality and what you love, but not buying anything that you don’t love. It is the opposite of consumerism.
Pre-nup.
I should have gotten a pre-nup but I was young, optimistic and naïve. No one enters a marriage with the intention of it failing but people change, you will both change 100% guaranteed and unless you both stay committed sometimes it doesn’t work out. If you go into a relationship with an imbalance in assets, then a pre-nup can make sure that you agree on what happens to those pre relationship assets should you split. If you are single now, chances are it may be something you need to consider in the future.
Everyone has luck. On one hand not everyone is prepared or willing to run with the opportunity when luck comes along so they miss out on what could be good luck for them. On the other, anyone who tries to take full credit for where they are and what they’ve achieved without acknowledging at least an element of luck in their life is not being honest with themselves.
The two work together, luck and preparation. Early on I attributed a lot of my success to knowing the property market well and understanding finance. The truth is I was lucky that I bought in a rising market and that made it so much easier to buy more property. I didn't know as much as I know now about the global economy, monetary policy, what might be around the next corner etc. But you have to be in, you have to take action, take a risk to be able to benefit from luck. I was unaware of a lot of other risks and have far more experience and knowledge now but probably less appetite for risk. I remember at the time trying to talk to friends about using the money they were paying in rent towards a mortgage and many weren’t interested as it would mean they might have to take a step down in their living initially. I had a good head for numbers, I was prepared to take action and they weren’t. And I was prepared to take an initial downgrade in my living standards than what I could have afforded in order to invest and they weren’t. So the rewards for me were really good.
Keep going, Luke |
In case the contents of this email are topical, it was first sent on 3 March 2023. |
In case the contents of this email are topical, it was first sent on 10 March 2023.
Superannuation is a benefit paid to those over 65. Weekly, it is around $538 before tax (or $463 after tax) for a single person living on their own.
To qualify for this, you basically just have to turn 65 and it turns on. There are some residency and time in NZ rules but it is not income or means tested at present.
You can still be working and get superannuation too. It is taxable income, so you are taxed on it.
The superannuation benefit costs NZ taxpayers over $17billion per year. This number is growing year to year as the population ages and people are living longer.
In 2020 it was reported that over 30,000 Kiwis getting paid superannuation were earning more than $100,000 per year.
With the number of recent weather events, the realisation that we, as a nation, have to spend a lot of money on infrastructure in this country is becoming clearer and more accepted.
Who’s going to pay for this though? No one ever wants to grab the bill, right Jade? This is why so many people are allergic to the idea of any form of capital gains tax.
We need to remind ourselves that the government don’t have any money. They use debt or the money of the people (taxes). Debt is just borrowing from the future tax payer.
Ultimately, we all end up paying the bill.
If we look at superannuation alone, that’s $17 billion per year that could be spent on infrastructure.
How dare you Luke…you can’t seriously be suggesting that? I hear the older readers cry.
Of course not. That couldn’t work. Treasury figures show that for 40% of people aged 65 and over, the benefit (super) is their only source of income.
Well, who should pay? Which generation? Every generation will have a bias as to why it shouldn’t be them.
There is even chat of a new ‘flood tax’ to help raise taxes to commit to the rebuild so you know deep down its coming, SOMEONE is going to pay. We all pay in different ways, directly or indirectly.
Back to our superannuitants, and for some of them, they simply don’t/won’t need the money, BUT they are entitled to it.
If it’s not needed, perhaps it could be sent back? Sent back and committed to an area of the economy they care about, like infrastructure or health care.
Wouldn’t it be great if we had a mechanism at a national level where those people could choose where they want to direct their superannuation.
If 50% of superannuitants forego their super for JUST 1 YEAR, that’s over $8billion to re-direct to rebuilding an area of the nation. Or investing in much needed infrastructure. (Note super is taxed so some of it goes back to the govt coffers already).
We’re all in this together, right?
You might be surprised to know that there is an organisation that helps facilitate this for superannuitants already. Their main focus is helping NZ kids in poverty.
Check it out here: https://sharemysuper.org.nz
This is obviously a very complex topic but the above organisation (funded privately) shows you that people ARE thinking about this and finding ways to redistribute funds they know they are entitled to but don’t need. Perhaps some of these people donate personally too.
For many of the younger readers, you are coming to terms with the fact that we are in a time of:
How did we let this happen? Who knows!
It’s quite clear we have used debt to create better lifestyles instead of better infrastructure.
As always, the debt collector knocks on the door eventually. Someone is going to pay and most people are going to point the finger at another group and say ‘them, it’s them who should pay’.
There is no point blaming each other (generations) but we need to get on the same page about where we are going, what we want to have and collectively work out how to fund it.
Individually, we can contribute and make our own choices, so think about the impact of this over a lifetime.
Recently we have seen an action group call for over $2billion of debt owed to the Ministry of Social Development to be wiped.
It’ll be student loans eventually too, as this convo has already started.
Imagine if someone receiving superannuation could donate their annual super to clear someone else’s debt hanging over their head?
For those with debt cleared, they'd need to know their debt has been sponsored by another kiwi. We need to get back to understanding that if someone receives, someone gives.
There is so much ‘the government can pay’ when the government doesn’t have any money.
If only it were that simple, right?
Have a good weekend,
Luke
In case the contents of this email are topical, it was first sent on 17 March 2023.
The number of people struggling financially is really starting to increase.
Nearly 12% of Kiwis are currently behind on their debt repayments: personal loans, credit cards, BNPL etc.
The tough news is that inflation isn’t going anywhere and, therefore, neither are higher interest rates.
This week we learnt that food prices rose 1.5% in February from January. They are now 12% higher than a year ago. The highest food inflation rate seen since 1989 - Stats NZ.
Higher interest rates haven’t truly bitten yet either. Over $120billion of mortgage debt is due to roll from old (cheaper) rates to more current rates this year. 50% of this debt won’t be repriced until the second half of this year.
All of these factors make it harder to clear debt and to get on top of arrears.
For some reason, it can be really hard for us Kiwis to ask for help. It seems to be something we’ve mastered - not asking for help.
A lot of people will feel helpless or even embarrassed about their debt levels, so they will simply bury their heads in the sand.
We know deep down that this isn’t a solution. We have to commit to making a decision and getting on top of our problems.
It's time to start asking our mates 'How are you doing finance wise with everything going on'?
It's no different to the 'are you ok' movement.
These brave conversations don't start themselves, Jade.
For those really struggling, the good news is there are a number of organisations in New Zealand specifically designed to help people out.
Christians Against Poverty
https://www.capnz.org/get-
Citizens Advice Bureau
https://www.cab.org.nz/
Money Talks
Good Shepherd
https://goodshepherd.org.nz/
Further help
There are a number of FREE to call 0800numbers and sometimes making that call is the catalyst to changing your entire financial future.
The brain often sees making the decision as rewarding as achieving the outcome.
Getting out of debt can be a real positive as you have to become someone you currently aren’t.
You have to make a commitment to sort it, then change habits and apply discipline to get to the other side.
This is all growth and you will learn valuable skills you can apply to other areas of your life OR re-teach.
The BNPL, credit cards, finance providers are very, very good at convincing us to take on debt and we have been in a world of very cheap and easy to access credit, but eventually, you want to break that cycle and realise you are the product.
Their ‘amazing’ credit solutions are helping us live beyond our means or spend tomorrow’s earnings. That’s not how we want to live forever.
Sure, debt can be useful in some circumstances, but for a lot of kiwis right now, they are behind on payments and can’t invest/save/plan for their future because they are paying off debt from decisions of the past.
The scary thing is that when things get tight, one thing to go is investing for the future or contributing to retirement via KiwiSaver.
We are making decisions for today rather than the future and it can be hard to get back on track.
Ask for help Make a plan Stick to the plan Execute over time Become a new person in the process Learn new skills Progress.
You’ve got this.
I asked ChatGPT if there is anyone that someone in NZ struggling with debt can contact for some help and support?
It's important to reach out for help and support when struggling with debt. These organizations and resources can provide valuable guidance and assistance in managing debt and improving financial well-being.
In the coming weeks I will be recording a podcast with a Financial Mentor. That will be helpful.
Save this email Jade because I can assure you that, unfortunately, more people will need these details in the coming years.
Have a good weekend,
Luke
In case the contents of this email are topical, it was first sent on 24 March 2023.
The tax free allowance many overlook 👀
Turns out, working from home IS a thing and often employee's pay costs associated with this.
During the cerveza sickness, the IRD increased the tax free allowance when working from home (because so many people were).
Basically, employees can receive up to $20 a week, tax free, to cover any additional costs associated with working away from the office. I.e. power, telephone, internet usage or printing.
NOTE: this is paid by their employer IF THEY WANT TO, it is not an obligation.
This was set to expire on the 31st of March 2023. BUT it looks like (not confirmed) these allowances will most likely roll over and the limits will increase too.
To bring you up to speed, here are some examples of which an employer could agree to reimburse an employee for some or all of the cost of:
- equipment (for example, a computer) or furniture they bought for the purpose of working from home; or
- their mobile phone, heating or Internet plan, if they use it for work as well as for personal use.
From the 1st of April, the IRD are looking to change the limits to $7 per week for the use of telecommunications plans and equipment. As well as $20 per week for general expenditure.
Now, if we step through this, if someone qualified to be reimbursed $27 per week because their work from home is not of a minor nature, that is $1,404 per year.
Most people in this situation would be earning above $48,000 in NZ and every dollar above $48k is taxed at 30%, so a $1,000 PAYE salary becomes $700 after tax.
The tax-free allowance is the equivalent of $2,000 pre-tax PAYE income for most.
HOWEVER, these allowances are NOT to be made as part of a salary sacrifice arrangement. I am simply pointing out how meaningful this allowance could be to employees.
This is a good way to repay staff (tax free) who are genuinely working from home & spending their money on helping operate their employee’s business.
Of course, humans are quick to look at it as a loop hole rather than how relevant it actually is to them.
‘Free’ money often excites people and they miss the details. All this allowance is, is a ‘general rule’ to allow employers to genuinely reimburse those staff members working from home a lot that are incurring costs associated with completing their role/duties.
⚠️ For employees; the employer pays (if they want to), not the IRD. This isn’t something you jump online and claim. It is not your ‘right’ to receive this allowance.
⚠️ For employers; the main point to remember with this reimbursement is that if you reimburse an employee for costs associated with working from home, the payment will not become part of their taxable income (they do not pay tax on it), and businesses can claim a tax deduction for it. PLEASE check with your accountant before taking action. Remember to keep records too.
⚠️ For self-employed people; you may be claiming home office expenses yourself, so don’t confuse this with that.
This is simply a reminder of how many things there are going on (and changing) in the tax world that it can be very complicated for businesses and individuals to keep up with.
The reason that these rules exist is that a business owner can claim a percentage of their home office costs as a business expense but typically an employee can not.
The rules seek to allow the employer to reimburse the employee for some of these costs where they relate to working from home.
As our working lives become more entangled with working at home, at a cafe and on the go, it will be interesting to see how ‘old’ rules are tweaked to make for a more fitting set of tax rules.
There’s ya tax lesson for March Jade!
Just in time for the end of the financial year - exciting times for geeky accountants.
Have a great weekend,
Luke
In case the contents of this email are topical, it was first sent on 31 March 2023.
In March Stats NZ told us that Gross domestic product (GDP) fell 0.6% in the December 2022 quarter. This means we are 1/2 way to a recession. Or maybe we are the whole way?
A technical recession is 2 quarters of negative growth. 1 down, 1 to come. The second quarter is March 2022 which actually finishes today.
Guess what? We won’t get that data until June. IF we have another negative quarter, the engineered recession is here and the BREAKING NEWS, red flashing lines will be ‘NZ is in recession’. Every news outlet will lead with this story.
People will say ‘wow we are now in a recession’ when, realistically, we will have been in it for 9 months because it started in October 2022. The fear will kick in and people will question what will happen, how they should act and potentially question their own job security.
There is a famous saying that: it's a recession when your neighbour loses their job; it's a depression when you lose yours.
But someone losing their job doesn’t start a recession or a depression. It is the result of a recession/depression.
One of the main contributors to a collapse of an economy is when people stop paying each other.
The ugly truth about our economy, even when it is not in a recession, is that a lot of businesses operate pay check to pay check, just like Kiwi households.
This is a real picture from a client this month.
On the 23rd of March, they were owed $220k and $167k of this is late to be paid.
Imagine doing your job and not getting paid for it…you wouldn’t. For many business owners, this is their reality.
They check their bank account late at night to see if anyone has paid. A bit more has trickled in, but not everything.
They lay awake at night, worrying about cash.
How do they then pay their:
Oh and of course, their staff. Their team. Their employee’s.
Most businesses will prioritise paying their employee’s by what ever means possible. They’ll go into debt to do so.
You can actually get away with not paying the IRD for quite some time, especially if you communicate with them proactively.
GST goes unpaid. PAYE goes unpaid and this is an issue as your KiwiSaver contributions may not be getting paid.
The IRD is not a bank and they want to collect the tax due because it is then paid to the government to spend. But if the money isn’t there, they can’t always get it.
Listen out for people not being paid because this is a huge issue that has a flow on effect and it eventually impacts all of us in some way shape or form. The accountant not being paid, taxes not being collected(to be re-distributed) and you not getting paid / losing your job.
You losing your job isn’t how the economy comes to a grinding halt. People not getting paid is what comes first.
This is why it is so important to have an emergency fund set aside and to not leverage yourself up on cheap credit.
Hey, maybe we avoid a recession altogether, but judging by some of the sales data I saw in January and the fact clients are saying it's harder to collect payment, I’d be surprised.
The Reserve Bank have told us they need to create more unemployment, so this will be coming for some.
They have also told us that we have ‘low debt compared to other nations’ (I’d suggest not using how much debt you have compared to your neighbour as a metric of success but anyway…) so you know we’ll be taking on more debt as a nation when things get really ugly.
In the meantime:
If you’re an employee in a small business, please be mindful of what your employer is going through right now.
If you’re in business; please don’t bury your head in the sand. This cash flowing through your business is mission critical, it needs daily attention.
For all of us, REMEMBER, the Reserve Bank are openly engineering a 'shallow recession', so in June, a recession announcement may not be overly surprising, but it will have arrived earlier than first expected.
Have a bold weekend,
Luke
In case the contents of this email are topical, it was first sent on 7 April 2023.
Last week we discussed the fact that the economy is highly likely to now be in a recession.
There is no ‘growth’ and it is contracting.
I’ve seen social media comments about the economy going backward and that means that people feel less hope about their future.
Statistics New Zealand officially measure the economic data.
Then the economists, banks and the like get to compare their predictions to the official data.
Ignoring the fact they are normally wrong, you & I then get the headlines and the sound bites.
And then we say things like ‘such & such is destroying the economy’ or ‘I can’t get ahead because of the economy’, and ‘the future doesn’t look good for our generation’ etc.
My question is, did you measure yours? Yeah, your economy?
Didn’t think so.
People openly spend more than they earn and then say they are worried about the economy contracting.
What about your own? That’s a great economy to be more concerned with first Jade.
The start of the new financial year signals a great time to review the following parts of your economy:
At 31 March 2023, what:
Was your income?
Is the balance of your assets?
Liabilities do you have?
Is the balance of your emergency fund?
Is your plan to lessen the impact of inflation?
Now compare that to 31 March 2022:
Is your income increasing?
Are your assets increasing?
Please tell me your consumer debts aren’t increasing?
Did you do anything to put some emergency funds aside?
Have you learnt that inflation wasn’t ‘transitory’ and it doesn’t matter where it came from, it’s impacting you?
Most Kiwis will never do this. I released a podcast discussing this.
If you aren't keeping an eye on your finances, I suggest you learn the month-end process that I teach (see the blog and podcast lessons) as well as learn the financial templates provided in week 2 (see the blog).
The next thing I want you to think about is:
What is your financial goal for the new financial year?
What do you want to achieve and when are you going to start?
We love to have something to aim for and it helps us have direction.
At the end of this month, I am sitting down to record a webinar with James Blair from Lighthouse Financial to ask about all things financial planning.
With all the doom and gloom around, it’s worth having a plan and knowing that these times shall pass, so why not have some longer-term goals?
——> REGISTER HERE: https://lighthousefinancial.co.nz/how-to-build-your-financial-plan/
We have been encouraging our business clients to think about:
What they want to learn through a recession?
Who do they want to be on the other side?
How do they want to show up & act?
How will they make up for lost time on the other side of any downturn?
Treat yourself like a business and the CEO of your own economy and think about the above.
Zooming out and giving yourself something positive to focus on can be a great way to calm the anxiety of a rough patch. If in doubt, zoom out.
How about acquiring a new skill or knowledge set? You may not have the funds to do it right now, but why not get closer to it and learn it.
Focus on what you can control Jade: your own economy.
You are way more likely to control your own economy than the entire nation.
Happy Easter,
Luke
In case the contents of this email are topical, it was first sent on 14 April 2023.
A few weeks ago, I asked people what they would do if they won $20million in lotto.
There were some interesting answers, from the naughty to the really well thought out.
Mikey and I recorded a podcast to read out some of the answers that people gave. Check it out:
https://open.spotify.com/
The overwhelming response from home owners / mortgage owners was that they would pay off their mortgage. Naturally, a pretty common thought, right?
It got me thinking about how we climb and scamper over ourselves to get onto the property ladder, because for many of us we hate the thought of ‘paying someone else’s mortgage’ i.e. paying rent.
Getting into home ownership usually requires a mortgage and we must begrudgingly pay this too ‘who’d pay all that interest and those bankers' staff salaries?’, right? (No one says that, but they do about rent).
Yet, if we were to be given a large stack of money, the first thing we’d do is pay off the mortgage.
Maybe this is due to a guaranteed return on paying off debt? The trap we feel by the regular repayment? The goal of being mortgage free? For each it will be different.
But with $20million sitting in the bank, surely things would change?
We could quite simply offset our mortgage so that we don’t pay any interest on our mortgage and then use interest income (after tax) from the remaining money to meet our mortgage repayments.
A 5% interest return on $19,000,000 (we put $1,000,000 aside to offset the mortgage and yes this is too much for many) is $950,000 in income in a year.
Welcome to the top tax bracket Jade, you’ll be up for 39% tax on income above $180,000. So you’d want to use a PIE Fund Term Deposit to cap tax at 28% and only pay $266,000 in tax on your PIE Term deposit. Leaving you with $684,000.
After year one, most people could pay off their mortgage with the after-tax, interest return from locking the cash up for one year. The average mortgage in NZ is under $400,000.
You'd still have your $20million and you'd be mortgage free too.
I’m not saying this is ‘the best’ thing to do, I am showing you how you’d have to learn to think differently and how if you won the lotto you’d need some time to become the person with $20million instead of using the skills you have at present.
Remember that future governments are going to inflate away debt by printing more and more money and in 20 years' time houses will most likely be worth more than they are today.
Plot Twist: you’re not going to win $20million in Lotto Jade. Sorry, I know, booo but enough day dreaming.
For most of us, we won’t get to learn these skills as we won’t win $20million or ever have that liquid in life. But it’s fun to think about, right?
But, why not aim to pay your mortgage off faster than you currently are? Have you used a mortgage calculator to see what an extra repayment does to the lifetime of your loan?
Let’s look at a $500,000 loan at an average of 4.5% over 30 years.
Many kiwis have a spare room in their house. If they had a boarder and made an extra $400 in payments per fortnight, they’d shave 11 years, 7 months off their mortgage.
If they had a side hustle and made an extra $200 in payments per month, they’d shave 4 years, 2 months off their mortgage.
If they found a way to make $1,000 extra per month (after tax) and use it for payments, they’d shave 13 years & 1 month off their mortgage.
Just because you took the loan out over 30 years doesn’t mean you want to repay it for 30 years, do you?
If I had a mortgage, I wouldn’t be spit balling about paying it off by winning lotto, I would be exploring ways to make more cash to get the mortgage off my back faster.
In NZ we don’t teach people ways to make more money. Instead, we scare people with misunderstood concepts like ‘secondary tax’ or tell people to have ‘work life balance’. I don’t think going to work for 40 hours a week to keep your house has a lot of ‘balance’ to it anyway, but it’s a nice concept.
Once again and like last week: focus on what you can control. You are way more likely to control your own income and mortgage repayments than hoping for a lotto win!
Reminder: at the end of this month, I am sitting down to record a webinar with James Blair from Lighthouse Financial to ask about all things financial planning. 700+ people have registered.
——> REGISTER HERE: https://
Have an amazing weekend,
Luke
In case the contents of this email are topical, it was first sent on 21 April 2023.
This week I was going to tell you about how our top CEO's don't actually earn much compared to some people you may know.
But I've seen people celebrating an inflation victory and I want to remind you that the fight isn't over. Let's get a dose of reality Jade.
When you’ve been getting beat up repeatedly, often you look at landing a punch as a win.
Yesterday, people were celebrating the fact that inflation was lower in the March 2023 quarter than it was expected to be.
A quick reminder that the inflation target in NZ is between 1- 3%. This is where we see inflation being ‘acceptable’.
Annual inflation to March 2023 was 6.7%. Hooray, it’s double the maximum accepted inflation in the country. Let’s celebrate?
Shock horror, the economists and forecasters got their inflation expectations wrong again. Let’s celebrate?
Inflation has come down from 7.2% which it was in the December quarter. That’s genuinely good.
But we are still losing the battle and have been getting our a$$ kicked for a lot of time.
If this was a sport, we are not celebrating genuine wins, we are celebrating our losses not being as big as we expected.
Inflation has been outside the targeted range for 2 years now.
Remember when you were told inflation was transitory - that meant you didn’t have to worry, so you took no action.
Remember when you believed ‘inflation is a global problem’ - that meant you didn’t have to worry, so you took no action.
A quick reminder where we’ve come from:
March quarter of 2021 inflation was 1.5%
June quarter of 2021 inflation was 3.3%
To September 2021 it was 4.9%
To December 2021 it was 5.9%
To March 2022 it was 6.9%
To June 2022 it was 7.3%
To September 2022 it was 7.2%
To December 2022 it was 7.2%
⚠️ To March 2023 it was 6.7%
I need you to remember that costs in March 2023 are 6.7% dearer than they were in March 2022.
Costs in March 2022 were 6.9% dearer than they were in March 2021.
Costs in March 2021 were 1.5% dearer then they were in 2020.
Costs in March 2020 were 2.5% dearer than they were in March 2019.
Have you been increasing your AFTER TAX income in line with inflation over that 4 years?
You know you buy goods and services with after-tax dollars right? Not with your before tax pay increase.
The impact of inflation is compounding and it is brutal on your purchasing power.
Starting to make sense now Jade?
It is great that inflation has decreased, but it’s still too high. It’s great that it was less than economists predicted, but they are always wrong.
What is not great is that non-tradeable inflation actually increased in the March 2023 quarter. It’s at 6.8% which is actually the highest it’s been since they started recording data in 1999.
What is non-tradeable inflation? It measures the prices of goods & services that do not have any sort of foreign competition. It’s our domestic inflation as such.
Remember that ‘inflation is a global issue’ thing? Yeah, nah sorry. The market is the market, is the market and it is punishing us for how we’ve treated it.
I don’t want you living with a false sense of reality that we have beaten inflation and that interest rates can't go up from here.
The Reserve Bank will want to keep the heat on this non-tradeable inflation and we could see further rate rises.
This is also a good time for me to remind you that the minimum wage increased from the 1st of April (the day after the 31 March quarter ended). So did superannuation and other benefits. That money will be spent in the economy.
