Financial success is not about quick wins or instant gratification. It’s about playing the long game, making thoughtful decisions, and taking advantage of the time you have.
Whether you’re planning for retirement, saving for a first home, or investing for future wealth, starting early provides significant advantages.
However, according to the Financial Markets Authority, more than 1/3rd of Kiwis might be missing out, with only 64% of New Zealanders currently enrolled and contributing to their KiwiSaver investment, and 18% having no investments at all.
In this article, we’ll explore why starting early with your financial planning matters, how to assess and regularly review your financial situation, and why having a long-term perspective is key to achieving your goals both before and after retirement.
The Advantage of Time: Compound Growth and Financial Foundations
One of the greatest gifts you can give your future self is time. Time allows you to leverage the power of compound growth, an essential concept when building wealth.
Compounding is when your returns (interest, dividends, or capital gains) generate additional returns over time. The earlier you start, the more time your money has to grow.
For example, if you invest $5,000 at an annual return of 6%:
- In 10 years, your investment will have grown to approximately $8,954.
- If you leave it for 20 years, that $5,000 grows to around $16,035.
- If you leave it for 30 years, that $5,000 becomes $28,717.
This exponential growth shows how time magnifies returns, making it essential to start early.
KiwiSaver is an excellent example of how starting early with regular contributions can lead to substantial long-term gains. The government contributes, employers match, and compounding ensures that even small, consistent contributions grow into significant savings over time.
Starting Early Reduces Risk
Investing and saving for the long term also allows you to ride out short-term market fluctuations. Markets inevitably experience ups and downs, but when you have time on your side, you’re less inclined to feel forced to sell during a downturn.
This long-term view helps to mitigate risk, allowing you to invest in higher-yield opportunities, such as shares, which are more volatile but historically offer better returns over time.
Starting early also provides the flexibility to make mistakes and recover from them. In your twenties or thirties, you have time to learn from financial missteps, adjust your strategies, and continue growing your wealth.
Understanding Your Current Financial Health
The first step in any long-term financial plan is assessing your current situation. This means understanding your income, expenses, savings, debts, and investments.
A financial health check should include:
- Income vs Expenses: Are you living within your means, or are you consistently spending more than you earn?
- Savings Rate: How much are you saving each month? Are you putting enough away for long-term goals like retirement, buying a home, or building an emergency fund?
- Debt Management: Are you managing debt effectively? High-interest debts, such as credit card balances, should be a priority to pay off before looking at longer-term investments.
- Investments: Are you investing in opportunities that align with your risk tolerance and long-term goals? Review your portfolio regularly to ensure it reflects your changing circumstances and the market.
Regularly reviewing your financial health, setting long-term goals, and adjusting your strategy are crucial elements of maintaining a strong financial foundation.
Tools like the moneyfit.me Tracker can help you get a clear picture of your financial situation by tracking your expenses, monitoring your income, and ensuring that you’re living within your means.
Setting Long-Term Goals
Once you have a clear understanding of your current financial situation, the next step is setting clear long-term goals. Goals could include milestones like buying a home, paying off your mortgage, building a retirement fund, or ensuring you can afford your children’s education.
For example, instead of vaguely saying, “I want to save more for retirement,” your specific goal might be, “I will contribute 10% of my income to my KiwiSaver account for the next 30 years to achieve a retirement balance of $500,000.”
Having clear goals gives you a roadmap to follow and helps you focus on the bigger picture. It’s easy to get distracted by day-to-day financial decisions, but long-term goals keep you on track.
Adjusting Your Strategy as Needed
Life doesn’t always go according to plan. You might change jobs, start a family, face unexpected health issues, or experience market fluctuations. That’s why it’s essential to review and adjust your financial strategy regularly:
- Make it a habit to conduct an annual financial review.
- Revisit your goals and see if they are still realistic or need adjustment.
- Check whether your investments are performing as expected and reallocate them if necessary. For instance, as you near retirement, you may want to shift towards less volatile investments to preserve your savings.
