The to-do list for making long-term financial gains

Get-rich-quick are everywhere, but the fact is they never really work. Someone might get lucky with such an approach, but for every lucky one there are many more left with little or nothing.

There’s a different approach: get wealthy for sure.

If you want to take control of your financial future you need a long-term plan, a wealth building checklist shall we say. Investing is a crucial element of wealth-building - it makes your money work for you and provides income streams which can eventually replace your earned income.

It’s crucial to understand that whilst saving money sets aside cash for your future, the curse of inflation means your money will lose its value over time. Investing is the process of accumulating assets that make you a return, either through an income stream or growth in asset value. When you invest wisely you can outpace inflation, and your money will make you money.

We understand that investing can be intimidating, especially if you don’t have a trusted mentor who can talk you through the process. To help, we’ve put together a wealth building checklist for investing in New Zealand.

Building Earning Power

Invest

In our day jobs, our time equates to a dollar amount. The higher we are paid per hour, the more we can earn – but the problem is, there is only so much time in the day. To be truly wealthy you need passive income, aka money that you make without charging a billable hour.

The eventual goal of investing is to provide you with income, income which will replace your usual efforts.

Well, imagine if you had $10,000 in a bank account, due to the force of inflation – the value of that $10,000 is going to be worth a lot less in 10 years than it is now. A great example of this is the cost of housing. In the 1980s, houses could be bought in New Zealand for the average price of $25,500, today it is $907,737. If you had $10,000 sitting in a bank in 1980 it was almost worth half of a house. If you had left that $10,000 sitting there, today it would be worth 0.01% of a house. Your money is worth far less over time, but if you invest it you can combat this issue.

Choosing a Well-Paying Career

Investing your money is what will make you rich, not letting it just sit idle in a bank account. Yet to have enough money to invest in the first place, you need to build your earning power. For most people this starts with choosing a career path that has a good earning potential and also interests them. There are many lucrative careers out there – from your typical doctor, lawyer and engineer routes, to more contemporary roles such as software developers and marketing content managers. Many trades also pay well, with the average salary for a construction manager sitting at $140,192 according to Seek.

If it makes sense for you, continue in your formal education. Go to classes and seminars about topics that interest you and that will boost your earnings. Even if you’re a doctor, you can probably become a more highly-paid specialist doctor – but that takes knowledge and skills. Keep working on your knowledge and skills, and the financial rewards will come.

If you’re dedicated to a not-so-lucrative career, or at a later stage in life where studying again isn’t a viable option, don’t worry, there are other ways to increase your earning power.

Side-hustling

Establishing a side-hustle is a fantastic solution for those seeking higher cash-flow, and you never know, it could even be fun! Side hustles are a great way to bolster your income and give you more cash to invest. From driving for a ride-share app to providing freelance services in your area of expertise or even dog-walking – there are many creative ways to fatten your wallet.  

Be a Business Owner

For a select few among us, taking the plunge and buying or starting your own business may be a viable option. Most of us aren’t cut out to be business owners or entrepreneurs, but for the entrepreneurially minded, running your own company is a great way to really build your earning potential. Figure out if your profession would translate well into a business– from a plumbing company to a marketing agency, or tech start-up to a beauty salon – the options are endless.

Investing Checklist

Stocks and Bonds

Stocks, also known as equities or shares, represent ownership in a company and provide investors with a share in its profits and losses. Bonds, on the other hand, are debt securities issued by companies or governments to raise capital. Investors who purchase bonds receive regular interest payments until the bond's maturity, at which point the issuer returns the initial investment.

Investing in stocks and bonds can provide a range of benefits, including potential long-term capital gains, income generation, and diversification of your investment portfolio. While stocks are generally more volatile and riskier than bonds, they also offer the potential for higher returns. Bonds, on the other hand, are generally considered less risky and offer a more reliable income stream. By investing in both stocks and bonds, investors can balance the risks and rewards of their portfolio and potentially achieve their investment goals over time.

Reallocate Towards Bonds As You Age

As you move towards the age you would like to retire at, you might want to reduce the chance of losing your hard earned and cleverly invested nest egg. If all of your investments are in the stock market, your retirement could be shaken up by a market crash, many retirements have been delayed or cancelled for this very reason. By moving  a portion of your investments into bonds which are generally safer investments with fixed returns, you reduce the risk of a substantial decrease in your wealth when you need it most at the cost of a smaller return on investment. The other benefit of the bonds which is appealing to those in retirement is that they pay a set amount on a regular basis which can provide steady reliable income.

KiwiSaver

One of the simplest steps on your investing journey should be taking control of your KiwiSaver scheme. In New Zealand, employers are obligated to match employee contributions into a selected KiwiSaver fund up to 3% on top of your gross salary. In some cases, employers will offer to match you at a higher rate, especially in fields where competition for talent is high. The government will also pay an annual contribution of $521 per annum if you invest $1,042 into your KiwiSaver account.