Oh, remember that fuel is currently subsidised to 30 June 2023 (the last day of the current quarter) so we aren’t even paying the true cost for fuel and the true input cost of transport isn’t in the pricing of all things we pay for.
Damn, it isn’t even Christmas and I feel like the grinch writing this.
Don’t get me wrong, I want inflation to f@rk right off. I’ve been trying to teach people to get ready and be careful since August 2020.
I don’t want you to let your guard down Jade.
I don’t want you to be one of those ‘it’s a global problem’ people because that’s your way of giving yourself an excuse that you can not do anything about it.
You live in New Zealand, so the NZ data is your concern, not what is happening around the world.
I’ve been telling you time and again:
• Have an emergency fund for peace of mind and re-balance it for inflation
• Clear high interest debt (credit card, BNPL, personal loans)
• Remove access to unneeded credit to avoid the temptation of spending it
• Consider present spending limits and avoiding going into debt for summer fun
• Have a mortgage? Understand when your rates change & what that does to your budget
• Buying property? Budget on relevant interest rates. Seek advice from a mortgage advisor
• If you’ve been putting off price rises, you might need that brave decision
• What unnecessary costs can you clean out of your budget?
• What have you done to increase your income?
I am encouraged by the messages that I receive on instagram about the actions people have taken who have been listening and learning for some time. The income they’ve added to their household. The debt they’ve cleared. The funds they have stacked. Well done!
Keep your hands up and be ready to defend yourself at all times because this fight is not over.
We have just finished the eighth round and we’ve lost each of them. All that happened was that we finally landed 1 right hook.
Reminder: at the end of this month, I am sitting down to record a webinar with James Blair from Lighthouse Financial to ask about all things financial planning. 900+ people have registered.
——> REGISTER HERE: https://lighthousefinancial.co.nz/how-to-build-your-financial-plan/
Don't get carried away this weekend,
Luke
In case the contents of this email are topical, it was first sent on 28 April 2023.
Recently the Herald Business desk put together a list of the top 10 salaries of CEO’s in NZ.
The top 10 salaries were:
I have left out who they were so that you don’t get triggered by the business and stop reading ;).
I hear and read things like:
There are plenty of positive comments too, which is great to see.
Before we carry on, remember that for every dollar earned above $180,000 they are now paying 39% in tax. (This was 33% until 31 March 2021). That 6% increase in tax rate was costly for a lot of these people.
I.e. A $3.5million salary in the 2021 financial year = $2.35mil after tax and ACC
Now, a $3.5million salary in the 2022 financial year = $2.15mil after tax and ACC.
I.e. A $6.5million salary in the 2021 financial year = $4.36mil after tax and ACC
Now, a $6.5million salary in the 2022 financial year = $3.98mil after tax and ACC.
This is where people message me and say, ‘no they have trusts and tax loopholes’.
OK sorry I wasn’t aware you knew about their structuring agreements. It’s funny when ever I ask these types of commenters for a specific example of someone in one of these roles doing this, they can’t give me details.
Anyway, a lot of these salaries are packages so they include things like share rights after ‘x’ number of years based on what targets they are or are not hitting. Often, they have to sell the shares to access the cash.
Remember, these people can easily lose their jobs, reputations and income-earning abilities. OR they can simply look overseas for more competitive salaries and taxes.
At this point you are thinking I am here to defend these CEO’s and what they earn. As always, this email isn’t even about that Jade.
Let’s take a twist…
So you thought those salaries were huge?
You let them get you all wound up. How dear they earn way more than you and I.
Well, check out these incomes:
Guess what these earners do for a living?
That’s the incomes of the top 10 YouTubers in the world. Oh, by the way, that’s US$, so you will need to multiply by 1.6.
Most of these people are a lot younger than our top NZ CEO’s too.
What do you think this lot think about our top 10 CEO salaries to run NZ companies?
They’d laugh. ‘Is that all’…
We are all limited by the thoughts we have. We live in a small country, so we think small. We almost attack big.
We forget the world is a huge, abundant place with massive opportunity.
Big salary? Oh, you must not deserve it, you can’t earn it and you sure as hell don’t need it, so you had better pay more tax!
Says who? You and I! Where did we learn this?
Desire will take you further than envy Jade.
What the hell does a top NZ CEO salary have to do with you and I anyway? How is your mental rent spent on this a good use of your thinking? Will it clear your mortgage faster? Will it get you closer to an amazing retirement?
Also, have any of us ever asked a NZ CEO what their life is like? Of course not.
Instead of whining about how they are over paid because we don’t understand what they actually do and the responsibility they have, why don't we try to learn about what they do and become a CEO ourselves?
Step 1, step up and become the CEO of your life and household:
Oh baby, it doesn't sound so simple all of a sudden now, does it?
Most of us struggle to maximise our own lives, let alone one of NZ's largest companies.
Who cares what they get paid, they do so because they are good at what they do, otherwise you and I would have their jobs.
Focus on what they do and implement some of those things into your own life and household.
Study CEO’s, don’t envy them. After all, they earn chicken sh!t compared to the world's most popular YouTubers. Gee, imagine what you think about them!
Once again, and like recent weeks: focus on what you can control. You are way more likely to control your own income and life than the highest paid CEO's in New Zealand.
Have an amazing weekend,
Luke
In case the contents of this email are topical, it was first sent on 5 May 2023.
It’s tax time, (don’t switch off!) so each morning, I have been getting up, jumping on my laptop to do a quick bit of work.
I have been using real-time financial data available through Xero to help me understand how clients have performed in the 2023 financial year (ended 31 March).
From there, I can advise clients on what tax they should pay this month to help them smooth their cash flow & help them avoid surprises that impact cash flow & keep them awake at night.
I can also advise them on chasing overdue payments that haven’t been made and how to automate reminders as well as what technology speeds this up.
All of this financial information sits in ‘the cloud’ and means I can access it from anywhere in the world too. I don’t need to go into the office or rely on a server to access the information.
When I first started in accounting, the server was a massive cost and a big barrier to entry into the accounting industry. Data wasn’t timely and it was outdated by the time you went to advise clients on it. Often it was all too late and added no value.
Because of Xero, I’ve been able to start my own practice, build out a client base and give them advice based on real-time financial data mapped daily to the businesses' bank transactions (I used to manually enter each transaction at the end of every 2 months - yup line by line from paper statement to the accounting software - real high value high productivity set up huh?).
With my spare time, I’ve been able to build a financial literacy platform that has now helped thousands of kiwis improve their own financial journey.
Hey Jade this is how you’re reading this.
My tax bill is now higher than my salary was when I was employed.
I can now donate money to causes and issues that I care about with money that I’ve earned. It’s a great feeling being in a position to do that.
For me, many in my industry and for business owners, a lot of this would not be possible if someone didn’t start Xero.
The founders of Xero are now billionaires. Many early employees are set for life, as are early shareholders.
These people most likely wouldn’t have paid tax on the sale of their shares. Not purposely, but because that’s the rules and how things are set up.
Is this fair? Well, everyone has their own different definition of fair, right?
I get it, in the eyes of many, we are long overdue for some form of capital gains tax.
Mostly because the powers that be keep inflating asset prices in the country via increasing money supply and we don’t tax these gains.
This is nothing new. We’ve known that we don’t tax capital gains for quite some time.
Hell, even the pioneering Prime Minister Jacinda Ardern, was too scared to implement it and ruled it out in 2019 before the wealthy accumulated even more of the wealth in the country.
Bad timing to not be brave....
Recent IRD research shows:
In 2017, the wealthiest New Zealanders made 'economic income' of $1 billion.
In 2021, the wealthiest New Zealanders made 'economic income' $14.6 billion.
Whoopsie!
Be mindful here that 'economic income' includes on paper unrealised gains.
I am not sure what the solution is, but it's clear that a lot of New Zealanders aren't satisfied with the status quo. Makes sense to me.
I am not sure that taxing all of this will even change mine or your life Jade? Will it even improve the country?
I don’t know but it doesn’t feel like it, so I don’t know how we can be so confident a capital gains tax will be the silver bullet?
Perhaps we could only use capital gains taxes for capital (infrastructure) projects. OR each year we have a nationwide referendum for the spend so that the country chooses, not the politicans.
Who knows!
What I do know is that I wouldn’t be where I am today if it weren’t for some of the people who have built and sold massive businesses that have changed my life and, in turn, yours too.
Let us not forget the contribution that ‘the rich’ or 'the wealthy' make in our countries and communities too. The opportunities they create from the risk they take. The voluntary donations they make. We don’t measure that.
Is it fair that they contribute a lot more in their chosen area than you and I? They create more jobs than you and I? They think bigger and export to overseas nations and in return increase our economy?
We don’t always have to look at everything with such a negative lens filled with unfairness and envy.
One thing I’ve learnt is that reports come and get shelved. Politicians promise you change and then let you down.
Change starts in the mirror, every single time.
If you want something more from your life, don't rely on an IRD report, your favourite politician or a desire to see more taken off of others.
Even with a capital gains tax, after 2 to 3 years, a lot of people will be in the exact same financial position as they are today and still be angry at how things work.
Be careful where you pin your hopes.
Have an amazing weekend,
Luke
In case the contents of this email are topical, it was first sent on 12 May 2023.
We are approaching 3 years of Keep The Change hitting kiwis inboxes.
The very first edition of Money Mail went out on the 22nd of May 2020.
I was going to write about this next week but we may have something special in the upcoming budget to discuss.
There were 201 recipients from people who had signalled interest in learning.
Things looked a little different back then as we navigated a pretty unique time.
3 years on, there are now over 7,500 readers each week via email and LinkedIn.
Obviously, audio is the fashionable thing, so I knew I needed to start recording podcast versions.
The first of those was published on the 18th of May 2021. Basically a year later.
I had to sit down and record 52 lessons to play catch up. That’s a grind, but locking me down couldn’t keep me from working Jade.
There were over 27,500 listeners to the podcast in April 2023.
What have we learnt from 3 years of KTC?
For you, I hope, plenty!!!
One thing that has become clear to me is that financial literacy is more important now than ever before.
It has been incredibly rewarding to see the progress a number of you have made & to be able to provide some financial warning before the testing times of inflation & higher interest rates arrived.
Many of you have moved from pay check to pay check living and instead have a buffer in your emergency fund.
You know what the official cash rate is and who the Reserve Bank of New Zealand is.
Some of you have braved it and put yourself out there for a pay-rise, a new form of income or asked for help.
Action is the antidote to anxiety; it is so cool to see so many people taking some form of action.
I can type, verbalise and throw my pen at the camera as much as you like, but the real change comes from your action Jade.
The most rewarding thing for me to see is people changing their beliefs.
Whether it be about secondary/double tax (grrrr), getting ahead, what is actually possible or just being empowered to look at finances differently. That inspires me. You have to believe things can be better first.
OK, for some people, they can’t and won’t believe things could be different due to that being a pretty true reality for them. BUT our welfare system picks up so many of these people and provides for them in ways other countries don't and can't.
For a lot of us reading, we have no excuse NOT to believe & to dream. Where the fark did our belief in ourselves & each other go? We are so powerful & capable of so much more than we think.
Many people have installed the wrong money software and their output reflects it. Instead of keeping it to themselves, they try and install it in other people too.
Get rid of that sh!t that slows you down in your money journey too. The software you downloaded that doesn’t serve you well. That steals your belief.
This weekly writing has also encouraged me to stay consistent and think about showing up for you all every Friday for 3 years. It has also made me think about what questions you’d want answered when I interview people or research financial situations.
Opportunities are coming out of the reach of the content too, which is exciting for me and I am sure these will only get bigger.
KTC reminds us all that by helping other people, you can help yourself. That is incredibly important to remember.
The more people you help, the more people will want to help you in return.
A brilliant reminder for us to consider helping other people, especially as we go into further testing times where it can be hard to think of others when we are trying to keep ourselves in good stead.
Over the last 3 years, I have learned so much too and like to think I have grown as a writer and producer, so thank you Jade.
The world of finance and economics can be boring, complex and intimidating. I have tried to simplify these concepts and make them accessible to all of you, and I hope that I have succeeded in doing so.
More than that, I have constantly tried my best to provide you with practical tips and advice that you can use in your daily lives. This is the piece I believe is usually missing in finance stories.
When people give me the ‘easy for you to say’ BS, I get to give them the video or podcast where I explain how many people can too.
One thing that became clear quickly is the importance of community. I am constantly inspired by the engagement and support of all of you.
I am 1 person. I want to inspire 100,000 people. 100,000 of you can inspire 10 people each. That’s the true value of KTC, not me!
The comments, feedback, and questions I receive from you motivate me to keep writing and producing content that you find valuable.
I am truly grateful for all of your support and for your attention. I do not take this lightly.
Before we get stuck into year 4, I want to remind you Jade. I am not perfect. I am not your minted inspiration. I make mistakes. I did dumb sh!t and still do. I over indulge. I don’t know everything & I don’t claim to. I try to learn every day. I try to teach every day.
I am on my journey and I have set that. You need to go on your journey. You have to set that. I am just here to encourage you to do so.
What are you fluffing around at? Get stuck in,
Luke
In case the contents of this email are topical, it was first sent on 19 May 2023.
Thanks to everyone who sent in messages to celebrate 3 years of Keep The Change.
This week we have had the annual budget come out for the nation. Some people are calling it boring, others breadcrumbs and others a belter.
In last years, budget income earners under $70,000 celebrated the fact that they would get a $350 cost of living payment.
This got a lot of people talking about the budget, naturally. But not this time.
This year seemed a bit more standard procedure and there may not be anything too sexy in there for you Jade.
Never fear, we have an election coming up, so no doubt all of the politicians have a few aces tucked up their sleeves.
This year's ‘flagship’ commitment in the budget was to those with children the age of 2. From March, 2-year-olds will be eligible for 20 hours of free early childhood care each week. Previously, this was available to children 3 to 5 years old.
The extension of the eligibility for the 20 hours of free early childcare is expected to cost $1.24 billion over the next 4 years.
How will we pay for that? Don't worry, trust owners have got you!
The top tax rate for trusts will move from 33% to 39% to be in line with the top personal tax rate. This is expected to raise $350 million annually.
The trust tax increase will more than fund the increased cost of the 20 hours of free early childhood care for 2-year-olds.
What will be popular too is that the Government will pay a matching KiwiSaver ‘employer’ contribution to paid parental leave recipients.
One of the other interesting things I spotted was that Treasury now expects inflation to be under 3% next year - that would be great, but I’m not too sure. Let’s keep an eye on that.
The Treasury was also no longer forecasting a recession for the country. Great news...they must have data for March that you and I won't see until June that will confirm whether we are in a recession for the October to March 2023 period.
(The Treasury is ''the Government’s lead economic and financial adviser and steward of the public sector financial management and regulatory systems'').
As a nation, we will be running a deficit (spending more than we earn) until the year ending June 2025. That deficit is of course, funded by debt.
We will return to a small surplus in 2026 but, of course, this doesn't forsee any pandemics, disasters or economic crashes which may require more funding and therefore more debt, as we don't save for a rainy day, we borrow when it p!sses down.
We all know that living beyond our means isn’t a good idea for too long, so don’t you go getting any bloody ideas Jade.
Budgeting, hey, it can be pretty boring stuff, but it’s important because it shows us how we (as a country) will fund different areas of need.
This is no different for you and I. Let’s go back to basics quickly.
What is a budget?
A budget is a financial plan that outlines an individual's or organisation’s (or country's) projected income and expenses over a specific period, typically on a monthly, quarterly, or annual basis.
Since week 2 of Keep The Change, I have been referring to my ‘financial planner’ template that I encourage people to use monthly to monitor their net worth and to monitor their cash ins and outs for their relevant pay cycle. See below if you need the template.
Why should we budget?
Budgeting will help you manage your finances effectively, set & achieve financial goals, and guide decision making. It provides clarity, control, and a roadmap to navigate your own financial journey because everyone is different and we all have different start lines and expected finish lines.
There is a big chance that yesterday’s budget isn’t as important as your budget Jade.
Perhaps the question shouldn’t be ‘what’s in the budget for me?’, it needs to be ‘what’s in the budget for New Zealand?’.
How the government spends its income is important because it is tax payers (and future taxpayers) money, but remember that YOUR budget is as (if not, more) important.
Make sure you’re doing something to keep an eye on what’s coming in and what’s going out.
It's easy to be critical of the government's spending, but are we critical of our own?
If you want the KTC template, download a copy here:
https://docs.google.com/
Get budgeting,
Luke
In case the contents of this email are topical, it was first sent on 26 May 2023.
On Wednesday, the Reserve Bank increased the OCR (Official Cash Rate) for the 12th straight time. It now sits at 5.5%.
This will have been scary for some and just another increase for others.
The Reserve Bank said this increase should have already been factored in by most banks in terms of rates for debt they are selling as well as payments for deposits.
Recently, the banks you and I use started to anticipate that the OCR would reach 6% but the Reserve Banks forecasted OCR graphs that came out this week show the current 5.5% being about as high as they should need to go to kill the inflation demon.
Note: the banks have been horrible at predicting where rates will get to but hey, they still get the coverage. I.e. the same bank that said we will now see a 6% top only saw a 3.5% top 12 months ago.
Grain of salt and all that! Remember to budget for higher rates and higher inflation and you’ll then take actions toward combatting both and hopefully, you get a triple treat where you’ve increased your income, get lower inflation than expected and interest rates start to fall.
The good news though is that the Reserve Bank, have forecast out into the future and, at present, the OCR looks to have peaked and will decline from here to be just above 3% in 2026.
That will no doubt excite a lot of people. But given that it's been so uncertain, it’s not easy to trust the experts in charge at the moment, is it?
The KTC Instagram audience voted on whether this would be the end of OCR increases and 79% said no.
We might need some counselling because we’ve got some serious trust issues Jade.
Even if the OCR has peaked, it doesn’t mean that it just decreases rapidly from here. In fact, the Reserve Bank had this to say:
The Monetary Policy Committee reached a consensus that interest rates will need to remain at a restrictive level for the foreseeable future, to ensure consumer price inflation returns to the 1 to 3% target range while supporting maximum sustainable employment.
Dont be surprised if the OCR stays higher for longer. (See this weeks 'Did you know' below....).
What the hell is a ‘restrictive level’? Who knows but it sounds like 50/50 language designed to give them room to have a rate that can stay on top of inflation.
Anyway, 2026 is a long way away in a world of AI, weather events, disasters, elections, economics and financial hurricanes.
So don’t get too comfortable and believe that it’s all smooth sailing from here. OR that your house price will rocket up again and you can borrow for a new, sustainable, filtered spa bath on the deck you through would add value to your house during the pandemic. A unicorn isn’t coming to sh!t out a pay rise in your back yard for you to make cash angels in either. That’s not how money works.
At the last OCR announcement and increase, I reminded you to be aware that from the 1st of July your petrol is going to become more expensive too. Don’t forget to budget for that. The current subsidy on fuel we have all gotten used to won’t be extended.
The next OCR update is the 12th of July 2023 so we have a couple of months to wait to see what happens next. All of the forecasts will be updated again.
In the meantime, a reminder: ALWAYS map your actions toward achieving the things that YOU want from YOUR life.
What’s your plan? Where are you going? What do you want? Who do you want to be? How do you want to do it?
I.e. if you want to pay off your mortgage faster, don’t rely on a future OCR drop for your interest cost to decrease. What actions can you take to clear more of your mortgage faster?
Don’t just look at the current period too, make this a 1 to 2 decade project.
These economic times will change, so think about the longer term and beyond the current inflation and OCR sh!t show we’ve had to live through.
You’re a leader whether you like it or not Jade. A leader of your household, a leader of your education, your children’s education and a leader of the attack on your mortgage.
A key role of a leader is to bring certainty to an uncertain situation. It’s sure as sh!t been uncertain out there so do what you can to bring some certainty back to your situation.
The Reserve Bank tried to do that for us this week. But I haven’t done my counselling sessions so I’ve got trust issues and I suspect you do too.
Don’t take this week as a ‘she’ll be right’ moment, because no one knows what’s around the corner, even the experts.
On ya toes,
Luke
In case the contents of this email are topical, it was first sent on 2nd June
2023.
From the 1st of April 2023, interest incurred on rental properties will now only be 50% tax deductible.
I know most of you will have no idea what that means, so today we are going to learn about this because it’s actually quite a big deal and something you will hear a fair bit about this year.
Before we do, let’s go back to basics.
New Zealanders have long had an obsession with rental property investment.
Our obsession comes from a combination of favourable market conditions, ‘passive income’ generation, untaxed capital gains, being able to touch our investment, passed down education, tax advantages, portfolio diversification, and long-term wealth creation.
As house prices have increased over the last 40 years (inflated by debt) and interest rates reduced, it’s been a no-brainier bet for people to make. It's been simple to understand too and relatively 'risk-free' in the eyes of many.
You could borrow against equity (difference between house value and debt) in one property to buy another one and rinse and repeat - this works when you can afford to pay the mortgages (tenants help too) and house prices are increasing.
I’ve recently done podcasts with people who own multiple properties and asked them about their journey. Check those out if you want to learn more about the process.
Historically, if you have had a rental property, you’ve been able to claim 100% of your interest cost as a tax-deductible expense.
A tax deductible expense reduces taxable profits and, therefore, the amount of income taxes owed.
A rental property owner has income in the form of rent. It looks a bit like this:
Rental income is the total rent received throughout the year from tenants.
Less expenses like accounting fees, bank fees, depreciation on chattels, insurance, interest expense***, property management fees, repairs, rates, travel (for inspections of course), amongst other expenses.
Equals Profit (to pay tax on) or loss (to carry forward to offset future profits).
Tax is then paid on the profit based on the tax rate of the owner of the property. I.e. an individual at marginal tax rates or trust at the trust tax rate.
***As you have probably already worked out, one of the largest expenses for a rental would be interest. Because this is being fazed out over time to be ‘non-deductible’, landlords will have higher profits and therefore higher taxes on those profits.
This is already surprising some landlords who haven’t understood this change very well or are new to the rental game.
Further to this, rental property owners would often structure their debt so that the maximum possible debt (incurring an interest expense) is held under the rental property and less is held under their personal property (because this isn’t tax deductible).
Prior to 1 October 2021, interest was 100% deductible and then it was decreased to 75% mid way through the 2022 financial year. In the 2023 financial year(ended 31 March 2023) interest was only 75% tax deductible. From 1 April 2023, it will move to be 50% deductible.
To keep it simple for you Jade...
For the 2021 financial year, a rental with a mortgage of $500,000 @5% would have $25,000 interest and claim $25,000 as a tax-deductible expense.
For the 2024 financial year, a rental with a mortgage of $500,000 @5% would have $25,000 interest and claim $12,500 as a tax-deductible expense.
From the 1st of April 2025, interest on rental properties will be 0% tax deductible.
This is, of course, if politicians don’t change it again…
Higher profits mean higher taxes and landlords will need to budget for this.
A lot of people with rental properties will have incomes over $48,000, so their tax rate on any extra income (like rental profits) will be at least 30% if the property is owned personally. You can see how this tax will add up quickly for a ‘Mum and Dad investor’ with 1 rental property.
Unfortunately for renters, some of this will no doubt be covered by an increase in rents implemented by landlords who will then tuck the increase aside for eventual taxes.
There are also exceptions to this rule where new builds are often exempt from interest deductibility changes. This is most likely because we want to encourage people to build new houses in New Zealand.
There you have it, a tax lesson for your Friday. That will help you understand why politicians are talking about ‘rolling back’ interest deductibility changes as we head toward the election.
