Ahh your 20s and 30s – time feels infinite and every problem can be solved tomorrow, but not tomorrow tomorrow, just some time in the next few years. It’s a wonderful time to be enjoying your life, finding yourself and if you’re lucky enough, exploring the world one hostel at a time.
So, it’s no surprise that words like “KiwiSaver” or “Wills” don’t really resonate. Let’s break down why this is a common money mistake young people make, why it matters and what else you should be looking for.
1. Thinking that investing is something to worry about later
This is one of the most common money misconceptions. Investing is something you’d do when you’re much more stable – right? Many first-time investors say they thought investing was meant to start once they had the nice house and boat, not realising
investing is something you do to achieve wealth. It’s not just something to do when you’re financially stable.
The mistake of not investing when you’re younger, even with smaller amounts, is that you end up missing out on compound interest. When you are investing in the stock market or in real estate, your interest grows on your interest year by year.
The more years you have to work with, the more interest you can occur. Compound interest, when looking at a 7% annual return, means that you can see your money almost double every 10 years. It makes sense to start as early as possible!
Investing even $1 in your 30s will go further than $50 in your 60s, so it pays not to make this common investing mistake!
2. Not paying attention to who your KiwiSaver savings are invested with
KiwiSaver can often be seen as something you only need to worry about twice in your life, once when (and if) you buy a home and once when you (and if) you retire.
However, one of the biggest money mistakes made by young people is not knowing who their KiwiSaver provider is and the type of fund they are invested in. In your 20s and 30s being aware can be the difference of hundreds and thousands of dollars.
Currently an extraordinary number of kiwis are still stuck in default funds. This is when the government puts you into a fund with a provider because you haven’t chosen one yourself. The default funds and providers aren’t necessarily bad, they just might not be aligned with your goals.
For example, if you’re a 29 year old homeowner your KiwiSaver account is likely set up for retirement. Since you have almost 40 years on your side you may be comfortable with taking on a growth portfolio but the default fund has you in a balanced fund where your money is taking on less risk for less reward – something that may not be suitable for you.
Sometimes a 5-minute discussion with your adviser or KiwiSaver fund provider is all the difference it takes to make sure you don’t reach retirement will a lot less money than you were expecting.
3. Thinking you don’t need a Will
Having a Will is an important step every individual over 18 should be taking. When you’re young you assume that it’s something to worry about when you start having a family and need to think about passing your money on.
You may be aware that your KiwiSaver savings and insurance policies are common asset types that would be passed on in a Will. What many young people fail to realise is that everything that belongs to you forms part of your estate; things like jewellery, technology and your vehicle.
Having a basic estate plan above anything else, provides peace of mind that your assets will be distributed accordingly. It makes sure the people you care about are taken care of.
Thankfully AdviceFirst has an easy, online platform to help you create a Will in about 15 minutes using an easy, fill-in-the-blanks questionnaire. You can find out more about the Digital Wills+ Membership here.
Knowing what money mistakes to avoid doesn’t just save you from a headache, it can put tens if not hundreds of thousands back into your pocket – your future, wiser self will definitely thank you for it.