If you need accountability to stay on track, consider speaking to a financial adviser or coach to stay on top of your plan and ensure you’re making informed decisions that will benefit you in the long run.
Planning for Retirement and Beyond
Retirement may seem like a distant goal, but it’s important to remember that it is just one phase of your financial life. Early and consistent planning ensures you can enjoy the lifestyle you want in retirement and maintain financial stability beyond.
While KiwiSaver has made it easier for many to save for retirement, relying solely on KiwiSaver contributions and the NZ Superannuation (pension) may not be enough to maintain your desired lifestyle.
The cost of living in retirement is often underestimated – for example, healthcare expenses commonly increase as we age and, without financial planning, this may complicate our ability to continue enjoying hobbies, travel, and spending time with loved ones.
Early planning allows you to project your long-term financial needs more accurately. For instance, a general rule is that you may need 60-80% of your pre-retirement income to maintain your standard of living. The earlier you plan, the more flexibility you have to adjust your savings strategy to meet these future needs.
Strategies for a Comfortable Retirement
- Maximise KiwiSaver Contributions: Taking full advantage of employer contributions and government benefits through KiwiSaver is one of the easiest ways to build your retirement nest egg. Make sure you’re contributing enough to receive the maximum government contribution.
- Diversify Your Investments: While KiwiSaver is a fantastic vehicle for long-term savings, it’s also important to diversify your investment portfolio. Consider investing in property, stocks, or bonds to spread your risk and increase your potential returns.
- Create Multiple Income Streams: Relying on one source of income in retirement can be risky. Building multiple streams of income, such as rental property, dividends from shares, or a part-time job, can help you maintain financial security.
- Prepare for Healthcare Costs: Health expenses often increase with age. Ensuring that you have an emergency fund or insurance to cover unexpected medical costs can prevent you from dipping into your retirement savings.
Retirement Is Just One Phase
It’s important to remember that life doesn’t stop at retirement.
Financial success means having a plan not just for the early years of retirement but also for the later years, when your needs might change. You may need to plan for the possibility of long-term care, changing housing needs, or assisting family members.
Building a sustainable financial plan that addresses these potential changes helps to ensure that you can enjoy life on your terms, no matter what the future holds.
The Importance of a Long-Term Perspective
Many people make the mistake of chasing short-term gains, whether in the form of risky investments, impulse purchases, or spending beyond their means.
While these actions can feel rewarding in the moment, they often have long-term consequences that harm financial health. For example, during periods of stock market volatility, many investors are tempted to sell their investments to avoid losses.
However, research consistently shows that those who stay the course and stick to their investment plan are more likely to benefit from long-term growth. Despite the short-term ups and downs, the market has historically trended upwards over the long term.
By keeping your focus on long-term goals, you’re less likely to make impulsive decisions that can derail your progress.
Living Life on Your Terms
One of the most significant benefits of long-term financial planning is that it gives you the freedom to live life on your terms. Whether that means taking time off work to travel, starting a business, or retiring early, a strong financial foundation opens possibilities and creates opportunities.
By starting early, you can achieve a balance between enjoying life now and securing your future. Regular saving, investing wisely, and planning for the unexpected allow you to live the life you want without financial stress.
The Long Game Pays Off
Financial success is not a sprint – it’s a marathon. By starting early, assessing your current situation, setting clear goals, and planning for long-term success, you give yourself the best chance of building a lifetime of wealth and security.
The earlier you begin, the more time you have to harness the power of compound growth, mitigate risks, and adapt to life’s changes. And while retirement is an important milestone, it’s only one phase of a larger financial journey. With the right planning and mindset, you can ensure that you enjoy financial success throughout every stage of life.
If you’re ready to take control of your financial wellbeing, consider if our moneyfit.me Kickstarter course might be suitable for you. Start your journey towards financial health today and experience the benefits that come with a well-managed, stress-free financial life.