Landlords will be hoping so anyway…
REMINDER: ensure you’ve contributed $1,042.86 to KiwiSaver by the 30th of June to ensure you receive the Maximum Member Tax Credit of $521.43. You can check your contribution for the Period 01-Jul-2022 to 30-Jun-2023 via MyIR or your KiwiSaver provider.
Have a brilliant weekend,
Luke
In case the contents of this email are topical, it was first sent on 9th June 2023.
For many of us, we price things in a unit we can measure.
I’m a big fan of Subway, it’s easily my most ordered fast food. I don’t know if it’s healthy or not but I can’t resist it.
Who doesn’t love a footlong? Or to get a six inch in ya?
You and I both don’t need the cookie up-sell or the $6 bottle of coke though, so be mindful of those margin builders. Especially in these inflationary times.
My love for a footlong meant that for years, when I would go other places to buy lunch, I would compare the price against a footlong.
‘That sandwich isn’t worth it, it’s way too expensive, I could get a footlong for that’.
That sort of mentality.
This held me back for quite some time as I continued to think scarcely. I lived in a constant mode of comparison instead of just enjoying what was in front of me and accepting what things cost.
Now, for many of us, we get paid by the hour.
We go out shopping and then price things on a per hour basis.
I.e. If you earn $30 an hour, you may price a $150 bag as 5 hours of work.
It can often be good for us to understand how many hours of work items will cost us. This may encourage or discourage you to purchase it.
On the POSITIVE side, this can lead to a greater appreciation for the items or services you purchase and a more cautious approach to spending.
Regularly evaluating prices in terms of your hourly wage can serve as a motivator to explore higher-paying job opportunities, becoming more valuable or seeking professional growth.
It may also lead to reflecting on the value you place on your time and whether your current employment/earning capacity aligns with your personal goals and aspirations.
One thing we need to remember is TAXES! The accountant had to bring up taxes again Jade!
We don’t get paid in pre-tax dollars but instead, after-tax dollars.
If you get paid $30 per hour for 2,080 hours per year (52 weeks x 40 hours) you would earn $62,400 before tax (and 3% KiwiSaver in this example).
After tax, ACC and KiwiSaver, you would have $47,833.28.
If you divide this by 2080 hours, you’re on $23 per hour in the pocket (or bank account these days).
That $150 bag is no longer 5 hours' work, but, in fact, 6 and a half hours of work. Yikes!
This is an important concept to understand, because as you earn over $48,000 in NZ, you lose 30% to 33% OF THOSE DOLLARS ABOVE $48k, to tax (yelling through capitals before someone tells me ‘it Only Da MuNy ovA $48k Doh L!ar’.
Given 2,080 hours of minimum wage near on takes you to the 30% tax rate for income above $48k and our median income in NZ is now above $60k, you MUST understand this.
When you innocently take on new debt like a credit card or consumer finance, you need to repay this debt with after-tax income. A $2k credit card increase will really take most of you a pay rise of more than $3k to repay.
Let's get back to comparisons with a question for you Jade.
What do you use to compare purchases to? We’ve all got something we anchor things against.
For instance, a real estate agent may think ‘that’s just one more house sale’.
Someone with an ability to work overtime may think ‘that’s just a few more hours of overtime’.
We often price things in the currency we swap. Hours for some. Number of goods or services for others.
If this is not serving you well you do not want to get stuck here, as it can be hard to let go of and not understand the impact this is having on you.
On the NEGATIVE side, if you frequently perceive prices in terms of your hourly wage, it may lead to increased stress and frustration, particularly if you feel that items or experiences are unaffordable or require a significant amount of your time to earn.
This constant mental calculation can create a sense of financial pressure and potentially impact your well-being.
You might also fall into the trap of prioritising items that provide immediate gratification instead of long-term benefits. I.e. buying now to make the hours you put in feel rewarding instead of investing for the long term and feeling like you got nothing back in return RIGHT NOW.
You may also undervalue experiences that don't align with your hourly wage/how you price things. I.e. you may see other people’s spending as wasteful without understanding how they see the value of that spending and how they price things as being worthwhile to them.
How strangers spend their money most probably isn't worthwhile being too much of your concern. However, in relationships, this may need to be understood.
This narrow perspective may limit your ability to appreciate non-monetary aspects of life.
It is a very complex topic to understand because we are all so very different.
Some people may find pricing things in hours as empowering and motivating, while others may feel stress and negative emotions.
Ultimately, like most things financial, finding a balance between financial awareness and maintaining a healthy mindset is crucial.
My challenge for you is to be mindful of this and see if you catch yourself doing this. Is it serving you well or is it hindering you?
And before you buy, remember, is a $150 bag 5 hours' work when you make $30 an hour?
Have a thoughtful weekend,
Luke
In case the contents of this email are topical, it was first sent on 16th June 2023.
Well well well...they told us we were, then we weren't, then we might be, then we dodged it, but now, data confirms we are in a recession and have been since the 1st of October 2022.
I could add to the convo and write about this for you, but really, KTC content was designed to get you ready for this over the last 9 months.
I will give you one reminder from Money Mail 151 when I said this day would come:
IF we have another negative quarter, the engineered recession is here and the BREAKING NEWS, red flashing lines will be ‘NZ is in recession’. Every news outlet will lead with this story.
People will say ‘wow we are now in a recession’ when realistically, we will have been in it for 9 months because it started in October 2022. The fear will kick in and people will question what will happen, how they should act and potentially query their own job security.
Just like the weather, we go through seasons. You can't control the seasons, but you can control how you let the seasons impact you.
This is no different for you and I. If we just sit around not doing anything and not doing the things we know we need to do, we end up in a rut.
No matter what ends up happening in the economy, you need to remember that you can still control the actions that you take!
Focus on what you can control!
Right, this week, let's look at a positive. It's a BIG one!
In 2021, Statistics NZ reported that there are just over 562,000 businesses in NZ.
I think there is a big misconception in NZ that business owners have it good and if the big companies can do things, why can’t the small ones?
Just a heads up: 35.5% of businesses have sales of less than $100k. Only 14.6% of businesses have sales over $1,000,000 in NZ. More on this another day…
For now, you may hear people asking…where are the bean bags, the 4 day work weeks, the superannuation top ups, the vegan cup cakes, the unlimited sick days, the free 498 inch wide screen on the ergo desk? Come on small business, just provide it!
If you’ve been employed in your life, there’s a high chance you’re working alongside the 70.65% of people who work in organisations with 20 people or more.
Guess what, 3% of kiwi businesses hire that 70.65% of people too.
Did you know that 57% of kiwis work in an organisation that has over 50 staff?
Guess what, 1% of kiwi businesses hire that 57% of people.
Pretty concentrated at the top huh Jade.
29.3% of kiwis are employed by a business with 20 or fewer staff.
Guess what, 97% of kiwi businesses have fewer than 20 staff and hire that 29.3% of people.
You might be surprised to know that New Zealand’s total workforce is 2,393,400 people. This is from Stats NZ’s Business Demography data.
The public sector employed around 448,200 of those people in 2022. That is 18.7% of New Zealand’s total workforce. (88%) work in central government (395,000) and 12% in local government (53,200).
Over the last 5 years, the overall public sector workforce increased by 15.3% (with central government up 15.7% and local government up 12.5%). This compares with a 9.4% growth in the private sector over the same period.
By now you’ve had more stats than your 5th form/Year11 math class and you want me to slow down before you throw a blackboard duster at me.
You get it right? Most people are employed by a very small percentage of businesses and your sense of what other businesses will be like may be distorted by this.
But this isn’t the statistic I want you to focus on. Instead it is this:
71% of these businesses have 0 employees.
You might be surprised to know that over 400,000 of our 546,000 businesses in NZ hire 0 staff.
I think this is single-handedly our biggest opportunity in New Zealand.
If they’re solving a problem in the market that can be scaled, imagine if we could teach these people to be employers and to scale? (IF they want to!).
This week, I was part of a group dinner with a politician and I said I believe this to be our biggest opportunity as a nation.
I also apologised and said I don’t mean to offend politicians, but I don’t believe it will be them who solve NZ’s problems, create jobs, invent technology, speed up processes, save time, educate people, up-skill people or find solutions to the world’s greatest issues.
Sure, politicians will create policies around those things, but it is often the business owners and the entrepreneurs who create the solutions, add value and do the hiring.
Entrepreneurship is an outlier activity; a 5% type of thing. Something many people have zero interest in and that is fine.
But for out and out entrepreneurs, these people have long departed from the ‘normal’ life. They have an unreal sense of ambition and an ability to create value.
They are not normal and won’t be normal. They need to operate in an environment that allows them to flourish and live into this.
If I take you back to May 2023, there was nothing of substance in the budget for businesses. Boo hoo tough sh!t right?
To be fair, there are on-going subsidies for businesses looking to hire people who have been on a job seeker benefit. Or subsidies for taking on an apprentice.
This effectively subsidises businesses' wage bills.
Side note: mind blowing that there are no tax credits for technology implementation when we know we have a productivity problem in NZ. Even in 2021, 28% of businesses don’t have a website…
But how about a strategy to turn SOME of these 71% of business owners into the next employer?
Wouldn’t that be great? What would the effect of that be over time when even more kiwis have people to learn from? People who have gone into the market, solved a problem, done it financially sustainably and been able to hire and teach someone new?
Ask any business owner what it was like hiring their first employee and most say ‘scared’. When was the last time you were genuinely ‘scared’ at your work Jade?
41% of economic value add is estimated to be produced by our businesses with 0 to 20 staff. The economy starts moving and rocking!
The number of 0 employee businesses has increased significantly over the last decade, no doubt as the laptop/internet economy has been embraced.
But the number of businesses employing people has increased only slightly.
I know there will be a number of people reading this who are on the fence about hiring someone. Some people will want to start something on the side.
It doesn’t matter where you are and what you’re considering, but get closer to those who have gone before you and done it. They have your lessons.
You don’t need to reinvent the wheel, you just need to understand what you’re doing and why.
If you have it in you, the country needs you now more than ever.
Next week we will look at why this may be the best time ever to get ahead…recession and all.
Have a thoughtful weekend,
Luke
In case the contents of this email are topical, it was first sent on 23rd June 2023.
How dare you Luke…you’ve been banging on about rising interest rates, inflation and a contracting economy for ages now.
I sure have because I’ve been trying to inspire you to think differently, stay ahead of the curve and, ultimately, to take action.
Remember:
- Most people won’t take action until they are forced to
- A lot of people believe they shouldn’t have to do anything different
- Easy times create comfort and humans love staying in the comfort zone
Humans will fight harder to keep the things they have then they will to work for things they don’t have.
They will even look for reasons why they shouldn’t have to.
Naturally, at the moment, people are in protection mode and they are thinking about protecting and keeping the things they have worked hard to gather.
Many people aren’t thinking about more, excess, growth or accumulation.
To be fair, many of us are solely focussed on staying afloat and rightly so.
Layer on a narrative of contraction and recession and you have more people that won’t be thinking about growing or ‘getting ahead’.
This reminds me of 2 quotes I’ve come across that stuck out to me:
"You can make more ground on your competitors in a difficult time than when times are good - that's when it's almost too easy for everyone to be successful."
“You cannot overtake 15 cars in sunny weather…but you can when it’s raining.”
I won’t tell you who said either, because last time I did, someone didn’t like one of the quoters and said that was the end of their learning from KTC.
Seriously, get over your ego. Take the quote not the quoter. The message is greater than the messenger.
So now that the rain is here and the difficult times appear to be more in our faces than previously, how do we keep our eyes on the prize and continue to make progress?
Well, in the game of personal finance, you’re not actually only competing with other people.
You’re competing with yourself and what standards you’ve set yourself to live to.
The beauty is that you are in control of these. You aren’t in control of what other people are willing to do.
If other people aren’t willing to get out there and take action to sort out their issues, that’s not your concern. What is your opportunity is that you’ve got a window where you’re less likely to be competing with them.
EXAMPLE if you and your neighbour realise your mortgage is increasing by $50 per week but yours goes up next week and theirs in 6 months, who do you think is going to be the first to offer to mow ‘mortgage free Mandy’s’ lawns down the road for $50? You, aren’t you.
EXAMPLE let’s say you find out you’re having a child. Most people will wait until they have the child to assess what their finances will look like come the birth or 3 months into the birth. Very few people will put an analysis or budget together in the 6 to 9 months leading up to the birth.
Let’s be honest, with these 2 examples, most people won’t go mow someone's lawns and probably won’t make a budget until they NEED to. Instead, they’ll seek interest-only loans, longer loan terms, loans from family etc.
Each to their own, but that’s what their standards have shaped them to do.
If you think that you ‘shouldn’t have to’ search out new income, go without or let go of your pet, that is fine, but accept that other people won’t relate or sympathise with your thinking.
Even the government are leading from the front. They have never collected more tax (income increases for them) & are still spending beyond their means (running a deficit, needing more debt).
The govt are showing us that this is the time to focus on more income and to invest in areas they consider to be important.
Yet people will say ‘why should I work extra?’, ‘I don’t need to do anything different, why should I?’, ‘working hard is a waste of time’, 'I deserve XYZ', 'why should I give up my XYZ?'.
In the next few years, A LOT of people are going to get caught out waiting and hoping things go ‘back to normal’ and not make the progress they will have hoped to.
Mean whilst others are going to look at the rain and say ‘f4rk it, I’ve got the right tyres on, it’s time to accelerate’.
Remember:
- It's important to manage personal finances wisely
- It's important to maintain a resilient mindset. Especially when life doesn’t go our way
- It's important to forecast and adapt to changing circumstances
- It's important to balance the positive aspects of progress with efforts to mitigate the negative impacts and the downside risks
- It’s important to support those who may be adversely affected by economic downturns. Who needs your help and support?
How can you prepare for things that COULD come your way?
As the squeeze continues, ask yourself what you’re willing to do differently to keep moving closer to your goals?
You may not want to do some of the things you are going to have to do. Check yourself!
How did you set your standards and are you willing to change them? This may mean doing things you haven’t previously.
As others decide not to take action, remember this presents an uneven playing field that could be in your favour. Don’t ignore this.
What used to work, may no longer work.
Don’t shy away from asking for help and from taking action.
Have the best weekend,
Luke
In case the contents of this email are topical, it was first sent on 30th June 2023.
Today marks the 1/2 way point of 2023. Ya kidding me, how has that happened?
So far this year it’s been 6 months of a gentle economic grind down. I get the sense most people are finding things tricky and we haven’t seen a massive reprieve from things like inflation and interest rates, but we are all staying in the fight.
Many people are now paying higher interest rates for mortgages, food is still expensive, the recession is here, BUT so are us resilient humans.
Today, I want you to simply think about what victories you have had?
Victory: an act of defeating an enemy or opponent in a battle, game, or other competition.
Take a minute to reflect on 1 January - where have you come from in these 6 months?
Some of you might need a quick scroll through your photo album on your phone to see what you’ve been up to this year.
Others will have examples of things they’ve done or achieved that they can quickly call upon.
Hopefully, you’ve achieved some of your goals.
I like to write my accomplished goals down as 'victories' in my net worth tracker.
Personally, I’ve managed to stick it out investing even whilst the markets have been choppy. That’s a good feeling. I’ve upped my retirement savings. Added new income streams via some investments and continue to invest in making myself more valuable. I have set myself up to take advantages in the back half of the year.
As discussed last week, with personal finances, often the opponent may well be ourselves. Remember to run your own race and not compare yourself to others!
It doesn’t just need to be about clearing a debt or getting a raise (all power to that though), it can be about changing your money behaviour or standards. Making a habit stick. Doing a new form of learning. Having a brave conversation. The list goes on.
Write them all down!
This year, I’ve also had 2 full weeks in 2 very, very different countries: the USA and The Philippines. I’ve got some more travelling later in the year too. My year is set up for me to see more of the world this year than I have in the rest of my life. How crazy is it that I can do that!
This brings me to the next reflection I suggest for you.
Reflect on 5 years ago - hard huh! You probably really need to think now and figure out what you were doing.
I actually scrolled back to my inbox to find June 2018 to see what I was going on about. My word, life has changed. Some of the shiny objects I was chasing have long disappeared.
5 years ago, I was investing in making myself more valuable, but I couldn’t afford the things I can now. I wasn’t doing too much financial investing, nor contributing toward my retirement. I was in the early stages of trying to grow a business, so life was very different. I wasn’t going for full weeks of travel, that’s for sure!
Have a think about how far you’ve come in the last 5 years.
This year, when I traveled back to the USA, I was so stoked I didn’t spend a dollar of credit. I don’t even have a credit card these days. This was very different to the last time I went overseas. Living beyond my means and carrying around a stack of poor money habits, only to return home to try and pay for them...literally.
It’s good to remember how powerful we are. How much change we can make in what is really a pretty small amount of time.
It’s important to write down your victories & celebrate them. Acknowledge how far you've come.
Someone asked me last week ‘what would have to happen for this to be the best year of your life?’. Genuinely think about that.
It’s pretty hard to do as an exercise, but something that has resonated with me is ‘having a full life’.
I am on track for that.
Make the next 6 months of 2023 so good that this year becomes your best yet Jade.
Hey, month end also means it’s time to jump in and complete your cash flow and net worth tracker. Get it done!
Oh and I’ve more than tripled the KTC podcast listeners and downloads in 6 months. Farkin aye!
Bring on the next 6 months,
Luke
In case the contents of this email are topical, it was first sent on 7th July 2023.
On Sunday evening, it was my turn to pick something from Netflix to wind down before another big week.
I’m not a big Netflix guy, so I don’t know what the latest & greatest show is. BUT I do know how to google so I searched for best docos.
Google told me ‘Stutz’ and that the doco is about a psychotherapist to the stars, including Jonah Hill. Jonah interviews the therapist that changed his life.
I used my charm to convince my partner this was an easy watch. 10 mins in she was in a social media scroll-hole so it might be the last time I get to pick.
I won’t ruin it for you and go into too much detail, but realistically, I know humans don’t take action, so even though it will benefit you, a number of you won’t go and learn from one of the most expensive psychotherapists who you’d normally not get access to.
BUT some of you will, so let’s just explore 2 concepts I picked up during the documentary.
Stutz has a concept of Part X which he explains is as “an invisible force that keeps you from changing.”
Part X is the evil character interrupting, slowing down and stopping your journey of evolution as a human.
I am sure we can all relate to this…
You know you need to cut up your credit card OR stop using BNPL OR start investing OR finally work out what interest rate changes will do to your budget OR save for a rainy day OR put together a budget OR unsubscribe from your favourite store/influencer OR actually look for a job you like OR stop spending OR you get the message Jade.
Then there is 'The Maze' which Stutz explains is Part X’s dirty work.
Just when we are about to turn left and move forward with our lives, we somehow turn right and end up back in The Maze.
The Maze keeps us stuck in the past and puts our life on hold from progressing because we are angry and resentful. Often we have been wrong’d and we are seeking some form of fairness.
The Maze keeps you lost in the emotional and psychological weeds.
Why does our brain have to be such a punisher?
Who knows, but the more we understand it, we realise we aren’t so different to other people and that there are tools to overcome these things.
Barry Michels, who is also a psychotherapist, authors the book ‘The Tools’ along with Phil Stutz. Barry explains that ‘The ego isn’t strong enough to get you out of the Maze. All it wants to do is right the wrong, and since that’s impossible, it stays stuck’.
Often I will say that if things don’t go your way, be gutted but not for too long because you don’t want to ‘stay there’.
I didn’t study to be a psychotherapist, but now I can see that ’staying there’ is really staying in ‘The Maze’.
I’ve been in there many times and no doubt will again this week but the key is to get yourself the Fark outta there as soon as you can AND have the tools to do so.
Why this is important is because in hard economic times so many people are going to feel wrong’d and very, very often.
The list goes on and on. Life won’t always go our way and it sucks. But it shouldn’t stop us from sorting ourselves out.
Again,The Maze keeps you lost in the emotional and psychological weeds instead of turning left and moving forward with your life.
I want you to do one thing for me Jade (well, really for yourself/your future self).
Message your partner, Mum, cat or BFF and say:
Hey ‘name’, we are going to watch a Netflix doco called Stutz because it could give us tools to change our lives. Even if we don’t need them now, at least we know they are there when we do. I’ll fill you in later….
What a time to be alive, with access to the internet.
Look at the amazing insight we get to psychotherapist’s who have changed peoples' lives with simple tools.
After watching, I sat down and made a page of notes. I also bought ‘The Tools’ by Barry and Stutz. I’ll study that more closely too.
REMEMBER: these are peoples life’s work condensed into a show and a book. DON’T fall into the trap of expecting to watch a Netflix show and master your brain. You will need to study and apply these tools. Watching a documentary and temporarily adopting some of its suggestions will never be a replacement for good, long-term, in-person therapy. Please don’t misinterpret this week's lesson.
We all take work and if we embrace that, it could be life-changing.
Most of us are where we are today without too much awareness of what we have been feeding our minds. How about giving it the nourishment it needs?
Many of us will go to our jobs for 40 hours this week, so surely we can spend 2 hours working on the brain.
Before you go
Q. What is something you know you really need to address financially?
Why are you letting Part X stop you?
Q. How have you been financially wrong’d in your life?
How long will you be trapped in the maze?
To the right path!
Luke
In case the contents of this email are topical, it was first sent on 14th July 2023.
With rampant inflation, you might be feeling the pinch in your pocket.
Inflation compounds, so our buying power has been seriously eroded over the last few years.
Remember that
If you’re heading for a wedding or somewhere where you need to provide a gift, there’s a high chance that you’re questioning what is enough?
The ole ‘my presence is your present’ doesn’t really cut it at a wedding does it Jade?
I found a NZ poll from 2017 where 5,600 people voted and 67% of people said they would take $100 or less to a wedding as a gift.
Now that the money printers have had their way with us, I’d imagine that if they ran that poll again in 2023; $100 may not quite cut it.
However, I quickly polled 239 KTC followers and it came out the exact same: 67% said $100 or less.
I don’t know what the appropriate ‘amount’ or ‘gift’ is, but it’s another example of how, when currency is devalued, we feel pressure in many ways - we even find ourselves questioning the size of a donation or gift.
I call this 'gift inflation'.
The key thing is to never stretch yourself past what you can realistically afford.
Often, when you give a gift at the likes of a wedding, you set a precedent for the next one, so be mindful of that too.
These are very testing times but people understand, so PLEASE don’t go into debt to keep up with the Jonas brothers, who might be gifting more than you could ever imagine.
Speaking of gifts, Christmas is now about 5 months away.
Christmas is going to sneak up on people with a noisy election year and the busyness of the modern world.
I want you to start thinking today about what you can do today to be prepared for Christmas.
You want to make sure you’re not relying on credit to fund your Christmas. Even Jesus would be disappointed in you doing this.
1 in 10 BNPL users are now behind on their sexy pastel coloured debt on their phone that doesn’t feel like debt.
DON’t use BNPL nor your credit card.
63% of retailers recently said they are going to increase their prices before the end of the year.
There are still billions of dollars of mortgages to roll over onto higher interest rates that will soak up more of the disposable dollar.
Get ready for more financial pressure. Plan ahead!
It won’t be the last time I say it, but don’t give Christmas the stress it doesn’t need.
Before we go, remember it's a public holiday today. With the new same day banking/7 day processing, all of your automatic payments and direct debits will still move today.
Make sure you've got the money in your account so that you don't get any fees.
It's easy for people to complain about the banks making too much money, but we happily give it to them ourselves.
Don't wait for a 'banking review' to solve your own laziness.
💲 Take 10mins to review how many bank accounts you have and what the fees are each month. Do you really need them all?