Basically, investing into your KiwiSaver scheme is a sure way to get free money, from both your employer and the government. Although 3% and $521 might not sound like much, when you are investing these sums over a long period of time, they will inevitably grow thanks to compounding interest.

You have the power to choose which KiwiSaver scheme fund you want to invest your money in, and the level of risk you would like to take. Essentially KiwiSaver funds are portfolio investments. Your money will be invested into a range of different company shares, bonds, or short-term loans like term deposits to get you a return on your cash.

The beauty of portfolio investments is that they are diversified, which means lower risk. Because your money is spread out, you won’t suffer hugely if a company goes bankrupt. Although your KiwiSaver fund will still fluctuate with the economic climate.

That said, the strict withdrawal criteria of KiwiSaver schemes mean it’s not a suitable investment vehicle to achieve many goals, so nearly everyone is best off by just making minimum contributions to it then looking elsewhere for more accessible investment solutions.

Funds

Accessible funds, sometimes called managed funds or mutual funds might hold very similar mixes of investments to KiwiSaver scheme funds – a blend of shares, bonds, and other assets. For instance, as an investor who makes an investment into a share fund you buy a diverse mix of shares from assorted companies, taking away the hassle of buying those shares individually.

The crucial benefit when compared with KiwiSaver is these are more flexible. If things change, you can get your money back. If you want to retire early, you can access some or all your funds before reaching the usual retirement age.

One approach is using passive index funds. These attempt to closely follow an index such as the NZX50 or S&P 500, allowing you to invest in companies across the globe and in varying industries in the wider share market. Index funds aim to mirror the performance of the index they follow. As they aren’t managed by a person actively buying and selling shares, they’re low cost, charging as little as 0.03% per annum in management fees.

Property Investment

Property investment is another smart way to increase your capital and has made many New Zealanders wealthy.

There are usually two broad goals with property investment. An investor might pursue one or both:

1. As your property appreciates in value, so does your net worth. Then, one day you can sell and make a decent profit on your asset. This is the capital gain.
2. Income in the form of rent – passive income. The lower your expenses on the property, including mortgage interest and repayments, the more income you will have.

Also note, as you pay down a mortgage, you build equity in your property. Simply put, that’s the difference between the value of the home and the mortgage you owe. As you build equity, you increase your wealth, and you have leverage to buy more properties if you choose.

Leverage is an important factor when considering property investment. Thanks to property being a tangible asset, financing is easily accessible to anyone who meets usual bank lending criteria. The ability to take out a loan means you can invest a larger portion of money than you have upfront, repaying it over time (factoring in interest of course). It is also possible to borrow to invest in the stock market, though it’s not nearly as straightforward.

Real estate is also known for its inflation hedging capabilities. As economies expand, property demands drive rents higher which translates to higher capital values. Unfortunately for tenants this means that inflationary pressure usually lands on them, but homeowners benefit from capital appreciation. As long as an economy isn’t in a recession, inflation hedging tends to ring true.

Other Areas

Security Blanket

Before you get cracking on your path to wealth accumulation, first ensure you’re protected with a financial security blanket. This probably includes:

• Life has a habit of throwing curveballs at us. A broken appliance, unexpected home repairs, car breakdown, sudden health issue, or something else could all dent your financial plans unless you have a chunky sum of accessible cash tucked away somewhere specifically for such things. This is often called an emergency fund. How much you put aside depends on your situation, though often three months’ worth of expenses is a good guideline.
• Three months is the standard coverage period for income protection insurance, which also aims to provide financial support during unexpected income loss – in other words, the insurance policy won’t pay until you’ve been out of work for three months. To get paid by the insurer, you’ll need income protection insurance in the first place! Along with a range of other policies, ensure you’re well covered against any possible issues that might arise. There’s no point building wealth to have it all eroded by an event which a simple insurance policy would have covered.
• Anything else to mitigate possible issues unique to you and your circumstances. For some, this might be a pre-nuptial agreement, for others it may mean a trust to protect assets. Even wills and powers of attorney fall into this category. Seek professional help if you’re unsure about anything in this area.

Together, these things might be considered to be your security blanket.

Mindset

Sure, it's important to have a solid plan, security blanket earning power, and invest surplus income wisely. But without the right mindset, none of those things will get you very far. The truth is, building wealth requires discipline, resilience, and a willingness to take calculated risks. And those qualities all start with attitude. A positive, can-do mindset will help you stay focused on your goals, bounce back from setbacks, and keep pushing forward even when things get tough. So, if you're serious about building wealth, make sure you're cultivating the right attitude along with your financial strategy. As the saying goes, "Whether you think you can, or you think you can't, you're right."

The Bottom Line: Wealth Building Checklist

Building wealth isn't about having more money - it's about having the freedom to live life on your own terms. With the right mindset and habits, anyone can start building wealth and enjoying the benefits of financial independence. So, start investing in yourself and your future today!

It’d be the pleasure of one of our trained professionals to help you work through any of the topics mentioned above, so get in touch today.