💲 Stop paying annual fees for cards you don't use - close them
💲 Turn off paper statements - especially if they cost you money
💲 Compare banks before taking on their new shiny products
💲 Bin their KiwiSaver offerings - look elsewhere
💲 Do they really have great insurance? Have you checked?
💲 Ask for cheaper interest rates - you never know
💲 Use direct debit over card spend and avoid those extra fees
💲 Insert your card where there is an ugly paywave charge
This banking enquiry is probably going to tell us what we know: kiwis love buying and selling each other houses and they need debt to do that. Who offers debt? Who upsells us once they have us as a customer? It's not rocket science.
Focus on what you can control Jade.
Happy Matariki!
Luke
In case the contents of this email are topical, it was first sent on 21 July 2023.
Recently you may have been seeing more stories about businesses going into ‘liquidation’, which can be tricky to understand.
Today we are going to go over some basics of what liquidation is and how it can happen.
Before we do, please note that I am not a specialist in this space (but have been on the receiving end), so this information is of a general nature.
Business isn’t easy and it doesn’t always go the way that people hope when they get started. Sometimes a business’s life ends with liquidation.
Liquidation is effectively winding up the operations of a business and selling or distributing the assets of the business to cover the debts that it owes (to what are called creditors).
Sometimes, creditors are paid in full and the business finishes its useful life, but other times the creditors can't be paid.
This usually happens when a business is unable to pay its debts and can’t meet its financial obligations.
Of course, businesses can have many types of debts and financial obligations.
I.e. a business can owe money to the likes of:
Suppliers
Banks
The IRD
Lenders
Staff
Before the business is ‘put into liquidation’ by a party, there is usually evidence of the company's inability to pay its debts. I.e. unpaid invoices/debts or a history of non-payment.
So then who puts the business into liquidation?
In New Zealand, there are usually 3 main parties that can apply to put a business into liquidation.
The Company Itself (Voluntary Liquidation) via the directors or shareholders
Creditors (Creditor's Application) via those owed money by the business not paying
The Inland Revenue Department (IRD) because tax obligations are not being met
Here is a quick look at each of them.
The directors and shareholders:
Typically, it occurs when the company is insolvent or unable to pay its debts. The decision to liquidate must be supported by at least 75% of the shareholders' votes. They usually do this when they realise the business is no longer viable and needs to be wound up. They seek expert support and go through the relevant process of voluntarily putting their business into liquidation. There are different processes for businesses genuinely ceasing trading and for those unable to pay their debts.
Creditors
Businesses/people of the business who are owed an amount of money can apply to the High Court to have the company placed into liquidation. The application must demonstrate that the company is unable to pay its debts, and the court will assess the merits of the case before deciding whether to grant the order for liquidation. I.e. a supplier isn’t being paid when they should be and they apply to the High Court to have the business liquidated and eventually closed.
The IRD
The IRD can apply to the High Court for a tax debt-related liquidation. This means that if a business owes a significant amount of tax debt to the IRD and has not made suitable arrangements for repayment, the IRD can seek a court order to have the company liquidated.
Regardless of how this happens, there are, unfortunately, people who get hurt in the process because they may not see payment of what they are owed.
Even once all of the assets have been sold and outstanding money received, the business may not be able to meet its obligations. The secured creditors and preferential creditors are paid first, and then unsecured creditors.
Employees are often put toward the front of the queue also.
What a lot of people wouldn’t understand is that a business owner can often start up under a new company after their previous business has been liquidated.
Liquidation involves the winding up and closure of the existing company, and it does not necessarily prevent the business owner from starting a new venture in the future.
Some business owners even liquidate their own businesses and start a new company under a similar name straight away and get back to trading. Unfortunately, this can leave creditors such as the IRD unpaid as there are no funds available to cover the unpaid obligations.
It almost sounds a little bit too good to be true for these people, but it is legal.
In all cases, the liquidation process is supervised by a licensed insolvency practitioner (liquidator) who is appointed to manage the affairs of the company and ensure the orderly distribution of assets to creditors, as well as communication with all known creditors.
I want to reiterate that this is a very complex topic and there is a lot to it. The above is designed to give you a brief understanding of a concept you may have heard of but not really thought too much about. Please seek advice or further reading online from insolvency lawyers if you need to understand this topic in more detail.
Finally, from what I have seen, business owners don’t set out to start a business that ultimately fails and owes people money.
As unfortunate as liquidation can be, it is highly likely the business owner will be hurting if this is the outcome for their business.
Have a nice weekend,
Luke
In case the contents of this email are topical, it was first sent on 28 July 2023.
If you want to experience a level of frustration, anger, encouragement or disbelief, I have an exercise for you to do TEST.
It’s up to you how this exercise makes you feel, but the above are 4 words I’ve been told have been the outcome.
Imagine knowing what you’ve earned for the last 8 financial years combined?
Well ya can! Uh oh. Do you really want to know?
The IRD will let you run a report of your income summary online going right back to the 1st of April 2015.
If you’re brave, go back and look at your income through the years.
INSTRUCTIONS
1 Login to MyIR via the IRD website - you must be registered but you should be because this is a pretty fundamental part of financial knowledge.
2 Find the ‘Income Summary’
3 Under the ‘Income Period’ - select ‘Other’
4 Make your ‘From’ 1 April 2015 (furtherest back you can go)
5 And your ‘To’ 31 March 2024
This will show you the total you’ve earned and the total tax you’ve paid since the 1st of April 2015 through to today.
(Be mindful there won't be any working for families tax credits you've received here OR leaving profits in companies etc).
REFLECTION
• How much do you have saved compared to your income?
• What about saved compared to your tax paid?
• Are you over or underwhelmed?
• Perhaps you’ve paid down some debt with it? (Hopefully you track your net worth)
NEXT
You may want to run it from financial year to financial year to see how your income has moved in that time too. I.e. 1 April 2015 to 31 March 2016 and so on, year to year.
REFLECTION
• Did your income increase each year?
• What about enough to combat inflation? (We will soon work through an example of this)
If your income did increase year to year, you may want to ask yourself:
‘Why did my income increase in each of those years?’.
Was it due to inflation where a lot of people have then asked for a pay rise?
OR was it you? I.e. extra hours, new job etc.
OR maybe you have become more valuable?
Did your education increase in that time? Learning increases your earning. Don’t leave it to chance.
These exercises can be quite eye-opening, but please use them for fuel. Not for the negative.
Don’t like what you see? Focus forward…what are you going to do to ensure that the TEST in 5 years will be proud of the change you’re about to make?
Like what you see? Good on you! Well done. Can you share some of your lessons with others close to you, to inspire them?
5 years ago I probably would have been too scared to do something like this. I’d want to avoid it.
Actually, to be honest, that’s a lie. I would have done it and just been disappointed in the results.
I would have had that feeling in my stomach: ‘I should know better’ and need to have a bit of self-reflection time in the mirror.
Fortunately for me, I did make a number of changes 5 years ago and they’re now compounding.
I can’t wait to see what the Luke in 5 years time thinks of the next 5 years income summary.
Have a nice weekend,
Luke
In case the contents of this email are topical, it was first sent on 4 August 2023.
Now that a number of you hate me after suggesting last week's income exercise, I thought I would keep that theme going.
Did you know that your purchasing power decreased 15% in 3 years?
This is why you really do need to understand inflation!
At 11.59pm on March 25, 2020 , New Zealand shut down. Remember that?
Our first wage subsidy kicked in shortly after. Money was created and therefore devalued.
The 2020 C-19 Wage Subsidy was to help businesses pay staff impacted by C-19. It was available from 17 March 2020 to 9 June 2020.
We had a number of subsidies in the coming years, as well as support payments, cost of living payments, bail outs, cheap debt etc.
Regardless of what you believe to have caused inflation, know that it has been compounding at a rate of 5.5% for the last 3 years.
That means your money buys less.
EXAMPLE
A $70k salary after tax, ACC and KiwiSaver is $52,809
I asked the RBNZ inflation calculator ‘what would general CPI that costs $52,809 in Quarter 2 of 2020 cost in Quarter 2 of 2023’?
Basically, if I took my $52,809 I received in March 2020 and spent it all on goods and services, what would I need in June 2023 to buy the same amount of goods and services?
The answer is $62,089.56
I then figured out what $62,089.56 after tax and KS income equates to before tax and Kiwisaver.
The answer is near on $85,000.
If you were earning $70,000 in June 2020, you’d basically need to be earning $85,000 today, in order to buy the same goods/services.
A 21% increase in your salary.
Remember too that the CPI (inflation measure) is a basket of goods and we EACH have an INDIVIDUAL inflation rate because we all buy different goods and services in varying quantities.
EXERCISE
You may want to take your salary at June 2020 and go to the PAYE calculator at PAYE.net.nz.
Work out what the net amount is that you received after taxes, KiwiSaver etc.
Then go to the Reserve Bank inflation calculator
https://www.rbnz.govt.nz/
Enter in: ‘what would general CPI that cost $[Your net salary] in Quarter 2 of 2020 cost in Quarter 2 of 2023’?
Now go back to the PAYE calculator and increase the income to what you are getting paid today.
Is that 2023 net amount after tax, higher than the inflation calculator output number?
I hope so. That means you might be staying ahead of inflation.
(Again, remember this is general as we EACH have an INDIVIDUAL inflation rate).
If you can’t remember what you got paid in 2020, I taught you how to find this last week.
Go to your MyIR and to income summary and run off the total gross you were paid for the 2020 financial year. Use that figure and on the inflation calculation select Quarter 1 of 2020 and 2023.
Then use the total income you had in the 2023 financial year also.
Why?
This exercise is designed to really get you thinking about inflation and how pay rises get impacted by taxes and inflation.
Inflation is a big problem and we must learn more about it to protect ourselves and our communities.
There is an hour-long KTC podcast called 'PLEASE! understand inflation, NOW!' for you to listen to if you haven't yet.
Whilst many people have been busy wasting time on what inflation can be blamed on, I’ve been coming to terms with it and finding ways to educate and protect myself + others.
Inflation could be around for some time, so don’t sleep on it. Understand it for your benefit and your children.
Remember not so long ago it was ‘transitory’ and ‘signs of a growing economy’.
Nothing to see here, except the erosion of your purchasing power.
Have a huge weekend,
Luke
In case the contents of this email are topical, it was first sent on 11 August 2023.
‘’Invest in yourself’’
‘’The best investment you can make is in yourself Jade!’’
We’ve all heard these sayings but not everyone is interested in this.
These sayings are almost thrown around so much that I don’t think people believe it to be true anymore.
I got me thinking, why? Because so many smart, wealthy, happy and experienced people say things like this.
I even saw Warren Buffet giving this as his key piece of advice for younger people and he’s invested enough to accumulate $112billon (US$).
Surely it’s true!
Let me remind you that you did A LOT of this to start with.
4 examples of how you’ve been huuuuge on this already in your life.
Let’s look at someone who goes though 12 years of schooling and then 3 years of uni to then get an ‘entry level’ job.
It’s probably no wonder they don’t want to do any further investing in themselves after that.
It’s all they can probably remember. 15 years of memories of education and then you get rewarded with a $60,000 job.
About $46,200 in the hand after taxes and KiwiSaver. Less than $1,000 a week in the hand for your troubles. I didn’t even factor in repaying a student loan here.
‘’Seriously, is this all that 15 years of investment is worth? AND I have to swap 40 hours a week of my time to get it’’?
Of course not! Because you’re really now just getting started but, you can forgive people for thinking where is the return on this investment?
Perhaps some people are so fatigued from the level of investment that they think they’ve already made.
The hard thing to understand and accept is that if we’ve all largely received the same education, how are we any more valuable than the person next to us with the exact same education pathway?
We aren’t, are we? The value comes in applying ourselves.
That’s where it’s up to you to lean into your own individual skillsets, interests and knowledge, to become more valuable.
‘’Yes but I’m too tired to do that. I haven’t seen a return, so why would I believe that’’?
Is this why people don’t go out and learn extra skills?
I recently saw a good pal of mine say:
‘’It always blows me away how so many expect all the good sh!t to be easy and how little they are prepared to suffer through to make things better’’.
It’s easy for this person, and someone like myself, to have this view because once you’ve seen it happen time and time again, you ‘get it’ and you know it can work.
Imagine if you learned one skill that increased your income by 20%. Would you pay for it?
Remember too that you get to carry that education forever.
I once paid less than $30 for a book and took 1 action from it that made $2,000.
That’s a hell of a return on investment!
If you’ve felt underwhelmed by the initial investment in yourself or your education, don’t give up yet.
Perhaps you just invested in the wrong areas.
NOW may be the perfect time to learn a specific skill that interests you and one that will provide a great return when the time is ready.
You did this for 15 years at the start of your life, so why not 3 more years focussed on something that you actually/really care about?
Next week, I’ll tell you about how this paid off for me in July.
Have a thoughtful weekend,
Luke
In case the contents of this email are topical, it was first sent on 18 August 2023.
Now that I have your attention with the click baity title, I really want you to dial in to this.
Keep The Change is over 3 years old now.
There have been 171 Money Mails.
There are 393 podcasts for a total of over 200 hours of teaching/learning.
More than 800 Instagram posts. Easily over 5,000 instagram stories.
Thousands of dollars and hundreds of hours spent getting the content in front of more people.
That’s a lot of content and a lot of WORK! It doesn’t just happen. You have to do the reps.
What did happen was that, in July, a lot of this work paid off.
In July, we locked in over $50,000 worth of work directly from the Keep The Change audience or via enquiry from that channel.
New accounting clients, speaking gigs, business valuation work, mentorship, 1 off business consulting.
Over $50,000 in 1 month! It was like it all flooded in at once.
Of course, we still need to deliver the work, but we are more than happy to; that’s what we do.
Was July an outlier? Yes.
Was it worth it? Hell yes!
Last week we spoke about the concept of investing in yourself and how it's the best investment to make.
Many successful people say things like that.
People also say that if you follow your passion, the money will come.
July is proof of that for me. BUT look at how long that has taken and how much effort.
Please don’t be under any illusion that you can flick your passion switch and the money will flow.
BUT the concept is correct.
When you stay close to the things you’re passionate about (for me: the economy, business, teaching, content, helping people), eventually the world can’t help but notice, especially if you’re adding a stack of value.
Passion makes it easier to do the work because you enjoy what you’re doing.
Passion feeds into longevity, going the extra mile, carrying yourself with a certain level of energy and conviction.
Eventually, the opportunities will come for you and you have the chance to monetise them.
You may think that all of that effort to pull out $50,000 doesn’t sound so great or even worthwhile.
BUT I went to Uni for 4 years and ended up with a decent student loan. My starting role was less than $50,000 for the year.
3 years isn’t long for me anymore. I’ve learnt to zoom out and think longer term.
I challenge myself to be a producer.
Why?
Because the world will return what you plant.
What are you planting? What are you producing?
It’s easier to plant and produce when you’re doing something that you’re passionate about, so…
What are you passionate about?
Could you consistently work on your passion for 3 years? What do you think would happen if you did?
Now before we go, remember the realities of such statements as 'I made $50k in July'. These are everywhere online these days. Especially on social media.
People love talking about revenue, but there is a famous saying in business: 'revenue is vanity, profit is sanity, but cash is king'.
For you and I individually, this means: 'it's not what you make, it's what you keep'.
Don't forget the work needs to be done and delivered. There are expenses and, of course, everyone's favourite: taxes to come out of that $50k before we get to what we keep.
If you’re building something at the moment and you feel like you’re not making progress…
If you're learning something at the moment and you feel like you’re not getting a return…
Stay in it.
Got ya thinking,
Luke
In case the contents of this email are topical, it was first sent on 25 August 2023.
Ahhh passive Income - you either desire it or believe it to be full of sh!t.
We’ve all had dreams of sitting on a beach, paying for cocktails from the interest earnt on our lotto winnings.
OR having 4 rental properties, collecting the rent and doing the same, but probably just on Himitangi beach rather than a Hawaiian one.
A reminder: Passive income is income that requires little to no effort to earn and maintain.
Examples of passive income include rental income, dividends and any business activities in which the earner does not materially participate.
Wouldn’t that be nice?
Most of us are never going to win the lotto or get to 4 rental properties.
But that doesn’t mean you should dismiss this ‘passive income’ concept!
As interest rates have increased, this has become a bit more understandable for a lot of people.
At the moment it’s pretty easy to get a 5.5% ‘risk free’ PIE, term deposit. You’ll lose 28% of the return to tax.
That means your net return (after tax) would be 3.96%
That may not excite everyone, but it could be the start of your passive income education and journey.
Can you feel the force of this?
Take 1 expense you have each month. Could you use passive income to pay for that?
$5,000 invested for the entire year would see $198 for the year or $16.5 a month.
(I've kept the math simple here).
What could that $16.5 cover or pay for?
Most of us grow up hearing ‘don’t waste your money paying someone else’s mortgage’ i.e. renting. A lot of people wouldn't have thought about the above as they will be prioritising repayment of a mortgage.
But if that’s not your path (also one day you’ll be mortgage free), then try this exercise of working out 1 monthly expense and trying to get someone else to pay for it for you.
Once you have the amount. Reverse calculate what you’d need to save and put into a term deposit in order to have that term deposit drop you out some dollars each month to cover that cost.
Personally, I think the best one to aim for is a gym membership.
Can you save and invest enough so that your gym membership isn’t a cost to you? It’s a cost to the bank who’s paying you the interest.
You’re not paying for it anymore, the bank are. How good Jade.
Whatever it is for you, the true purpose of this is to FEEL what it’s like to not have to pay a bill because PASSIVE INCOME is doing that for you.
That’s everybody’s dream, right?
Once you’ve done it once and felt it, perhaps it’s the catalyst for you to keep stacking your savings and build up more funds to create even more streams of money.
Recently, someone said to me that spending and repaying debt felt more fun & enjoyable than saving money.
Perhaps looking at the flow on effect of saving (i.e. passive income and compounding) will excite you.
Passive income is a real thing and it is possible, but there are a lot of dreamers that think it happens without hard work or putting actionable steps in to achieve it.
Income streams still require hard work and more importantly, ground work. Like saving!
Your relationship with ‘passive income’ should be understanding what it is and how to achieve it but not wanting ‘easy’.
Nothing good comes of easy. Easy come, easy go.
Whilst I don’t own a home, my focus has been on investing in assets that will generate a return and therefore subsidise some of my life, like my rent and lifestyle.
Of course, for some people, this also won’t be the chosen approach, because you could argue that it would be wiser to compound the investment by reinvesting the monthly returns into the original investment, creating the compound effect.
For others, earning interest (that gets taxed) may not be as effective as paying down debt that is costing you a higher rate than you could earn on an investment.
Each to their own, as always. But this highlights the importance of a goal and KNOWING what you are doing with your money.
Before we go, I appreciate it's not an easy time to save for many.
This week, Consumer NZ said that 65% of New Zealanders save less than 5% of their income. In late 2022, the same survey found the percentage to be 55%.
I have been through those seasons too. Where saving and 'passive income' were completely irrelevant and out of reach, but it still inspired me to learn about.
My present situation wasn't my future and I was determined to make that true.
You don't neglect your kicking practice just because you've not been asked to kick the game winner yet Jade.
REMINDER
If you've forgotten how powerful you are, I want to see you at 7pm on Thursday the 31st August. Don't wait for the election for another $25 a week when you’ve got a STACK of money sitting in front of you and you can’t see it.
I want to show you.
I am hosting the ’Two Ticks: You’ webinar: how to beat any political parties' promises.
——> YOU CAN REGISTER HERE: https://forms.gle/
Have a passive weekend,
Luke
In case the contents of this email are topical, it was first sent on 1 September 2023.
There’s been a bit of talk recently about depreciation on commercial buildings.
This is because two of the major political parties will remove this as a tax-deductible expense after the election.
When you own a commercial building and lease it out, it's a form of business activity.
Therefore, you must declare the income (rent/lease) and you can claim the expenses incurred in operating the premises - like interest expenses, repairs, administration etc.
Less expenses to claim mean higher profits and therefore higher taxes for commercial landlords.
So what exactly is depreciation and how does it work?
Let’s get some accounting 101 going.
Depreciation refers to the decrease in the value or worth of an asset over time due to the likes of wear & tear, obsolescence, or changes in market conditions.
Depreciation allows for the cost of the asset to be written off over it’s useful life.
Put simply; depreciation reflects the decrease in value of an asset over time.
Each asset depreciates at a different rate/percentage.
Some people think that the purchase price of an asset is tax deductible but this is not the case, the depreciation expense is.
I.e. clients will often say ‘I bought this asset (usually a car) before the end of the financial year because that brings my tax bill down’. Not quite!
The depreciation (if allowed) on that asset is the expense that brings the profit down and saves some tax.
Now for some accounting and tax 201 Jade...
In New Zealand, at the moment for tax purposes (in business), people look at an asset as something that costs over $1,000 because we have what is called a low value asset threshold.
This low value asset threshold ($1,000) means that if a business buys an asset that is under this, it can claim it as a 100% tax-deductible expense.
This increases expenses, and decreases profit, leading to lower taxable profits.
Admittedly, businesses can’t buy too many assets under $1,000 these days, but you might buy an office speaker, office TV, couch, screen, phone etc.
But as soon as that asset (i.e. an iPad, computer, iPhone etc) is over $1,000, it won’t qualify for the low value asset threshold and will need to be depreciated.
As you now know from above, each asset depreciates at a different rate/percentage. During the financial year, this depreciation amount is the expense to the business, NOT the cost of the iPad, computer, iPhone etc.
Now, back to the landlords.
For the last couple of years, commercial landlords have been able to claim depreciation on their buildings. But there is a proposal to remove this.
I can hear some of you saying; 'what about private buildings like rental properties?'.
There is no available claim on residential buildings for private landlords anymore. There once was though. From 1st April 2011, the rules do not allow for a claim of depreciation on buildings with an estimated life of 50 years or more. I.e. most standard rental properties.
However, some landlords will value their chattels and depreciate them as stand-alone assets. I.e. air conditioning units, new carpets, dishwashers, lawnmowers, blinds, you get the drift.
The depreciation on these chattels creates an on paper expense which decreases the profits from rental income and therefore tax to pay.
Remember: income less expenses = profit. Profit is what you pay tax on.
Now for a quick bit of accounting 301, understand this...
When you claim depreciation as an expense in a financial period you reflect the value of the asset decreasing. The asset then has a carrying 'book value' (purchase price less total depreciation).
BUT if you eventually sell that asset for more than the assets 'book value' you will have what is called 'depreciation recovered'.
Depreciation recovered is a form of income and reflects the fact that you claimed too much depreciation. This will be the sale price less the book value.
Righto, you should know enough to take a uni lecture next week now Jade.
In all seriousness, you may not feel like depreciation is applicable to you right now, but it’s good to have a grasp of what it is and how it works.
Hopefully, that helped do exactly that for you.
Have a great weekend,
Luke
In case the contents of this email are topical, it was first sent on 8 September 2023.
I hope this E-Mail finds you well (IYKYK). Greetings from Asia!
A quick one today as I am enjoying a break.
Want more money in your back pocket?
Well, don’t wait for an election.
Here’s why:
In October, hundreds of thousands of kiwis (possibly even millions) are going to vote PURELY based on what cash they’ll get in their wallet.
Fill ya boots. You do you. All power to you.
BUT you don’t need to wait, there is a stack of money sitting right in front of you. If only you’d take action.
I hosted a webinar discussing some of the above options as well as a number of others.
My challenge to myself was simple; could I find attendee’s more than $50 a week to beat the 2x Chris’s promises?
For a number of people, that will be easily achieved, BUT they’ll need to take action.
I showed them what to say and how to look at themselves as a character they can control, rather than getting stuck in their own heads.
1,100 people registered and then I turned off the registrations.
225 people actually showed up on the evening.
There have been 750 views of the replay so far.
If you want to, you can watch a replay.
THE REPLAY
https://www.keepthechange.co.
We are in a cost of living crisis. You can’t help but be told this every week.
Unfortunately, crises create anxiety.
Fortunately, action is the antidote to anxiety.
You don’t need to wait for an election to take action.
You need stronger reasons.
Here’s one for you…
In the last 6 years, we’ve had 1 government and 2 prime ministers. One female, one male.
Your purchasing power decreased by over 18%.
In the last 25 years, we’ve had 4 governments and 6 prime ministers. Three female, three male.
Your purchasing power decreased by over 45%.
The sooner you realise inflation is working against you every single day, you just might turn to action rather than your favourite politician.
Don’t mistake a cost of living crisis for a lack of action crisis.
Action is the antidote to anxiety.
Take some.
Let me show you just a few webinar viewers who did:
Now it’s up to you; do you want to take action or blindly believe your life is going to be dramatically, financially better on the 15th of October? Or was it the 1st of April when the tax changes started? Wait, hang on the 1st of July for some of them, wasn't it?
Start today.
You’ve got it in you Jade: 2 Ticks you ✅✅
Anything on the 14th of October/1st April/1 July is a bonus!
P.s. Up The Wahs!!
P.p.s Go The AB’s!
Get after it,
Luke
In case the contents of this email are topical, it was first sent on 15 September 2023.
I made it out of Bali alive.
I’ve never seen more vehicles coming directly toward you on the wrong side of the road and felt weirdly ok about it.
Traffic is chaos, but somehow it works.
I read on a piece of street art something along the lines of: ‘the best thing about leaving Bali is you’re closer to booking your next trip here’.
It’s a fascinating piece of the world and many people from all over the world have fallen in love with it.
Some quick things I noticed:
Travelling is so eye-opening and really makes you question the things you do, say and believe.
Like the goal of many to be a millionaire. Where did that come from?
You could move your NZ dollars to many countries with a weaker currency and achieve this. BUT would you really achieve it?
There is a principle with money that the goal posts will always move; try to master stopping them moving.
Travelling gets you thinking about the most random things.
Many people say travelling is an investment in yourself. Definitely into opening your eyes and your mind.
Just for context, I have never been a travel craving sort of person. Give me my desk and a white board any day.
But I do enjoy it when I go.
I like to talk to the drivers or locals and understand how things work.
One told me how they go to Melbourne for peace and quiet.
What the hell! We are here for peace and quiet and a local is going to one of Australia’s busiest cities for peace and quiet?
Hang on, that must be expensive?
I said ‘it must be dear when you get there’ and they said:
‘No, I am are very lucky. Everything is paid for by a family who I met 10 years ago. They fly me over for Christmas every year’.
‘My parents are not around any longer and they are like my parents now’.
They said it would take 30 years to save just to get a return plane ticket.
This wasn’t the first driver who told a similar story.
One said that they received money from Australians during the pandemic to help them out saying ‘they look forward to seeing them when this is all over’, 'we are like family'.
How beautiful! Humans looking out for each other. AND thinking longer term.
The govt finncial support through the pandemic sounded very different to ours.
Another driver was asking if we have electric cars in New Zealand?
Of course, we are saving the planet with our electric cars.
‘We don’t have the infrastructure here to charge and electricity be to expensive, but one day’.
I didn’t see an electric car. Not when Petrol is about $1NZ a litre.
The next driver asked if we were from England or Australia? (Burn!!!).
I said New Zealand.
The car driver laughed at us.
‘New Zealand; very rich country’.
‘You have lots of water! Water not an issue for you’.
‘And you pay 400,000 (Indonesian Rupiah) to go to the beach when the public beach is free’
‘I drop you at public beach instead?’
Us: ‘it’s ok, we will check out a beach club’.
It’s a good point. We even have free beaches in NZ but here we are paying to hire a towel and go have a beer on the beach in Bali.
Also, on that...why don’t we have beers and reserved umbrellas on the beach in New Zealand?
It shows there is a market for everything huh. Money exchanges hands when value exceeds price.
We decide what we swap our money for, so think about it and be intentional about it!
Remember too from recent Credit Suisse data that NZ is a rich country. One of the richest in the world.
But you may not feel like that right now Jade. Riches aren’t just house prices going up.
Many people around the world would love to trade places with you and I.
Finally, as important as you and I may think we are and our country is, every time I’ve travelled, I’ve come across people who don’t know much about NZ.
Here are a few questions from this trip:
Eyes open,
Luke
In case the contents of this email are topical, it was first sent on 22 September 2023.
Yesterdays Gross Domestic Product data told us that we are out of a recession.
What have you been complaining about? Get on with it!
That is tongue-in-cheek, of course.
The economy is growing. It might only be slightly, but growth is what we are focussed on and how we gauge whether we are in a recession or not.
For many of us, it probably doesn’t feel like that. So how come?
Was the ‘growth’ we have had to get out of the recession mostly fuelled by new people coming to New Zealand and that’s now slowing down?
There is data to suggest this could be the case, when you work it out on a 'per capita' basis, but that's getting geeky.
Could it be we thought ballooning asset prices during the pandemic were ‘normal’, so because we aren’t seeing those, we aren’t feeling the growth?
Perhaps it’s just partly our state of mind?
For most people, I believe they are going off of the feeling they have about their finances.
We are constantly being bombarded with noise about low to no growth and recessions, so obviously we are going to have that front of mind.
If you keep hearing that you’re in a cost of living crisis you’re probably going to notice it.
Realistically, no one has been able to escape the increasing cost of debt. I.e. interest rates going up.
You can’t escape the cost of living either.
Let's not carry that list on!
The cost of living is VERY noticeable and that helps trigger your memory of this ‘cost of living crisis’ that we're all facing.
Inflation is a very tough headwind for all of us to battle against and it’s literally been up over 3% for 2 years now, which is no doubt what you and I are feeling and noticing.
The hard thing to swallow is that it could still be here for some time.
Shesh we may see interest rates rise from here. Don’t say it Luke!
Yes, I know it doesn’t feel great out there, even if we are growing. But you need to stay in the fight.
There is always opportunity out there. You may need to combat all of the negativity with some positivity (don't forget gratitude too) & look for ways you can see growth and practice capturing it.
We’ve discussed this before; growth in yourself, your relationships, your family, your knowledge, your education, your skills, your vocabulary, your vision of the future.
Think about how you will make up for any lost time on the other side of these challenging times.
I know it can be hard to think about ‘the other side’ when you’re deep in a slow grinding marathon with an added headwind.
BUT you must look to the future and continue to draw it for yourself, otherwise others will draw it for you.
Keep imagining, hoping, dreaming and aspiring for what you want.
This is a world of abundance and we can have the things we want.
No, it won’t always happen as fast as we want it to and there will be hurdles, but think about what can keep you looking forward.
Remember: zoom out and think longer term. Beyond what you are feeling right now.
Go back into your photos on your phone or memories and find something that reminds you of prosperity and growth.
Found it?
Good, now...think about whether, at that moment, you were thinking about ‘recessions’ and ‘GDP figures’ or ‘inflation rates’?
Didn’t think so.
Growth means something different to each of us.
Stay the course,
Luke
In case the contents of this email are topical, it was first sent on 29 September 2023.
Last week I received hundreds of dollars in dividends. Sick brag I know!
3 years ago, when everyone was last heading for the polls, I didn’t have the $8k invested that generated those hundreds of dollars of dividends.
Today I do, and annualised, it’s providing dividends that will nearly beat tax relief from either major political party.
It is exciting for me because it’s effectively an increase to my income. Sure, it’s taken a while to see it work but that’s the thing about investing; it can be pretty boring!
It is easy to overcomplicate getting ahead financially but one of the simplest ways is:
1 Earn
2 Invest
3 Re-invest the dividends to use compounding
4 Eventually, draw down from the accumulated funds to subsidise your life’s costs.
Boring hey! But tried, tested and true Jade.
On the 14th of October, millions of kiwis are again heading to the polls and voting based on what extra money they’ll get in their back pocket.
Cool, I get it, understandable. We discussed this only a few short weeks ago.
But like then, when I said 'want more money? Don’t wait until October 14th'....
I am again suggesting you think differently.
Where would you like to be financially at the next election cycle?
It’s 3 years away and you can achieve a lot in 3 years.
Have you ever really thought about this?
Politicians are deep into their respective campaigns telling us what they can do over the next 3 years.
Well, what are we each going to achieve in this next 3 years?
What can you start doing from today?
What can you do consistently that will make a difference to your finances?
What can you do during the next 3-year term?
What about during a usual 9-year cycle?
Easy for you to say Luke….
I know because I did it.
3 years ago, I started taking my investments more seriously and putting money aside. Investing in companies that pay a dividend so that I could see an increase in income.
This year, I’ve seen dividends come in that amount to more than what either major political party are promising if I vote for them.
Of course, there are many other reasons to vote, but it’s a good reminder that we can also achieve a lot in a political term.
The above increase in my own income is an example of one of them.
Now a quick reminder on what a dividend is:
Dividend - a sum of money paid by a company to its shareholders out of its profits (or reserves). You own a share of the company so if they distribute out their profits (through dividends), you are entitled to a share of the profits and get a dividend.
As always, there is tax on these dividends. The net dividend (after taxes of withholding tax and imputation) is the amount that I get to keep and can be reinvested OR used to pay some bills.
When I revealed these dividends on social media, I got the question ‘how much did you invest to get those dividends?’ and the answer was $8,000 which I didn’t have 3 years ago.
Don’t ignore the principle just because you don’t have $8,000 right now. What about when you do?
On this; 359,000 Auckland households and businesses recently received a $364 Entrust power dividend. That’s the equivalent to $7 a week!
For you, it may not be about dividends or interest income. It might be about paying down your debt faster.
But to have spare income each week, you’ve got to be very deliberate about making it happen.
It is hard to invest when you’re clearing BNPL and making credit card payments.
What if you could swap 3 years of that way of living, for 3 years of increasing your income all the whilst investing or clearing your mortgage faster?
What would that look like at the next election Jade?
Would you be as glued to the next political showdown about who’s giving you what?
I recently asked a Keep The Changer about the changes they had made to go from consuming to investing and what tips they could share about avoiding going back to old debt habits?
Their answer: when I was struggling to shake the "must buy something" bug I started buying shares. This satisfied my behaviour of craving retail therapy and gave me a promise of increase over time.
Everyone is competing for your vote. Make sure you don't forget to vote for yourself!
And, if you still haven’t watched the 2 Ticks You Webinar; here’s a replay.
THE REPLAY
https://www.keepthechange.co.nz/2ticksyou
I made a webinar showing 10+ examples everyday kiwis can explore to add money to their back pocket.
Don’t wait for this election
Or the next one
Or the one after that
Who will you be by the next election cycle?
Get started today,
Luke
In case the contents of this email are topical, it was first sent on 6 October 2023.
In 2022 I had to do some real ‘adult sh!t’. That is never fun, is it?
The kind of stuff most of us will avoid because it’s a bit scary. Or, like all good humans, we will do it when we are ‘forced to’.
I started thinking about my death. I know I know that is some morbid chat for a Friday morning.
I apologise, but apparently I have a 100% chance of dying in my lifetime, so I thought I had better tidy up some admin in this space.
I started by putting a Will in place.
Side note here - this is one of the first ‘businesses’ I tried to start. A place to go online and put a will together and receive instructions on having it signed legally. The lawyers wouldn’t have been impressed. It was one of those projects I did 95% of and then didn’t do the main 5%: actually getting it out there and going through with it because I was scared - that’s a story for another day.
I got this idea because KiwiSaver was becoming ‘a thing’ and I thought eventually all people using KiwiSaver would have a form of asset they need to consider distributing when they die.
We all think we have ‘ideas’ and we do but unfortunately, that isn’t enough. I will write about that for you soon.
Back to last year and I was sitting with a lawyer having them help me put a will together.
I am at the stage now where I actually have some assets. I’ve had plenty of years (if not decades) where I’ve been in negative net-worth and just had debt, so in those years, I thought a will wasn’t too necessary as I didn’t have much to leave.
That wasn’t the smartest thinking because I have actually had life insurance for a number of years now and these proceeds would be paid to my family on death.
Even when my income dipped (when quitting my job and starting a business from scratch), I made this a non-negotiable to pay for because if I died, I wanted any debt I had to be cleared and left over money to be given to my family. For me, this was a decision based on values.
I don’t really know how this distribution would have gone down though, because I never had a will in place, so I would have died ‘interstate’ which we will explore below.
Statistics from the retirement commission tell me that less than half of Kiwis have a will in place.
So what are some of the main reasons to have a will?
If you don’t have a will and you die, you ‘die interstate’ and the process of sorting out your estate can be more complex than if you had a will in place. This is because you now rely on the overall rules of law to determine how your estate is distributed.
When I did mine, I was reminded that a will is a ‘living document’, so you want to think about updating it if your life changes.
You don’t just throw it in the bottom draw with your NCEA participation certificate and forget about it Jade.
Regularly check whether it is still relevant. I.e. new child, assets, partner, change of mind/relationship. Perhaps it’s a good idea to set a calendar reminder annually to think about whether it needs to be updated?
There is A LOT of information to unpack about wills so I suggest you have a quick google to do some learning:
But don’t rely on Uncle Google to do it for you because you don’t want to get important things like this wrong. Don't rely on me either, as I'm not a lawyer!
There are very set requirements around the drafting and signing of a will for it to be accepted as a legal document, so you will more than likely need to get some legal advice specific to your situation.
This might be one of those ugly topics you’ve wanted to avoid?
But we don’t avoid the important stuff around here.
Do the learning to understand why a will is important and how so specifically to you.
Talk about these things with your friends and families and normalise them.
It’s not fun but it’s one of those inevitable pieces of life we will get to at some stage.
Enjoy the weekend,
Luke
In case the contents of this email are topical, it was first sent on 13 October 2023.
'‘I’ve got an idea’'.
No you don’t sorry. Well, it’s probably not a new one anyway.
There’s a saying, ‘ideas are sh!t without execution’.
It’s basically what executors think when people with ideas start a convo with ‘I’ve got an idea’.
Everyone does. The problem is you have no idea what to do with it.
That’s the tricky bit and the piece that stops so many people.
I have an idea….where to next?
What you need to understand is that NO ONE will bring your idea to life more than YOU.
It’s a hard pill to swallow but NO ONE gives a fark about your idea…more than you.
So own that and if you care about it so much, don’t expect others to do the execution unless, by some miracle, they believe in it so much they do everything for you (this will lead to dramas anyway).
Now I'm not against having ideas. I've been this above person so many times. I recently told you about not fully executing on my 'Will You' idea. I get it!
But if you've got an idea, here are some things to think about.
You need to be really clear about why you are doing what you’re doing. I.e if it’s for money, how much? If it is simply about ‘the money’, is there an easier way to get that money than a wild new idea?
Say you want to build an emergency fund of $5,000 and that’s way more money than you’ve ever saved, you don’t need to invent the next hydro-carbon e-bike. You need to solve a problem in the market and get paid to do so. That’s how you learn some business basics.
Please see Money Mail 120 on how to approach this. I lay it all out for you.
Maybe you want to have a business that makes $100k in sales every year?
35.5% of businesses have sales of less than $100k. Once they pay the bills, guess how much profit is left? (Don’t forget taxes ).
Maybe you want to have a business that makes $1,000,000 in sales every year?
14.6% of businesses have sales of over $1,000,000 in NZ. They have bills too!
Are you starting to see how this sexy idea of yours isn’t as easy as you thought?
Otherwise, those stats above would look a whoooole lot different.
That’s why people say 'do something where your passion lies', because business in NZ is a hard grind and not the cake walk we often think it is. Iit takes a lot of consistent effort and passion to keep it going.
Of course, everything isn’t about making money and I think fulfilment and progress are just as important.
What you learn and who you become through trying to turn an idea into reality are the true currency you are paid in.
And it doesn’t matter how big or small that idea is. The lessons stacked in bringing it to life are the currency you receive.
Once you know why you want to pursue your idea and what you want out of it you need to validate it.
And I ain’t talking about asking your Godmother who still thinks you’re a virgin and never been drunk.
I’m talking about asking the market who YOU THINK wants your idea.
‘Oh but Luke they’ll steal my idea’.
Look your idea isn’t new and back to the top, no one gives a fark about it. People are too busy doing their own thing.
People steal ideas once they see they already work. That’s when you actually worry about it. And a heads up, there is bugger all you can do at that stage too.
You need to find a market of people and ask them if they want your idea. Like a Facebook group full of travelling Gypsys, you want to sell your tie-die clothes peg too.
Ask them and gather their feedback. Pay attention to their reactions, suggestions, and overall interest in your offering.
Feedback tells you a lot of what you need to know before you go all in on trying to bring it to life.
You want to work out how big your market is at this stage too. How many people can actually buy your idea?
Often, Kiwis overcook this because, we live in a small country and often only sell to people in NZ.
Generally, only 3% of the market actively want your solution/idea at any one time too.
Then you have to get in front of them and convince them to buy.
It’s a hard game this business thing. Even this side hustle thing.
But having an idea won’t be enough, you need to execute.
I hope everyone has a time in their life where they seriously turn an idea into a reality and go through the execution phase (if it stacks up) because it teaches you so much and you learn things about yourself that you didn’t know when you were brainstorming.
Remember it doesn’t need to be the world beating idea. Start with something that works first and take your lessons to the next idea.
I laid out how to execute on an idea / side hustle / cash grab in Money Mail 120. Please revisit it.
Oh and for god's sake, don’t think you’re going to start an app, a podcast or 'platform' over night either!
Make sure the market exists before spending months/years of your life thinking the market wants things just because you did.
Finally…
If it’s just about the money, de-risk it and offer a service to swap your service for your customers' money (by solving a problem for them). It's that simple.
If it’s about something bigger than money…prove it with your consistent execution over time.
Action wins,
Luke
In case the contents of this email are topical, it was first sent on 20 October 2023.
Well, that was some weekend, a change in government and the first time since MMP came in that a political party hasn’t lasted 3 terms.
Now everyone can get on with so much certainty that everything is going to boom. Right?
Who knows! 2 ticks you. Let’s carry on.
This week we had some more big news with inflation sitting at 5.6% annually.
Are we due a reminder about inflation? Of course we are…
The Inflation target in NZ is between 1-3%
June quarter of 2021 inflation was 3.3%
To September 2021 it was 4.9%
To December 2021 it was 5.9%
To March 2022 it was 6.9%
To June 2022 it was 7.3%
To September 2022 it was 7.2%
To December 2022 it was 7.2%
To March 2023 it was 6.7%
To June 2023 it was 6%
To September 2023 it was 5.6% (we are here)
That’s a lot of compounding inflation working against you Jade.
It’s no wonder you notice the effects of inflation. Inflation has been outside of the targeted 1-3 % for over 2 years now.
The good news is that it is decreasing as such, which MIGHT mean the official cash rate doesn’t get increased any further.
Yes, inflation may be decreasing, but prices are still increasing (just not as fast). They mostly always do.
It seems that inflation still confuses many people.
I recently read a report that summarised some data from a review into younger people dealing with the cost of living.
The report is called "Money and You: Young People and the Cost of Living Crisis," by the Financial Services Council (FSC).
One of the questions asked to responders of a survey was:
Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year.
After one year, would you be able to (a) buy more than today OR (b) exactly the same as today, OR (c) less than today, with the money in this account?
The correct answer is (c).
58% of Gen Z got this wrong.
51% of Millennials got this wrong
The baby boomers must understand inflation as only 18% of them got it wrong.
Inflation is the silent thief that eats into your purchasing power.
What this means is that as time goes by, the same dollar value of money (say $100) can purchase fewer goods.
Goods are getting more expensive, FASTER than your money is growing from the interest income.
Remember in Money Mail 169 we learnt that your purchasing power decreased 15% in 3 years. If you didn’t read or listen to that one and you got the answer wrong above, no sweat, go back and study that lesson.
With wealth slowly transferring from the older generations to the younger, we need to do more to help younger people understand the true forces at play.
Unfortunately, many people rightly or wrongly fall into the trap of 'blaming':
- 'The system'
- A prior PM
- Capitalism
- Banks
- 'Greedy corporates'
Take your pick!
From what I've seen, stopping your learning here doesn't actually improve your life.
The above are all things you can’t overly control, so why use those as the end to your learning?
Don’t give up on countering the forces working against you even if you don’t fully understand what they truly are or how they work.
Understanding inflation and how to combat it will improve your life. Forever.
We are in a unique time where, unfortunately, you can really feel and see inflation. So we might as well bank some lessons from it whilst it’s so noticeable.
Inflation has been on average roughly 2.5% for the last 25 years. You’re going to want to understand it whether you like money or not.
Time to take things up a notch...the above question didn’t even have a trick to it.
Consider this question now:
Imagine that the interest rate on your savings account was 2.6% per year and inflation was 2.5% per year.
After one year, would you be able to (a) buy more than today OR (b) exactly the same as today, OR (c) less than today, with the money in this account?
The correct answer is again (c).
Wait what? Our interest income is growing faster than inflation though?
Ahhhh Jade, so cute and naive.
You’ve forgotten everyone's favourite: taxes.
Your interest income is 2.6% BEFORE TAX. But you buy goods and services which have been increasing in price by 2.5%, with AFTER tax dollars.
Again, in Money Mail 169 I step you through this with examples.
If you can’t quite get your head around inflation, I highly suggest you take some time to understand it.
It impacts every single one of us.
Keep learning,
Luke
In case the contents of this email are topical, it was first sent on 27 October 2023.
You might be surprised to know, that Bitcoin is up over 100% this year alone.
Wait what?
By the time you read this, yes, there could be a wild swing in the price and that % may not be accurate but, at the time of writing this, Bitcoin is still doing its thing.
And hell, from Friday when I started to write this piece to Tuesday, Bitcoin had rocketed 17%.
As you read this, who knows what will have happened? Such is the nature of this Bitcoin beast.
Although there hasn’t been all of the sexy chat about it this year, Bitcoin has been one of the best-performing assets this year in terms of increase in value, year to date.
That might surprise some of you because you probably haven’t heard about it for a while.
But for many people, they believe that Bitcoin is a store of value, so they are happy to park their money in it.
Some people hope that it would be a safe haven against not only inflation, but all of the movements in currencies.
Other people think it’s dangerous, rat poison, fools gold, fake money, a scam…take your pick.
Some people want Bitcoin, others want it dead.
You don’t always need to take a side with this stuff and, instead, you can choose to observe what's going on.
This Bitcoin thing has been around since 2009 now, so for those who don’t like it, they’ll be peeved that it can’t seem to be shaken.
It’s just over 3 years since I first bought some Bitcoin for myself to see how it worked.
I bought further amounts during that time using a New Zealand exchange.
Some of the satoshi’s (a satoshi is the smallest denomination of the cryptocurrency Bitcoin) are now worth more but many are worth less.
This probably again highlights the importance of dollar cost averaging and staying consistent with your investing, NO MATTER what you’re investing in.
As an example, if you bought at the height of the Bitcoin boom in late 2021 (when everything was going nuts) you’d have paid over $80,000 NZ for 1 whole Bitcoin.
If you’re still holding that 1 Bitcoin today at around $57k NZ, you’ve ‘lost money’ on paper and probably don’t give two sh!ts that Bitcoin has gone up by over 100% this year, do you.
If you bought at the start of the year when Bitcoin was around $26k, I am sure you’d be pretty happy.
Trying to time anything perfectly probably requires some insider knowledge or, more likely, a huge fluke.
This is why seasoned investors (again, in any asset) suggest buying regularly to smooth your entry price.
By no means am I telling you to go out and invest in Bitcoin, but I am highlighting the fact that this is how people can make sense of investing in nearly anything if the value is increasing up and to the right over the long term (NZ houses anyone?).
These wild swings in the Bitcoin price got me thinking more about the tax implications for everyday kiwis.
Recent data suggests that 1/10 kiwis have some form of crypto. This may continue to increase as more kiwisaver providers look to include some form of cryptocurrency in their offering.
Many Kiwis seem to think that crypto-currencies are anonymous, untaxed, untraceable, the list goes on.
I sat down with an ex IRD investigator and asked her some of these things.
How does the IRD know whether you’ve got crypto? Do they? Clue: remember that NZ exchange I mentioned above? They probably just ask them for a list of people who bought it - yup, they can do that!
What are your tax obligations?
How do you return the income or loss?
1 in 10 of you probably need to listen to this!
It sounds like this Bitcoin thing may be here for some time so you might as well learn some of the basics.
I even spotted a Bitcoin ATM in a dairy recently, so I might have to go and try using that to see what I can learn.
I have included a link to the podcast I mentioned above so that, if you’re interested you can do some learning.
Spotify: https://open.spotify.com/
To the moon as they say,
Luke
In case the contents of this email are topical, it was first sent on 3 October 2023.
The unemployment rate has risen to 3.9% from 3.6% last quarter. It’s slowly increasing.
Often people ask why we would want unemployment to increase? Shouldn’t we want more people working?
To be honest, I don’t really feel like it makes sense and I guess you probably feel the same way.
But together, we are going to go on a learning journey and try to make sense of it.
Before we do, we probably need to understand the wage-price spiral first.
You might have heard people say this, so what the hell is it?
It is the vicious circle of rising wages and increasing prices.
I.e. you want a pay rise because things are becoming more expensive (due to inflation).
You ask for one and get one. Stoked!
Your employer is noticing prices are rising for them too. The filtered water cooler is dearer than last year, the staff fruit box, the power to run the office, all input costs, insurance. You get the drift…all the good stuff you notice too.
Your employer wants to protect their margins, so they consider increasing their prices.
They raise their prices too and their customers end up paying more. These customers now want higher wages themselves!
This results in an ugly endless loop of inflation.
Rising prices generate wage demands that, in turn, shoot up prices.
Then we are back to the start: inflation.
If this goes on too long, the wage-price spiral results in rampant inflation, which, if it gets bad enough, has the ability to erode the value of a currency, resulting in the collapse of an economy.
People with money notice it is eroding in value and want to protect it by buying something that should increase in value over time - NZ housing ringing any bells?
This is why there is an entire department (The Reserve Bank) that are tasked with a job to keep inflation under control.
The tricky piece for them is that unemployment has been very low for some time.
The Pre-election Economic and Fiscal Update 2023 suggested that the unemployment rate is forecast to peak at 5.4% in early 2025.
Statistics NZ tells us that 118,000 people are currently unemployed.
That brings us back to the start - why would we want this number to increase?
Well…when unemployment is low, employers usually need to pay higher wages to attract and keep employees. This ultimately leads to rising wage inflation.
When unemployment is higher, there are more people looking for work. There may be more people willing to do those jobs than there are job listings. With more potential employees available, employers don’t need to throw extra cash at them to get them, meaning wages don’t rise as fast.
With low unemployment it also means that many people have disposable dollars because people are employed and working and getting pay rises.
Businesses effectively like this too because people are out spending and transacting with them.
If these same people are potentially going to lose their job OR do lose their job, you would expect that they will decrease their spending.
Businesses then see less customers and less transacting meaning they start to consider their own demand for employees. They may even consider letting go of their current employees.
Make sense Jade?
Most economists seem to tell us that wages have been keeping pace with inflation meaning that a lot of people have received pay rises to counter the impacts of inflation.
But that tide may have turned in many industries.
Unemployment has been sticky and the economy still hasn’t felt the faster effects of kiwis losing their jobs.
Sh!t I am not looking forward to that playing out because it will hurt a lot of people.
Losing a job can be a massive chapter in someones life.
I just want to remind you that I don’t make the rules but the above is a bit of a lay out of the rules currently at play.
I spoke to someone recently who was potentially going to lose their job and here is some high level thoughts I had for them off the cuff.
I am sure there is much better advice out there and I hope they or you don’t need it, but that’s what my brain gave me.
You can probably now see how higher interest rates (to decrease disposable income for those with loans) as well as rising unemployment can slow the economy down huh Jade.
There’s your economics lesson for the day.
Now get out there and have a good end to the week.
Luke
In case the contents of this email are topical, it was first sent on 10 November 2023.
I got a bit of a fright last week when I logged into Sharesies and saw one of my stocks had increased by 60%.
I refreshed the page a couple of times to make sure there wasn't a minus sign that had failed to load.
That's what it's been like for some of the other ripper investments i've made.
But no, legit, 60% gains baby!
So what happened?
One of the companies that I own shares in, got approached to be brought out by an overseas company.
The overseas company are willing to pay $1.70 per share for every single share of the company.
The shares at the time of this offer were around $0.90.
This represents a premium of over 85%.
When something like this happens, the share price instantly rockets up because people anticipate that this deal could go through and so they want a piece of that premium.
The deal still needs to be done and signed off by all shareholders.
This deal is therefore subject to shareholder and other regulatory approval, even including the courts.
To me, that sounds like there is a risk that this may not go ahead. I'm not getting too excited.
But, I could sell your shares today at $1.60 and cash out.
This is one of those interesting situations that doesn’t come up all the time during your investing journey, but something you can learn a lot from if it does happen.
If the sale is to go ahead, then a number of people who held this stock for years will have quite a large capital gain.
In New Zealand, we do not have a capital gains tax, so that means that all of these people will be able to cash out tax free without paying any tax.
It will be exciting for the shareholders, but a lot of people may think that this is unfair.
On this, I read that a month earlier a cornerstone shareholder increased their stake in the business.
Let’s say they bought 3million shares at $1 each, totalling $3million. (Using very round figures as I don't know the exact/actual details).
That $3million of shares now has a market value of just over $5million.
$2million of tax free gains. Wouldn't be bad, hey!
The company looking to buy this New Zealand business is an American company. Therefore, it may no longer be in New Zealand hands.
But they may expand New Zealand operations and employ further kiwis.
This is also a good example of capital looking for a place to live.
I.e. money looking to find a good investment and these Americans obviously believe this NZ business is, so they’re willing to pay a large premium to buy the entire business.
This also highlights the importance of investing outside of just hoping to see your number get bigger.
You get to learn so much more about the world, business, shares and taxes. Things that you wouldn’t have thought about when you first invested.
Now, before you think that I am the cornerstone shareholder in the example above, rest assured that my investment wasn’t enough to be life-changing.
BUT...it’s not every day you get a stock rocket up 60% in one day!
Owning this stock has been a fun lesson and will continue to unfold.
Let’s see what happens…I will keep you posted.
Have a brilliant weekend,
Luke
In case the contents of this email are topical, it was first sent on 17 November 2023.
Remember in January when we took a look at the hiding kiwis were taking to their net worth?
Well, it’s gotten worse. But you probably knew that Jade.
To remind you: net worth is your total assets minus your total liabilities(debts).
Every month I go through a process of calculating my own net worth. Hopefully, you may have picked up this habit too?
Statistics New Zealand regularly do the same calculation for all New Zealand households.
For people and for the country, we hope that over time assets will trend up and debts trend down.
Stats NZ recently released updated data on kiwi households' net worth.
To the end of the June quarter, NZ has a total of $2177billion in combined household net worth.
This is all assets owned by Kiwi households less the value of all their debts.
Remember that asset values are always moving, so people haven’t ‘lost’ this money as such, their assets are just being repriced by the market and this happens 24/7.
Much like your KiwiSaver, your house, your shares etc.
At the height of the asset(s) bubble and before things started to really turn the other way, the total household net worth was around $2432billion.
A fairly sizeable decrease, huh Jade.
Most of this is due to house prices retreating.
But data suggests that house prices have started to inch up from May/June. However, stocks and Kiwisaver have been getting hit, so this may offset any increase in house prices.
The next set of data for the household net worth ending 30th September is going to be one to watch. Do we continue to decrease or do we hold steady?
This bubble deflating has been a good reminder that in 2020 and 2021 we truly were living in unique times where household net worth was increasing at break-neck speed.
During that real bubbly time we all got so hooked on, (from March 2020 to December 2021) household net worth went up by something crazy like $620 billion.
The current decline could be seen by many to be positive as we revert back to the mean, which is geeky talk for getting back to the normal slower rates of upward trends believed to be more ‘sustainable’.
Of course, that is little comfort for people continually tracking their net worth and sweating on it only ever increasing.
This simply isn’t realistic though so remember to zoom out!
Habits are what you want to master, not an obsession that your asset values only ever increase.
It’s a good time to remember this gem…
You are your greatest asset. Not your house!
It’s not always about house prices, economic growth, net worth & bank balances.
A reminder from [Money Mail 134]. How about stacking and growing these?
Finances and money aren’t always about ‘number go up’.
Habits and consistency are key.
I.e. investing, contributing to Kiwisaver, paying loans down faster, learning, removing access to consumer credit, becoming a new version of yourself.
This bubble deflating is realistically no cause for concern for most people.
Unless, of course, if you need the assets liquid(spendable) soon, then you probably shouldn’t be invested in risky assets.
This is why all of this stuff is so important to understand for every one of us individually.
On we rumble,
Luke
In case the contents of this email are topical, it was first sent on 23 November 2023.
I received this thought provoking message from a reader. I thought this one might interest you.
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Hey bro, today we did it!! |
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Unconditionally sold our “forever home” |
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We were $1m in the hole(debt) paying crook interest mate ($70,000pa). |
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We bought a gorgeous home in town that will now give us a mortgage of around $200,000. Saving nearly $1,000 per week in interest to the bank. It’s crazy to think about, really. |
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For us it means clearer minds, and a much greater ability to reinvest with over $800k equity. |
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Hard to comprehend when this was our dream/forever home, but sometimes you have to step sideways to leap forward another 3 steps. I’m amped for what the next 5 years brings. |
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Can honestly say we wouldn’t have considered this without some of the learnings from you and Mikey over the years, mate. Thanks again.
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Before we carry on, remember, you do you, run your own race, design your life, aim for what you want etc. There hasn't been specific content on selling your dream home, so the lessons this person refers to were about re-thinking their situation and how they got there.
As interest rates have risen, some of the decisions we made at 3% rates aren’t the ones we would make at 6 or 7%.
Then it’s tough. Do you stay the course or do you make a change?
For this Changer (a KTC reader/listener who makes change), they decided the stress of the large payments for their dream wasn’t worth it.
Now, to get to the above position which MOST kiwis won’t, they must have a high income.
Let’s say they earn $250k (about 1% of kiwis do), you’ll pay loosely $80k in tax and have $170k net.
$170k - $70k of interest = $100k. Now you’ve got to pay the actual mortgage repayments too.
And pay for food, kids, presents, rates, insurance, life, you know the drill.
No, you may not be in their position, but it shows you how EVERYONE is re-thinking the decisions they’ve made.
What decisions did you make at 2% interest rates that you wouldn’t have made at 6 or 7% interest Jade?
This lesson isn’t just about mortgage holders either. It goes to all of us using debt.
Note what they say:
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‘For us it means clearer minds’. |
Imagine what is possible with a clearer mind and less stress about money? No matter your financial position, we can all relate to this.
What debt is holding your mind and thinking captive? Credit cards, BNPL, car loans, overdrafts?
I’ve been there, I know that feeling. I’ve got out the other side too, and it’s very, very hard to explain how empowering it is.
Yes, we can learn to get comfortable with THE RIGHT debt, but if the wrong debt is making you feel uncomfortable, talk to someone!
Family. A friend. Budgeting services (see Money Mail 149). The bank. A mortgage advisor.
This is also a great lesson in re-thinking your ‘dreams’ and ‘forever’. It’s ok to change your mind in life.
I will repeat. It’s ok to change your mind in life.
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The phenomenon whereby a person is reluctant to abandon a strategy or course of action because they have invested heavily in it, even when it is clear that abandonment would be more beneficial.
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It takes a brave person to walk away from massive financial decisions that they've made, especially when you fall for that other trap of worrying about what people will say/think.
Life is long. It really pays to spend some time thinking about the things you want from it and that's not easy. These things will change as your life changes too.
We live in a world where we want and are encouraged to live to the maximum outer limit of our incomes (through debt). But as you can see above, that may not be all it’s cracked up to be.
This reminds me to remind you that I have a book for you to read this summer.
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The Psychology of Money by Morgan Housel |
It’s a cracker and I took pages of notes when studying it. It will change the way you see money and potentially life. Please swap out 1 sh!t fiction book for something beneficial this summer.
One of the lessons in the book is that the goal posts are always moving, you need to try and master making them stop.
Good luck with that, |
Luke |
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In case the contents of this email are topical, it was first sent on 1 December 2023.
Sticking with the theme of listener messages and how we are all being impacted differently, I wanted you to understand this.
Recent graduates in our country are feeling the burn of tax & the cost of living. Why? Here you go...
I recently received a message from a student who was making good money and said that he was surprised at how difficult it was to save and really felt for people who didn’t earn the level of income that he does.
For some context, this lad is in his first year out of uni and already earning $77,000 per year.
You would think that this is a very decent salary, and I was certainly shocked to hear that is what you could earn in your first year out of university.
Cue the ‘in my first job I only got paid…’. replies. You don't need to send me those.
Of course, this income is specific to his industry and his ability. I.e. he's good at what he does.
Anyway, many of his friends in the same position are sadly looking to leave NZ shores for the golden sands of Australia.
If you don’t have any sympathy for these students, that is fine, but don’t forget that many students have student loans to pay back.
That means that 12% of all income above the IRD threshold ($22,828 at present) has to be repaid against the student loan.
This is calculated on your gross income (before tax) not your net income / take-home income.
We will work through this below.
Wages have increased over the last few years but the income tax brackets haven’t. However, the threshold for repaying your student loan has increased. But as uni graduates enter the workforce, their starting rates are a lot higher than yesteryear.
These excited new employees are also facing cost of living pressures much like you and I.
For those students entering the workforce, the income that they have over $48,000 will be taxed at 30%.
Add on 12% for student loan repayments on the majority of their income (income above $22,828) as well as 3% towards Kiwisaver if they so choose.
And, of course, they choose to contribute to Kiwisaver because they are sh!t scared of not being able to get on the ‘property ladder’, so they want to be able to contribute to Kiwisaver to get the first time buyer grants that may come with contributing to Kiwisaver.
Right, so am I saying that near on half of their income is gone before they even get paid? (30 + 12 + 3).
That sounds brutal and a bit exaggerated, so let’s look at some numbers.
What is $77,000 after tax and student loan repayments, + Kiwisaver?
It is $50,681.26.
The compulsory student loan repayments are $6,500.64.
What about someone who isn’t paying for a student loan?
Well, $67,000 after tax and KiwiSaver is $50,844.90.
At a high level, they earn $10,000 less but end up with more in the hand.
I can see why this young lad who messaged me felt a bit confused about how it’s tricky to save.
Anyway, my message to you students!
Don’t give up. Zoom out.
Remember to now layer on education.
Think about how else you can contribute in your chosen area of education.
I.e. I got the same accounting degree as others and by no means was I a scholar.
But I was able to differentiate myself from others by continuing to learn and invest in the education that excited me.
That has turned into income generating opportunities BUT it’s taken a lot of time.
I’ve then been able to give back to others also in the form of education. Hello!
Don’t forget you’re just getting started and you have a long career ahead of you.
It’s good that you are running the numbers and trying to work out how this stuff works because no one is going to come and do it for you.
Think about soft skills. Learning how to build relationships at work. Networking. It’s not enough just to do your job well these days. You have to know how to influence others and just be a likeable person to work with!
If the golden shores of Australia are calling, remember too that you may have interest to pay on your outstanding student loan.
Your compulsory loan repayments may become out of sight, out of mind, but if you’re not making them, they will catch up on you. Check what your obligation are before you head off, because they are generally based on your loan balance.
Hang in there, students and recent graduates!
Hey, before we go, can you please help me? We are looking to hire a senior accountant in our Auckland office to help us deliver market-leading advice & education to businesses & kiwis. If you know someone, please let them know that nextAdvisory is hiring. Thanks!
Cheers,
Luke
In case the contents of this email are topical, it was first sent on 8 December 2023.
As money gets tight for people, I read about the different ways people are trying to put money back into their household.
Financial hardship applications via Kiwisaver have skyrocketed, side hustles, only paying the minimum on a credit card, extra work, pausing KiwiSaver.
All of these CAN be levers but all need to be thought through.
As does this one…cashing up annual leave.
This is where employees exchange some of their unused annual leave for cold hard cash.
A nice cash injection!
Generally, employees can ask to cash-up up to 1 week of their 4-week annual leave entitlement per year, but there are some conditions.
Employee’s must:
Employers, you should note that you need to receive a written request otherwise employees could claim they never requested it, and you could still be liable for any holidays and not be returned any cash you’ve paid out. Bizarre.
An employer:
Typically, once this is agreed upon, the employer pays the employee in the next pay run.
Now, before you go and do something like this (anything that puts money in your back pocket), consider what you will do with the money?
And in terms of cashing up leave, what required leave you may have coming up in the future.
It may seem tempting, but many people need their holidays for rest OR for completing other forms of income generating activities (when you could argue they should be resting but hey I’m not policing this!).
Consider your financial needs and whether you really need to cash up your leave. While it may provide an exciting lump sum of money, it also means you won't have that paid time off later.
So, before you blindly cash out your leave, ask yourself WHY you are going to do that? I.e.
Don’t do what I would have done back in the day and look at this as another way to access quick cash and then create a habit of doing that every year, meanwhilst blowing the cash.
The timing of cashing up leave can be something to think about too, as it might push you into a higher tax bracket and therefore get taxed at a higher rate for that pay-run. Of course, this will work itself out over the course of a financial year (as we are always ultimately taxed on our total year's income), but it is something many people note when doing it.
Remember that the payment for annual leave is paid at the rate of at least the greater amount of:
(Employment dot govt dot nz)
For a more accurate calculation of your annual leave payment, you'd consult with your employer or the HR department.
Reminder...I am by no means an HR or annual leave specialist!
Here is what the KTC community said about their experience with cashing out leave:
As you can see, there is a range of experience with this from don’t do it to how to maximise it.
As always, you need to be mindful of YOUR specific situation, past and future.
What do I say?
Map your actions back to your goals.
And no, I am not writing you a template to ask your employer to cash up a week's annual leave.
But ChatGPT will!
Have a good weekend,
Luke
In case the contents of this email are topical, it was first sent on 15 December 2023.
Recently somebody asked me whether it’s a good idea to pay off their $2.5k student loan if you have $2.5k saved.
Only they know that answer.
But it got me thinking about the levels of money and the versions of ourselves Jade.
So I asked the old version of myself what they would do, then I asked the new version of me.
Now, the old version of me would list out all the reasons why you wouldn’t want to do this and that would include:
Winning! I am sure showing ‘them’ (whoever them is) who knows this money game!
All of those reasons are the same ones that people cite when saying there’s no point paying off your student loan faster than required.
And it’s a very good argument. So you don’t repay it and you just pay down the 12% required(see below).
However, if you want to go to a different version of yourself, you look at something like this, and you challenge yourself to think bigger.
So new me, what would that look like?
Pay it off in one go. Done & dusted.
(But ensuring you still have SOME emergency funds).
Why the hell would you do this new Luke?
Because...you are trying to push yourself to become a more advanced thinking version of yourself than you currently are today.
You want to be student loan free and don’t want to be part of the 650,000 + kiwis paying back a student loan.
You want to think bigger.
I.e. pay the $2.5k off. Then you challenge yourself to stack another $2.5k in six months.
How do you do this?
Start by looking at how you saved the first $2.5k. What lessons are here? Speed them up.
Also, you now have 12% more of your income from each pay to do something with. What are you going to do with this?
You have to know this answer because, from your next pay, it’s a real thing.
For the old version of yourself, you didn’t need to think about this for another 'X' number of months (until your loan was cleared).
A reminder here that the rules state those with student loans must pay 12% off the student loan from income above $22,828.
The cash flow free'd up from no longer paying the student loan may help you service different forms of debt too - better learn that!
Perhaps and more importantly, you have achieved a significant financial milestone of clearing your student loan.
Sure, it was interest free and cost you nothing, but nothing is free, right Jade?
You get rewarded with the dopamine rush of clearing a burden off of your back and out of your mind, and you finally get to start thinking about your future self without a student loan.
So go on new Luke, do it, transfer the $2.5k in one go and pay it off. Get that feeling! Become that person.
When it comes to money, it’s really about how we individually look at things and make sense of them.
We love to think we are getting these quick wins with interest-free loans, no fees, hot points, air points, you name it.
We find ways to think that we are winning, and we are 'gaming the system', and we are 'giving it to the big guys'.
But can’t you see they have the biggest towers and the biggest profits? You know the same profits that people complain about?
It’s not always about quick wins and the perfect way to do things, it’s about you becoming somebody who you aren’t right now, and it is different for each of us individually.
The quick win society never wins long-term. Probably because you don’t learn anything valuable.
A quote from the Law Of Success from 1925 that I recently read states that ‘people who try to get something for nothing, never win’.
This specific student loan question is an example of a situation where you will get two very different opinions on what ‘the right’ thing is to do, but only you know what it is, because only you know who you want to become when it comes to money.
For the rest of your life, do you want to be the person chasing the quick wins and the ‘beating the system’ or do you want to be someone that’s powerful enough to question your decision-making and go out there and make back the cash that you’ve had to let go of?
Here’s someone who wants to clear their debt faster ‘than required’ and their why:
Absolutely about goals! I’m tracking to pay my student loan off by July next year (it’s at 11k atm). Once done, I’ll be the first in my family to be debt free. That’s a milestone and a generational shift on its own.
And another…
I’ve made the decision to try and clear all debt and get rid of my student loan. I checked the IRD payment calculator and with no additional payments my last payment will be in 1 year 5 months. I’ve adjusted my financials and the fastest I can pay it off is in 5 months!! Saving me a whole year!!
This person has done the numbers and doesn’t want to just drift, paying it off in 1 year, 5 months. Both are challenging themselves to become someone who they aren’t currently by doing things they aren’t currently doing.
There are levels to this money stuff, and you have to understand what level you’re on, who you are and who you want to become.
I.e. I know somebody in business who finances their tax bills and is happy to pay the interest cost but risks the money in the meantime as they can generate a return on that money that is higher than the interest cost. They are on a different level, but they understand their level.
You also have to understand your specific situation.
If you have a mortgage or interest-bearing debt, you may not make sense of paying off an interest-free student loan when you could be paying down your loan with that money.
But here’s the real lesson Jade.
The bank tells you how much to repay on your mortgage.
The govt tells you how much to repay on your student loan.
And you acclimatise to these amounts.
You just do as you’re told.
You didn’t think.
Someone thought for you.
You’ve not thought about how much YOU could repay off of these debts.
Only you can do that.
It’s who you become through the process.
So be bold,
Luke
In case the contents of this email are topical, it was first sent on 22 December 2023.
11% of kiwis earn over $100,000.
That’s according to the 2022 IRD taxable income data that I spent time running some calculations on one weekend.
I know what you’re thinking, and I’m thinking it too; who does that on their weekend?
Keep your thoughts to yourself Jade.
But I won’t keep the findings to myself.
The data is based on personal tax return information filed and information held by the IRD when no tax return has been filed. I.e. it’s pretty extensive data.
Before we start.
It DOES NOT include things like Working For Families and tax-free allowances.
It is personal tax return data, NOT companies / trusts
I always get the ‘oh yeah, but the business owners use trusts and companies and fairy dust to evade tax so these numbers aren’t right’, but when I ask them how that works they don’t seem to know.
I.e. if Mainfreight pays their profits out to shareholders as a dividend, that dividend ends up in a [personal tax return] and is income to the individual shareholder.
If a business using a company structure does the same thing, the profit ends up in the personal tax return too.
Yup, you can leave profits in a company and tax them at 28% but most of the time, eventually they end up in a personal tax return.
I genuinely don’t think the above is the big deal people make it out to be, but hey, anything to hold on to in order not to take action yourself, right?
We can only look at the data that is available, so lay off the fairy dust for 2 mins and let’s look at what we do have.
The total taxpayer numbers the data is based off is 4,516,880.
Interestingly, of these 4.5million people, 558,040 earn $0 or less than $100. That is 12.35% of the data set.
209,300 people are recorded as having $0 in income.
57% of the data set make between 1 cent and $50,000.
That number moves to 61.69% if you include the 209,300 people recorded as $0 in income.
84.52% of the data set make between 1 cent and $100,000.
That number moves to 89.15% if you include the 209,300 people recorded as $0 in income.
In a nutshell:
11% of kiwis earn over $100,000
2.5% of kiwis earn over $180,000 (where the top tax bracket kicks in)
A top 1% income is around $250,000
The data goes up to the income band of $300k+.
30,190 of the 4,516,880 people sit in this income band and that is 0.67%.
Now we all know that comparison is the thief of joy and, again, this data won’t include any tax-free allowances (for travel, meals etc) or being provided a vehicle, working for families, child support.
Perhaps this summer holiday if you bump into someone 'doing well', get curious.
It’s easy to resent people who may be ahead of us in terms of income, but that doesn’t help us.
Many people have been and will be seeking new forms of income as interest rates and the cost of living keep biting.
Stay curious.
How do those 11% do it?
How do the 1% do it?
How do the 0.67% do it?
You may not want what they have or their income levels, but they may look at the world in different ways to you and I.
There is always something to learn from every person you meet.
Have an amazing Christmas with your family and look after each other.
Easy on the candy canes,
Luke
In case the contents of this email are topical, it was first sent on 29 December 2023.
A quick one because I know you're enjoying your break & getting that festive rest in.
I wanted to quickly let you know that the podcast had 600,000 downloads in 2024.
There are now over 450 episodes to learn from. All Money Mail lessons (Friday emails) are read as podcasts too, and I am able to go a bit deeper into some of the context of the email.
Here is a list of the 15 most listened to podcasts of the last 12 months.
Spotify:https://open.spotify.
Apple: https://podcasts.apple.
I guarantee you that there is a summertime gem in there for you to learn from.
I try to record these episodes with a principles approach so that no matter when you get around to listening, IF YOU ARE READY, you will hear the lessons that will help you, no matter when they were recorded.
I have spent many of my 2023 weekends in the office recording these, as well as tens of thousands of dollars on studio time, distribution and reach.
I have tried to create access to education I thought would be a given for kiwis, but previously, has been hard to find or understand.
Without you listening, learning, taking action and reporting back, it's all for nothing.
So when you take action and make a change you are the true heroes.
If you listen, it would mean the world to me if you gave the podcast a 5 star review on Spotify or Apple (you simply click 5 stars).
The KTC Podcast is one of the most rated podcasts in New Zealand. Rating and subscribing helps the platform algorithms understand this is real & valuable content. Thank you!
You can leave a Spotify review here:
https://open.spotify.com/show/
You can also share a podcast from Spotify or Apple straight to your Instagram story to show people what you are listening to.
Speaking of Instagram, the KTC account has grown from 5k followers to 32k in 2023.
There are around 3,000 new email subscribers. All prior Money Mail lessons are available on the KTC website on the blog.
Welcome if you are new around here .
Thanks for listening or reading and being a part of the Keep The Change goal of 100,000 Kiwis improving their financial literacy.
2023; you were some year.
2024; the KTC community is coming for you!
Stay safe over NY!
Luke
In case the contents of this email are topical, it was first sent on 5 January 2024.
Ahh the Warriors fans catch cry every year.
Everyone starts by believing it and then…well you know what happens from there.
At least it starts with some belief.
Most people have let go of the belief that their dreams are still possible.
Most people don’t even know what they want from a year.
Most people don’t have a plan.
This time next year these same people will look back and tell you ‘well 2024 didn’t go to plan’ but they didn’t actually have one.
Things ‘not going to plan’ is very different from things happening that we didn’t expect.
Because many of these are guaranteed to happen to some of us. Even if we don’t expect them to, whilst doing our 2024 planning, today.
It’s how we respond to the above that really matters.
But, you want to be thinking bigger than just responding (reacting) to changes and challenges.
Instead of just getting ready for another tricky year, why not decide to make this YOUR year?
Start by deciding that it’s your farking year.
Decide today, to act like the version of yourself you need to be that achieves these goals.
You’ll need this simple stack:
Belief.
Vision.
Targets.
Actions.
Automation.
Reminders.
Reviews.
(Bonus: accountability).
Let’s look at an example I am super familiar with.
Take $15k credit card, Luke, who cleared it and became a debit card user.
I started with the belief that it was possible to clear it because I knew I once didn’t have one, so I knew I had got myself there, and I could get myself out.
I had a vision of being credit card free. Debt free even. I would ‘feel’ what it was like to have that debt off my back before I even achieved it. I was visualising much bigger things for my life at this time too. Clearing the credit card was one grueling step toward bigger things.
I gave myself a specific time period to do it. A target. I love a target. Most people do. It gives us something to aim for. It was 26 fortnights.
That meant I needed to take action and that was paying about $500 a fortnight to help clear it to almost $0. I didn’t want to pay interest either, so I used a balance credit card transfer over a 12 month window. That was in line with my target - clear in one year. I stopped using a credit card too. This turned my credit card into a term debt I had to pay back.
Every fortnight I got paid, the first thing I would automatically do was REDUCE THE BALANCE BY $500. Not pay off $500. Paying off $500 was easy but reducing the balance was hard but critical.
Why?
Because I had to step into the future version of myself with no access to credit. No more ‘oh I’ll keep it just in case’. Uh ahh credit coward, the debit dominator is in charge around here now.
Reminders - a pay cycle is a good automatic one, but a calendar reminder was perfect to come back to front of mind and see that’s what I needed to do.
Then I would review my progress. Was I ticking it off? Not every fortnight but most. What was stopping me in those fortnights that I couldn’t? I would review this and explore how I could catch up. I would also track the balance decreasing to feel happy about the progress (humans love progress).
Accountability is a great tool too. Tell someone? And prove to them, you’re making progress. Take them on the journey. Have them to set a reminder to ask you (and you show them proof) how you are progressing.
Now, I hope for most of you, paying off a credit card isn’t the goal, but in a debt-riddled world, clearing some form of debt may well be and that’s ok. It’s a grind, but it’s a necessary step.
Whatever you want to achieve this year, run through this stack and spend some time ensuring you’ve got each component dialed in.
Belief - that you can do it.
Vision - of what it's like to have achieved it. What does that feel like? Who are you?
Targets - when do you want to do it by?
Action - what do you need to do/speak to/learn to make it happen?
Automation - what can you 'set up' so you don't need to remember to do it.
Reminders - how often do you need your brain to be reminded of actions required? Set them up.
Reviews - how regularly will you review your progress?
(Bonus: accountability - who can you take on the journey with you?).
I am proud to tell you I used this exact stack to not only become credit card free but become a millionaire.
Yup, I did it, and I'll tell you more about that next week.
Happy New Year,
Luke
In case the contents of this email are topical, it was first sent on 12 January 2024.
In 2023, I achieved one of my goals and I didn’t write about it nor really celebrate it; poor form, hey!
Partly because by the time I got closer to achieving it, it wasn’t that big of a deal for me (i'll explain below).
And partly because I think even I tall poppy myself a little where I worry people will switch off because I become ‘too far ahead’ and ‘not like you’ or ‘easy for you to say’ because some will focus on my outcomes/current position rather than the journey and lessons to get there.
But if you actually read the Keep The Change website when you signed up, I told you about this.
When I first built the Keep The Change website over 3.5 years ago, I wrote this in the ‘About me’ section:
Not a millionaire (yet), but am on the path and think we all can be too. BUT not trying to be some hero I'm not.
I wasn’t a millionaire when I wrote that, nowhere near.
Bloody hell, the world was ending with pandemic fear when I wrote that.
So who writes that on a website that tens of thousands of people will eventually go to?
Someone with belief.
The first of the stack I mentioned last week that I used many moons ago to get rid of my $15k credit card.
(Note: this was years before I started KTC).
Belief.
Vision.
Targets.
Action.
Automation.
Reminders.
Reviews.
(Bonus: accountability).
Even when I was deep in credit card and consumer debt, I knew I could get out because I knew that wasn’t really me.
I was just farking around well below my potential. I knew I could be a millionaire way back then too.
However, at that time, that goal seemed a long, long way away. It was because I needed to swap in a lot of good habits for bad ones.
But I had the belief that if I just figured out how to do it and started taking action, I could.
Once the belief was there and a decision to achieve it, I had to have a vision of what that would look like.
That’s a fun piece and I could write a 6,000 word essay with the micro tactics I implemented throughout that journey to make it happen, but you may switch off.
Instead, I want to take a different angle and tell you how my original goal didn’t seem as important as I got closer.
Let’s start by looking at the definition.
Hey Google…what is a millionaire?
‘a person whose assets are worth one million pounds or dollars or more’.
I didn’t use this definition as heaps of people call themselves millionaires when their house price inflated beyond $1,000,000, but still have a stack of debt.
When I thought about it, I thought about it as net worth:
A millionaire is an individual whose net worth or wealth is equal to or exceeds one million units of currency.
I.e. value of assets minus debts.
In 2023 my net worth went past $1,000,000.
Goal achieved! I got to millionaire status. Yay!
Becoming a millionaire seems to be a goal that many people strive for.
I don’t really know how that gets planted into us but I picked it up from someone/somewhere too.
Even a further part of the definition of a 'millionaire' is: depending on the currency, a certain level of prestige is associated with being a millionaire.
I don’t know where this prestige comes from, but society decided so, somewhere along the lines. I am going to have to research it to find out why.
Anyway, as I got closer to my goal and understood the definition, I realised that most people who are reported to be millionaires couldn’t scratch $50,000 together tomorrow if they needed to.
Why?
Because it’s all tied up in assets that have been inflated by lowered interest rates and further debt creation.
The % of millionaires who could actually access a million dollars quickly would be very, very few.
That’s where I realised my goal of becoming a millionaire probably didn’t match my potential and may well be too small of a goal for me.
Do I want to die or sell all of my assets to have $1,000,000 clean to walk around saying I have achieved my goal?
No, because who cares? I wouldn’t either.
Could I take $110 NZD and swap it for 1 million Indonesian rupiahs and become a millionaire? Yup!
But that wasn’t really the goal, was it?
What is special to me and very empowering is that I know how to do it now, and I know I can.
From a negative net worth to a million dollar net worth.
I turned my belief into reality.
That’s worth more than a million bucks worth of assets.
In the spirit of that early year goal-setting stage we find ourselves in, I have some thoughts for you:
• Where did your goals come from?
• What do they ACTUALLY mean?
• Why are they important to you?
• Are your goals too small for your potential?
I.e. I still don’t really know where my millionaire goal came from. But I learned what a millionaire was (by definition) and that almost made it less important to me than many years ago. However, it was important for me to figure out how to become the person to achieve that, because I knew I could. But yes, that goal was WAY too small for me and I have ones that are A LOT bigger that have nothing to do with money.
I’ve tried to tell you this time and time again because it is what I have learned from going from ‘credit card cowboy’ to ‘on paper millionaire whipp’dy sh!t boy’, that: it’s who you become through the process that makes you valuable.
This is the gold!
This year I want you to reconsider your 2024 goals you’ve probably already set via 3 things:
1 - Remove comparison. My Journey is mine and yours is yours. Someone else’s journey is not your journey.
Stop comparing yourself to others and especially bull shit on social media. Sure, use others for ideas and education but stop using them for unhappiness or comparison. Make sure you want your goals because you’ll need new habits and standards to get them.
2 - Thinking bigger. Be careful picking up other peoples or societies goals because they could be WAY below your potential.
Think about what you are capable of if all of your roadblocks, traumas, self-limiting beliefs and excuses weren’t there to stop you.
3 - Instead of thinking about what YOU could do with money. Perhaps think about WHO you could help if you had that money?
Money comes from adding value. We each add value differently. Taylor Swift adds value in the form of entertainment, escapism etc. and gets paid. Universities cost money because they add value through education. How can you add more value by helping people get what they want?
Stop focusing on JUST helping yourself and instead, focus on helping others, strangely, the money will come.
In 2024, no matter where you are at the stage of your life, don't give up on your dreams.
Yes, there will be setbacks.
Yes, we will get off track.
But get back on track toward who you know you really are.
Finally, let this sink in to summarise the 3 points above…
If you think my million dollar goal is cool, get this. I saw a kiwi make a $10million donation in December!
Take action,
Luke
In case the contents of this email are topical, it was first sent on 19 January 2024.
Do you know how to answer that?
I often hear people say ‘that’s a lot of money’ and I wonder where that came from?
How do we decide what a lot of money is?
I thought I would ask some of the KTC followers on Instagram.
Here is a summary of what they said:
It’s interesting to see the different types of responses, right?
From annual incomes, to meanings of money, to removing worry, to round figure amounts.
What conditions us to believe an amount of money is ‘a lot of money?’.
It’s something I ponder occasionally, and I don’t have the hard and fast answers to this one.
It will be different for each of us.
The definition of "a lot of money" is subjective and will vary massively from person to person.
No doubt a big part of it will depend on individual circumstances, financial goals, and the economic context in which individuals find themselves, as well as our financial upbringings.
Whether we want to admit it or not, money makes a lot of decisions for us.
Because depending on how much of it we have, it can dictate what is possible.
We’d all make some pretty different decisions if we won the lotto this weekend, right?
In a more practical example: there is a nice place I wouldn’t mind living in right on the beach here in Auckland. But it’s $7k per week.
Yup, $7,000 a week in rent Jade.
I don’t live there because that seems like a lot to me. But the person who eventually rents that may not see it as a lot.
Then, I read how some properties in Dubai are $50,000 US$ a month. That’s about $18k per week in NZ.
But people are paying it and have made sense of doing so.
This is why I am big on challenging the things we say to ourselves and the conclusions we come to.
Same thing when it comes to goals which we’ve spoken about over the last few weeks.
Are our goals really big enough and where did they come from? How did we set the levels of those goals?
This is something you need to be mindful of when sharing your goals with others also, as your goal might be massive to them but achievable for you.
Tell the wrong people too many times, and they may convince you that you’re not thinking straight.
Similarly, when you hear someone say ‘that’s a lot of money’, ask them how come they think so? How did they come to that conclusion?
Lastly, you might want to have some fun and picture what you’d do differently in life if you had ‘a lot of money’.
It can be a fun exercise.
As some of those people say above, having a lot of money means doing things ‘without worrying about money’.
What would a life look like if you didn’t have to ‘worry’ about money?
How would you articulate that to other people?
That can be a good way to build a vision rather than focussing on a specific dollar amount of money.
Hey, maybe you don’t get there, but at least you are thinking about what it looks and feels like. Perhaps then you can find some ways to achieve parts of it.
Hopefully that got you thinking!
Think bold,
Luke
In case the contents of this email are topical, it was first sent on 26 January 2024.
Everyone is getting excited about interest rates dropping in 2024.
There is the hope that rates will drop, and the housing market will increase as it has in the past, upward to the right.
Kiwis love the housing market increasing (well, those who own homes).
Given that roughly 1/3rd of kiwis are mortgage free and 1/3rd have a mortgage, you can see why 2/3rds of the country are pretty happy when house prices are increasing.
It makes it easier to borrow because rates are lower, so the debt can be serviced, and owners have built up more equity.
The above can also be helpful for small business owners who may need to borrow against the home to have a crack at an opportunity in their business.
Household confidence seems to increase.
Psychologically, we have the feeling that we are getting richer and that our debt is shrinking.
So sure, maybe in 2024 we will finally see a reprieve in interest rates.
Perhaps people can pay back their loans faster, should they choose to.
But this isn’t the best way to get these loans down.
Below is still the #1 hack to shave years off your mortgage (or any debt).
Let’s look at a $500,000 loan at an average of 4.5% over 30 years.
Many kiwis have a spare room in their house. If they had a boarder and made an extra $400 in payments per fortnight, they’d shave 11 years, 7 months off their mortgage.
If they had a side hustle and made an extra $200 in payments per month, they’d shave 4 years, 2 months off their mortgage.
If they found a way to make $1,000 extra per month (after tax) and use it for payments, they’d shave 13 years & 1 month off their mortgage.
This is why it is so so so important not to think ‘oh it’s only an extra $50 a week I am earning, what’s the point’.
No, if applied to your mortgage, that is $66,000 interest, saved.
Think about the compounding nature of extra income. Not just what it is in the here and now.
Especially because later this year, we look to have tax changes coming.
That means more disposable income for most people.
Start thinking now about what you’re going to do with that additional money.
This year, I have already heard too many times that 2024 will be better because:
But guess what, you and I aren’t making any of those 3 changes.
They are being made for us.
Think about what you can change in 2024 to have a better year than 2023.
And then…
Keep The Change,
Luke
In case the contents of this email are topical, it was first sent on 2 February 2024.
You’ve heard me tell you this before, but you can’t hear it enough.
Money exchanges hands when value exceeds price.
Unfortunately, most kiwis don’t realise how valuable they are.
They can’t see that they have valuable skills.
Is this because school points us in the direction of a job?
Job = swap time for money.
Therefore, you miss the methodology of:
Provide value = money.
Without knowing it, you become the value in the form of a labour unit.
And hey, that’s completely cool if that’s your thing.
But perhaps you could learn the value methodology for:
It’s there if you want it.
Just like this KTC podcast listener found out:
After listening to KTC and going to the Philippines, I decided it was time to hustle and get myself a slice of that pie.
So on Saturday I spent the morning designing and printing off 400 flyers with different services I can offer, and in the afternoon, went out and knocked on doors for 3 hrs around my neighbourhood, handing out about 100 of them.
Well, it's Monday now, and I've already earned $200 washing and cleaning 3 vehicles, have another fence painting job lined up for $300, and multiple other smaller jobs.
Just shows that if you're willing to stop scrolling on Facebook and get out of your comfort zone, there's plenty of money still out there to be made!
Being in the Philippines showed me just how lucky we are in NZ and how much money is out there if you're willing to work for it.
This is on top of a full-time, well paid job.
This does not surprise me at all because I KNOW this works, and I’ve done lessons on it in 2021 before anyone cared about inflation, because I could see what was coming.
(See the More Money Webinar & then Money Mail 120).
I knew people would need more income.
I also know people over complicate it.
Some will even believe they shouldn’t have to go and get it.
But inflation doesn’t discriminate, and it doesn’t care whether you choose to combat it or whether you believe you should or shouldn’t have to.
It’s still done its thing and ripped through mine and your purchasing power.
This listeners message also took me back to one of the lessons I had during my time in the Philippines.
Consistency works.
There is a theory that you don’t always need to be better than your competitors to win, you just need to show up more and, my word, these people show up.
On the beach you are continually asked if you’d like a jet ski ride, to go sailing, selfies on a kayak, fresh mango, a coconut out of the tree, the list goes on.
It was the 7-year-old boys selling bracelets that I gave into.
They’d already had 2 cracks at me but by crack 3 I was handing over 100 Pesos (About $3).
The next day, I saw them selling the same bracelets for 50 pesos. They saw me coming!
Further to that, I am pretty sure these bracelets are bought from a store in bulk, and then they go and sell them individually. Making a margin in the middle by going to the market (me) instead of letting the market (me) wander past the store. Great work!
These 7-year-old boys know that money exchanges hands when value exceeds price.
And they show up until someone transacts.
Yes, go on then, I will have a coconut out of that tree if you can climb it and bring it down for me!
Yes, our KTC listener can wash and clean vehicles and paint fences.
Yes, you can provide value for money too Jade.
What skills do you have that you don’t even realise you have? Skills that are valuable and can be turned into money?
Then you need to tell other people. The listener above made pamphlets and took them to people.
How are you going to tell more people? Chances are you have hundreds of potential eyeballs via your social media channels.
Now, once someone says they want their problem solved, transact.
Money exchanges hands when value exceeds price.
Kids can do it.
KTC listeners are doing it.
You can do it,
Luke
In case the contents of this email are topical, it was first sent on 9 February 2024.
Last week you may have heard the news that the minimum wage is increasing by 2%.
This is one of the smallest increases in minimum wage I can remember for some time.
It is said that this minimum wage increase will see 80,000 to 145,000 workers ‘better off’.
But you know from learning that they probably won’t be ‘better off’ because of inflation.
On the 1st of April, minimum wage will move from $22.70 to $23.15 an hour.
One of the first messages I received after posting this update on Instagram was:
‘Great…I will be on minimum wage again’.
This is, of course, part of the flow on effect where it is not only the minimum wage that increases but those earning within the increase and slightly above.
I.e. if you’re getting paid between $22.70 and $23.15 an hour at present, from the 1st of April, that must increase to $23.15 at a minimum.
Getting paid $23.50? You’re probably going to expect a pay rise too, right?
A lot of people compare what they earn to the minimum wage.
It can have a big psychological impact. Be careful if you do this Jade.
We often talk about seasons around here.
I have had a season on minimum wage. I have also had a season being in the top 1% of earners in the country.
Things can change. You can too.
Your true worth isn’t what you get paid for per hour of work. It is much more than that, and only you can unlock it.
Whether we like it or not, money makes a lot of decisions for us.
If you have big goals and big desires, you can’t be in a minimum wage vehicle(job/role/career).
I know that can sound obnoxious, but I don’t make the rules. It’s just what I worked out.
When I was on and around minimum wage, I knew I wouldn’t be there forever, and I had to look at what other people who weren’t earning that, were doing.
Those people were leaving me clues.
And I was like a detective storing them up.
I knew these clues would come in handy when the season was right.
We spoke about one of these clues last week.
We can swap an hour of our time as a labour unit for $23.15, or we can figure out how we can become valuable and solve big money problems in order to get paid to do so.
So if you want a lot of sh!t there is a high chance you’ll need a lot of money.
If you don’t want to learn how to make a lot of money, see if you can master the art of not wanting a lot of sh!t.
Regardless of what you want to do with your money and what you get paid, costs will continue to increase.
Inflation has been over 2% in the last 24 years, so history suggests you might want to expect the same (at least) for the next 12 months.
Many people argue costs will increase with wage increases, because wages are one of the biggest expenses for most businesses.
For businesses to maintain profits, they have to adjust prices to cover the increased costs.
So are the 80,000 to 145,000 workers going to be ‘better off’?
Probably not!
Because inflation (costs increasing) is running higher than these wage increases. Remember earners have to pay tax on the 2% increase too, so the net pay increase is lower than 2%.
Hopefully, inflation decreases, but if you’ve been reading for some time Jade, you’d know I’m not a big fan of hope in these situations.
The government have to make hard decisions, and they aren’t coming to save you nor I.
This measly increase for minimum wage earners should be a warning to all employees too.
Perhaps this is setting the standard of the pay increase you can expect this year?
If you don’t like the sound of that, you’re going to have to look at ways to increase your income yourself.
Your employer has to make hard decisions, and they aren’t coming to save you nor I.
But remember you are capable of so much more than you have been conditioned to believe.
So, turn the page and on we rumble!
Be bold,
Luke
In case the contents of this email are topical, it was first sent on 16 February 2024.
If you’re an employee, by the time you get paid there is a high chance you will have already spent a chunk of your pay.
Your tax is going to be taken and paid direct to the government Jade.
So is your ACC expense to cover you if you are injured in an accident
Then perhaps your Kiwisaver or superannuation savings scheme.
This leaves you with a net amount.
From there, many people start to allocate money toward everyday living costs and repaying loans.
Add in the cost of living pressure, and before we know it we are scrambling to our next pay day.
No room for investing, saving or putting aside for our future.
I used to live like this until I started to really think about what the government is doing to us.
Why the banks do this too.
What the big corporates do to us.
They all take from our hard earned before we even have a chance to spend it elsewhere.
And most of the time it’s automated.
I.e. your employer withholds your taxes, Kiwisaver and ACC to pass to the govt.
The bank take your mortgage the week you get paid (often the day of/after) via direct debit.
The big corporates use direct debit to save them from waiting for you to pay.
So why don’t we use this trick ourselves?
This is where automation comes in.
Before we even spend some of our money, why not automate it and direct it towards our goals?
I.e. retirement or paying down debt faster.
This is a subtle change in practice that can make a big difference.
You go from saving what is left over to living on what is left over after you save or invest.
For me, I started to automate the decrease in my credit card balance.
Once that was done, I automated a % of my income to a savings account.
Today it all looks a bit different. Every week I have automatic payments set up and they are:
I can have the craziest week and not forget to invest or provide for my future goals because it’s all set up automatically.
Of course, this doesn’t mean anything if we then dip into it. But it’s a great habit to create before you start making more money.
I was like that once where I would store and then touch. Round and round it would go.
You have to change the person you are in order to break that cycle. We’ve spoken about that many times before.
For those struggling to save, I heard something cool recently. Start with what you can save, then increase it by 1% each pay day.
$100 becomes $101 the next time then $102 then $103 and so on.
As you increase, you are learning to live on $1 less each cycle.
You may then be able to play with that percentage.
Remember that habits are what matter most.
To do all of this, first you need to be aware of what you have coming in and where it is going.
This shows you what is left over.
But chances are you’re living based on ‘what’s left over’.
So save/invest first and then learn to live off of what’s left over.
And if you don’t like it. The hard pill to swallow is that you need to learn to increase your income.
As much as you don’t want it to be, that’s a you thing.
You’ve got to want it.
Once you go looking for it, you’ll realise how much it has been there for you all along.
But that’s a new chapter, and you have to write it yourself.
For now…start by automating what you either find:
A) Most important
B) Most worrying
If you’re saving for your first home, for instance, the focus will be on putting cash aside for that deposit.
If you worry about late payment fees on bills, you’d automate payments to stay ahead of getting behind.
Less worry = less mental rent spent.
You want to automate all this so that you don’t have to think about it.
You’ve got enough to think about already Jade.
Don’t forget; these things can change over time as your priorities change. That’s all good!
Get automated,
Luke
In case the contents of this email are topical, it was first sent on 23 February 2024.
You’ve heard me mention before that I often set goals around the $100,000 mark.
That was my income target when I entered the workforce.
Then there was the stacking of $100k to break my past ceiling of $10,000.
This gave me a huge psychological boost.
$100,000, the magical figure. Where did it come from?
Perhaps I had heard the late Charlie Munger (one of the worlds great investors) who once said your first $100K is the toughest to earn — but most crucial for building wealth.
“The first $100,000 is a b*tch, but you gotta do it. I don’t care what you have to do — if it means walking everywhere and not eating anything that wasn’t purchased with a coupon, find a way to get your hands on $100,000. After that, you can ease off the gas a little bit.”
The above makes more sense to me now that I’ve done it.
You start to see the dividends or returns that having $100,000 invested can return back to you, and you start to realise it is a meaningful amount of money.
[See Money Mail 172 - I don’t pay all my bills].
And then recently I watched something that really helped me make more sense of how I might have picked this up.
It all comes back to our mate compound interest.
Yeah, yeah we’ve already heard heaps about this but check this out.
Imagine $100,000 compounding at 7% annually.
$100k compounding @ 7%
After year 1 it is $107,000
After year 2 it is $114,490
After year 3 it is $122,504
After year 4 it is $131,079
After year 5 it is $140,255
After year 6 it is $150,073
After year 7 it is $160,578
After year 8 it is $171,818
After year 9 it is $183,845
After year 10 it is $196,715
Annnnd…
After year 20 it is $386,968
It looks pretty meaningful, doesn’t it?
That is without even investing more money each year.
This shows the value of compounding.
Of course someone is going to say 'where can you get 7% returns' etc. You can and people do. But that’s not the point.
Then there is the 'yeah but what about inflation, what's that money worth in time' etc. Exactly, so why would you not learn about protecting your money via compounding & investing?
Now, if we get back on track and do the same calculation for $10,000 it looks like this:
$10k compounding @ 7%
After year 1 it is $10,700
After year 2 it is $11,449
After year 9 it is $18,384
After year 10 it is $19,671
Annnnd…
After year 20 it is $38,696
After 10 or 20 years, it doesn’t look overly life-changing, does it?
Of course, the bigger the snowball, the faster the snowball rolls!
It's not rocket science, but a part of it is the fact that the compounding amounts start to look and feel more valuable and meaningful.
The sooner we can do it, we can rely on compounding to do some work for us.
We also have the lessons of HOW to do it too. The sooner we learn those the more we can repeat them in life.
Exactly what Mr Munger was trying to tell us.
For a lot of us, saving $100,000 may seem like a very lofty ambitious goal only available to rich people.
But, our KiwiSaver or superannuation can do this over time and take advantage of compounding.
Most people interrupt compounding by taking money out of their retirement fund for a house.
Thus, going all the way back to the start and not having the excitement of compounding.
(Yes, yes I know property, property, property, that’s compounding too).
But, I am going to trust Mr Munger and make sure that by the end of 2024, I have $100,000 in my KiwiSaver and I know it’ll be a b!tch, but I gotta do it. After that, maybe I can ease off the gas a little bit.
This is me sharing one of my goals.
For you, you might not be anywhere near that and that’s ok. Run your own race Jade.
You might be aiming for the first $10,000. Again, that’s ok!
For some inspiration, you might want to check out this video.
https://youtu.be/_EgfrmCiZes?
From minute 3 to minute 5 it shows you how investing $10,000 annually at 7% can explode when done consistently and compounded.
It may blow your mind at the decreasing time it takes to turn $100,000 into $200,000 and then $300,000 and then $400,000.
Sorted have an excellent savings calculator too.
https://sorted.org.nz/tools/
Get stuck in.
Keep it 100,
Luke
In case the contents of this email are topical, it was first sent on 1 March 2024.
Recently, I sat down with a 15yo who had sold over $50,000 of goods on the internet.
Self-taught, all the whilst managing the usual school life and demands of a social life.
I recorded the conversation so that you could listen to it and learn from it too.
https://open.spotify.com/
Be warned, doing so could either trigger you or inspire you.
You’ll either say that you wish the things the 15yo’s have these days were available when you were 15yo’s. At the same time, ignoring the fact that 50 year olds are doing the exact same things as 15yos.
OR
You’ll be inspired to have a crack and realise there are no real excuses.
I don’t want to ruin the podcast for you, so I will only take you through some of the key lessons I picked up during the conversation:
This podcast has been highly intriguing to many parents because they have asked me for this.
They want to know for themselves how this works, and they also want to know for their children.
I posted about this on LinkedIn and had over 74,000 views.
People from all over the world were intrigued and inspired.
After listening to this, you can see why the traditional path of school, university, degree, job, repaying student loan may not excite our next generation.
I don’t blame them either Jade.
When this 15yo gets their first full-time job offer for $60,000 (say), they’ll already have income anchors in their head.
Income anchors are where we go ‘oh, but I could make $60,000 by doing XYZ’.
Most of us price in our hourly rate as that’s what we’ve learned to earn. We make comparisons.
Some of these youngsters out there earning money by selling goods / services and, not just their time, will think differently.
Imagine if they work out minimum wage is $22.70 per hour x 2,080 hours = $47,216.
Are they going to choose that path or to have a crack at selling something for themselves in those 2,080 hours?
Who knows, but it’ll be interesting to watch play out over the next decade.
Of course, anyone selling needs to turn their sales into profit, but the more you learn, the more you sharpen and refine.
Teenagers are growing up in a world that is so different to 10 years ago, and it is changing every day.
Regardless of what year it is, there are opportunities everywhere. Always have been.
But with the adage of the internet, it’s so hard not to see them, because young people are growing up watching content of what is possible.
Hopefully, content that expands their minds beyond swapping time for money and buying and selling properties to each other.
Here's to the next generation,
Luke
In case the contents of this email are topical, it was first sent on 8 March 2024.
Consistency.
I was tempted to just send the email out with that one word.
And then maybe a follow-up email later on, but I won’t punish your inbox.
I’ve always wondered what it’s like hitting a double ton in cricket.
I’ll never know because I suck at batting.
But I do know what it’s like to send out a Keep The Change Money Mail 200 weeks in a row.
To be honest, it doesn’t feel too different from the 67th or the 197th.
And, strangely, I am more excited for 4 years of Money Mail which is just around the corner.
But it does look cool and sounds cool.
We live in a world where consistency is now so hard to practise.
Instead, we glorify the goal or the number or the outcome or the future.
We disrespect the process, the work, the journey, the grind, the hustle.
Call it what you will, this is the true magic.
Whether it’s getting 200 runs, writing 200 lessons or investing for 200 straight weeks without failure.
The lessons, success and the gold are in consistency.
Once you start to learn this, you realise you don’t need to be much better, more talented or special compared to others.
You simply acknowledge that consistency is the thing you need to master.
Once you learn it, you can’t unlearn it.
But consistency works both ways.
Unfortunately for many of us, consistency is working against us and we can’t even see it.
As an example, I had someone book a call with me recently.
They didn’t answer the questions I asked when booking a call, so I could gather background info.
I then emailed asking for some more info. No reply.
I was feeling nice, so I still rang them at the time THEY BOOKED.
No answer. I started to think ‘why do I bother’?
(My gut had already seen the red flags, so I wasn’t surprised).
I stuck to my consistency and still texted them and said it was me calling and that THEY had booked a call with me. Do they still need my help?
10 mins later, they replied ‘On another call, will call you back’.
They didn’t call back.
Their standards are consistent.
Unfortunately, consistency is working against this person and they probably don’t even know it.
This is probably how they consistently treat their doctor, their family, their investments, their career and their life.
But they’ll wonder why they don’t get to celebrate the reward they can see in the future that they think they deserve.
We don’t get what we want, we get what we deserve.
Our consistent standards determine what we deserve.
Be mindful of your standards and your consistency. How is it flowing into everything you do?
The goals you see, the runs you want to hit, the investment figures you want to have, the income you want, the material possessions you aspire to obtain.
Have a think. Do your consistent standards suggest you deserve to get these?
There is something you could have in your life, but you’re just lacking consistency.
I don’t know what it is, but you do.
I can feel you thinking about it whilst I write this, and you read this.
You
Are
Even
Distracted
Now
Thinking
About
That
Thing
You do deserve it
you’re just not practicing the one thing that will make it certain.
If you want certainty, add in consistency.
200 up.
Many to come.
Thanks for reading, learning and taking action.
We stay consistent,
Luke
In case the contents of this email are topical, it was first sent on 15 March 2024.
When I look back at the last quarter of 2023, I read and see pain.
Here are a few examples.
Black Friday sales were down.
I.e. Retail NZ says Black Friday sales were down by about 10% in 2023.
Retail sales down.
I.e. The total volume of retail sales fell 1.9% in the December 2023 quarter according to figures released by Stats NZ.
Xero small business insights say sales were down.
I.e. Sales fell an average of 0.3% y/y in the three months to December, including a sharp 1.9% fall in the month of December…small businesses, in aggregate, have been selling fewer goods and services than a year ago for 13 of the past 14 months.
I am a pretty simple guy and no expert in economics nor Gross Domestic Product (GDP) but that doesn’t look good.
Of course, there are many other things that contribute to and make up the GDP of a nation, but I like to focus on consumer behaviour because I feel like it is an output of how a lot of the rest of the economy is going.
And that ‘feeling’ which I KNOW, isn’t data, doesn’t feel great.
The 1 thing I picked up when reading the latest OCR announcement is that the RBNZ expects the GDP data for the December quarter to be 0.0%.
Not even up by 0.1% or down by -0.1%
A perfect 0%.
What’s the rule? Anything that ends in a 0 must be a lie, right?
(Or, not entirely accurate).
Whilst most writers were focusing on the OCR and interest rates because they are biased toward their own position of hoping for lower interest rates due to their own debt levels, I was trying to figure out where the economy is going.
So, on the 21st of March, when Statistics NZ release the latest GDP data, we may well again be in a technical recession.
A technical recession is 2 negative quarters of GDP - basically GDP going backward, 2 quarters in a row.
It’s a case of de ja vu because we learnt about this last year when I warned you that the flashing red headlines were coming.
We entered a recession. Then we kind of didn’t.
Because March 23 was -0.1 but revised to 0.0.
BUT then the data was revised again and hello, March was -0.2.
Recession confirmed in 2023.
Here we are again.
On the 21st of March, if that 0.0% is a lie, perhaps we will be in a recession.
However, please remember, it started in July 2023 as that’s when the first quarter of GDP was negative.
The September quarter was down -0.3%.
The unfortunate thing is, it feels like this current quarter (ending 31 March 2024) is even weaker.
January was a terribly slow month for business from what I saw.
Cash flow was getting tighter too.
Every day kiwis were still buying in January but putting it on tick and are now getting behind (at record levels).
They can’t keep spending and their behaviours will have to change.
There are restructures and liquidations.
Earnings season for our large NZ businesses were brutal.
People are changing their behaviours out of necessity.
More people are exploring ways to increase their income.
It’s really tricky out there at the moment and I feel like we are entering the eye of the storm.
So get ready for more flashing red signs and headlines.
Fear sells because we are all attracted to it.
The headlines will keep coming, and the worry will be deep inside all of us.
If you can’t handle them, focus on what you can control and keep moving forward.
Regardless of what we learn on the 21st of March, as I always say, zoom out.
It’s going to be a cold winter economically and we will all feel the chill.
But summer eventually returns.
Start getting yourself ready NOW for when things turn.
Prepare in the winter, for the summer.
This keeps us looking further ahead and not stuck in the here and now.
What did Warren Buffett do during the 14 recessions he has lived through?
Holiday and do nothing, waiting for the good times to come back?
Doubt it!
Did the best athletes in the world give up on their careers when the world shut down due to the vid?
Doubt it!
When the headwinds get stronger, don't stop peddling.
Yes, progress is slower and harder.
But those who stop peddling consistently will fall further behind.
A reminder from Money Mail 163. 2 quotes I’ve come across that stuck out to me:
"You can make more ground on your competitors in a difficult time than when times are good - that's when it's almost too easy for everyone to be successful."
“You cannot overtake 15 cars in sunny weather…but you can when it’s raining.”
See you next week when we know whether we are in a recession or not.
Be bold,
Luke
In case the contents of this email are topical, it was first sent on 22 March 2024.
Last week we looked at the brutal reality of the economy slowing down.
This week we had GDP data announced at -0.1%.
Recession confirmed. But we don’t need to go down that path again. Old news.
If you follow KTC on socials I told you this on the 11th of December so that you could get a jump on it.
Let’s turn to a more positive.
And I want to remind you that I am realistically optimistic.
Don’t mistake me discussing what I can see & real data for being negative.
I am hiring, marketing, growing, launching, taking risk, selling, investing, giving and trying new things; all into headwinds.
You don’t do that unless you are strategically optimistic.
Or…stupid.
You can decide which of those I am Jade.
Anyway…
Is the internet fighting to fit against the RBNZ?
Of course, they want to increase unemployment.
Engineering a recession which we are well and truly in.
We are seeing large hardship requests for Kiwisavers.
People are contacting mortgage advisors about their mortgage options.
Banks are reporting increased hardship.
480,000 people are behind on some form of credit payment. Even BNPL is on the up again. Credit cards are too.
But the economy has been incredibly resilient and unemployment hasn’t increased at the speed many economists predicted.
To be honest, I thought there would be more hurt by now too Jade.
But I learned 2 things that you can’t measure in data, and you can never underestimate.
Humans are massively resilient.
Think about that. For all the sh!t we read, see, go through and worry about, we are still here.
Up the humans!
I was once told that people will fight harder to keep what they have, then they will fight to get what they don’t have.
That sentence probably deserves it’s own Money Mail, but for now, once we have something, we don’t want to lose it.
I knew that kiwis would step up and fight.
They don’t want to lose their homes, their house, their castle, their deposit.
Uh ahh, no way.
We will exhaust all options before succumbing to that reality.
And there are many options compared to the last major economic downturn.
Remember the one that we labeled as the GFC back in 2006 to 2009?
Well, life looks very different these days.
There’s a beautiful thing called the internet.
When there is credit and money still out there, resilient humans will find a way to grab it.
Like:
Renting out a room via an online platform
Delivering groceries to someone from an online order
Posting your services on social media. I.e. an offer to clean for someone
Driving someone as an Uber from an online booking
Renting out the holiday home via an online platform
Selling a dress on Facebook marketplace or similar
Renting out equipment / clothing on an online platform
Contracting via ‘the cloud’ in the evening
Doing online consults/tutoring via zoom
Taking payment online via credit card processors
Getting payment same day via bank transfer
Bonus 2 that are my favourite but not necessarily internet related:
Working on a weekend (104 days) or one of the 41 sick/annual/public holiday days off
Catching and selling wild goats on the farm
I could go on, but you can see what is possible.
ALL of the above examples are true examples people have told me recently, so they came to me straight away. There will be plenty more.
I know for many of us we don’t want ‘make more money’ to be the answer.
Many will cite work-life balance and over-working etc. I get it.
But when you’re in hardship or already stressed, you aren’t in balance. Your mind is overworking and you’re already sacrificing.
Action is the antidote to anxiety.
Hopefully, it’s a temporary solution, but it is a solution.
I didn’t say I WANTED this to be the solution for you, but it is a solution.
Many of us aren’t in the position to turn our noses up at solutions right now.
Cutting Netflix was an easy one, but now it’s time to explore the actual levers that can help us alleviate the pressure.
Don’t be scared to ask for work or put yourself out there.
The internet is a powerful thing.
Don't waste its ability to help you become more resilient in this economy Jade.
Be bold,
Luke
In case the contents of this email are topical, it was first sent on 29 March 2024.
As the economy starts to bite, it’s tempting to turn to debt when we get behind or something goes wrong.
I want to strongly warn you against this and I will show you why.
Before we do, a reminder that this is why, for a long time I’ve said do these 3 things.
• Get rid of a credit card even if you owe nothing on it
• Get rid of get now worry about it later (BNPL)
• Make $500 to help you cover any unexpected costs (build up that emergency fund)
Why? Because sh!t happens.
And it’s never been easier to access credit. Well, that might be getting harder.
But anyway, if you want it, you can find it.
Most people think that the danger of debt is the interest rate.
This is partly true.
Especially when we see a blue bank jacking credit card rates to 20.95%.
Gotta pay for them airpoints/rewards somehow hey!
But this isn’t the ONLY issue with bad debt.
One of the issues is trying to pay it back!
Most people look at the regular repayment and that’s it.
Let me blow your mind for a second.
If you borrow $10,000 for a car, you need to make over $15,000 to pay the DEBT back.
Say what?
Well, there’s a high chance that you’re going to lose 1/3rd of that $15,000 to tax.
And we pay debt back with after tax income.
Repaying a $2,000 credit card will take most people a $3,000 pay rise.
I interrupt this Money Mail to ask for your help. At nextAdvisory.nz we are trying to find a superstar senior accountant to join our team in Auckland. Know anyone? We recorded a podcast with more details: https://open.spotify.com/
You see, tax rates haven’t moved with inflation. They were last set in 2010.
As incomes have risen (due to inflation), more and more people have ended up earning income over $48,000.
Every dollar of income between $48,000 & $70,000 is taxed at 30%.
That’s effectively a third.
Income between $70,000 and $180,000 is taxed at 33%.
That’s definitely a third.
Some people way smarter than me did some calculations last year. These are now outdated because inflation has made it worse again BUT, these numbers suggest that the 30% tax rate shouldn’t kick in until…
$72,891 to $106,298.
This is IF tax rates were indexed to inflation right back to 2010.
Let’s ignore all the should they / shouldn’t they for a second and just understand this.
A lot of your income under $48,000, is spent covering every day living and life costs.
I.e. median rent in NZ in January was $608 a week. $608 x 52 weeks = $31,616.
$48,000 salary after tax, ACC & Kiwisaver = $38,405.60
Once you start earning over $48,000, you’re getting taxed at 30% in the dollar on that income above $48,000 (to $70,000).
This is making it very tough to have money left over.
That money left over might be needed to:
No wonder you're finding it tough out there.
Not only are interest rates rising, which are tripping people up and increasing debt amounts, but trying to clear the debt is HARD!
This is why I encourage you not to only look at what the debt repayment amount is, BUT what you’ll need to earn to pay it back with after tax free cash flow.
With 480,000 kiwis getting behind on their payments, I can guess not everyone does this exercise.
This figure will increase as it gets harder to clear this debt.
Don’t make it even harder for yourself by taking out dumb debt to buy sh!t you don’t need.
Now, I will give you a scenario.
You earn $50,000 and all of your income is allocated. You have nothing left over. Living pay check to pay check.
You run into a $2,000 emergency.
There are 2 options.
A) Sell some sh!t you don’t need / use
B) Borrow the $2,000
You don’t want to get rid of the kayak you never use or the 3 pairs of shoes in the wardrobe. Why should you? Life’s not fair. You worked hard for that stuff.
Totally, I get it!
So you grab a $2,000 credit card from the bank.
You max it out.
I’m going to be generous and let it be 0% interest for now.
Outcome: you are $2k in debt and at some stage you realise life isn’t fair, you worked hard, and you still have to pay it back because the bank doesn’t give 2 F’s, what you think is fair or how it ‘should’ work.
Oh sorry! Did you want it sugarcoated? Grab a couple of Nurofen.
To clear this card, you have to get some extra work, ask for a pay rise, start a side hustle etc.
You now need to make $3,000 to then pay your tax and be left with the net amount to clear the credit card.
So your $2,000 problem(cost) just became $3,000(income).
This is, of course, if you pay your taxes!
If you haven’t already;
Hopefully that got you thinking.
If you need more convincing, check out this message I received this week:
Just a message to say thanks for all your content, been listening/reading money mail for some time and in that time gotten rid of debt and just been starting building up an emergency fund, just found out yesterday we have an upcoming 2k bill for a hot water cylinder but rather than sinking us and going back into debt for it, it’s just an inconvenience that we can pay for in cash. Keep up the mahi, it is appreciated and making a difference to kiwi homes
Be smart with debt.
Happy Easter!
Luke