How to build wealth in your 20’s

You’re new to the workforce, possibly fresh out of university, trying to get your career and independent life off the ground. With all those job applications and rental viewings flying around, who has time to think about long-term wealth creation?

Well, you do. In fact, you have more time than anyone else – and that’s a huge asset in the wealth creation game. Developing great financial habits now will put you head and shoulders above most other people in your age bracket, and set you up for a healthy and wealthy future.

For most Kiwis, their income earning potential is at its lowest when they’re young. You’ll start on basic, maybe even minimum wage, but as you gain experience and knowledge, your earning potential will grow.

There are a few exceptions to this, such as professional sportspeople, where earning potential drops off significantly far earlier than other careers. This requires more specific advice, so get in touch with one of our advisers for a free Discovery session if this includes you.

The big challenge when you’re this age is finding the right career. Here are a few important considerations:

• What do you like doing? It’s easier to perform better and get paid more as a result when you enjoy what you’re doing.
• What are you good at? Everyone has talents. Look at what you can do better than other people and use them to earn a living.
• What will pay well? Money matters, so make sure your career will cover your lifestyle expectations and leave some room for wealth creation.
• How to get there? Are you good to go right now, or will you need further education before you start?

Remember, your first career isn’t going to be your last one. Research suggests that people will have more than a dozen different jobs over the course of their working life. You can always change your mind if your career doesn’t fit what you need.

Here are a few tips to maximise your early financial success:

• Manage your debt wisely. There’s a difference between good debt and bad. Know the difference and use it to your advantage! In New Zealand, we’re lucky to have zero-interest student loans, but other things like car loans and credit cards (also known as consumer debt) can cost a huge amount in the long-term. Of course, getting a mortgage for your first home or investment will likely be one of your biggest debts during your lifetime but this type of debt can help fast-track your wealth creation strategy over the long-term.
• Live below your means. Generally speaking, if you can’t buy it with cash, don’t buy it. There’s exceptions to this rule, such as when you need a gearing strategy in order to achieve your long-term financial goals. However, if it’s nothing to do with your wealth creation plans, then make a budget and stick to it.
• Start small. This early in life, you may shy away from the big financial goals people talk about, like a house deposit. But remember, everyone starts somewhere. Begin by saving up an emergency fund to cover big issues (broken down car, medical emergency, etc), and work your way up from there.

• KiwiSaver. Adding to your KiwiSaver is an easy and simple way to build your wealth early. You can contribute the minimum of 3% but be mindful of contributing anything more as your KiwiSaver funds have some pretty heavy restrictions on them such as only being able to withdraw for your first home (NOT an investment). If you did want to save more into your KiwiSaver, then there are other options that will allow you to contribute more while giving you control of your own money without the restrictions.

Take risks. Obviously there is calculated risk and it’s important to diversify though so please please please speak to a qualified MyFuture financial adviser before you invest in anything.

How to build wealth in your 30’s

They say that life begins at 30. At this stage in your life, you might have kids, maybe a mortgage. This is the stage of life where a lot of people struggle with wealth building, as their income is being eaten away by debt and other commitments. But don’t stress, there are still plenty of ways to build wealth in your 30’s despite those challenges:

• Watch your housing budget. Whether you’re a homeowner or renting, your housing costs will probably be your biggest cost sink. Make it a priority to stay on top of it, and don’t be afraid to shop around different lenders if you’re a mortgage holder. You might find a great deal that will instantly slash your commitments and increase the income you have available for building wealth.
• Secure your emergency fund. If you haven’t already locked away 3 to 6 months of your expenses in cash, you should do that now. Your earning potential (and therefore your wealth building ability) will depend on your ability to continue working. If your car breaks down, or you have a medical emergency, or you lose your job, or any number of the other things that can put you on the back foot, it’s best to have your expenses covered while you deal with the new challenge.
• Consider a side hustle. Now that you’ve been in your career for a number of years, you’ve likely developed some skills that are in demand. Use that to your advantage; consider working on a side hustle using those skills you already get paid for. The same goes for skills you’ve developed outside of work: Plenty of Kiwis have developed their earning potential by monetising their hobbies.
• Create passive income. Investing in your 30’s is similar to investing in your 20’s. You still have lots of time to work yourself into the market, and higher-risk investments are still a viable option for you. However, the big difference is that now, you have far more resources to work with, and you may be able to generate a more substantial passive income (aka income that you don’t work directly to generate). Passive income is a huge boon, particularly when you start developing it early, so consider looking into investments like rental properties or dividend-focused stocks.

How to build wealth in your 40’s

In your 40’s, your life and career are generally well-established. Your options for wealth-building start changing significantly here, moving further into investing, rather than earning, as you’re now reaching your highest income earning potential. 

Here’s where you should focus:

• Leverage your assets. If you’re a homeowner, you’ve invested in an asset that has grown enormously in value over the last few years. Low interest rates and high demand have spiked the price of property in New Zealand – likely including yours. That means more equity in your home that you can leverage into income-generating assets, such as an investment property. While debt never feels great to have, you’re at a stage in life where you can take full advantage of ‘good debt’ – the kind of debt that builds wealth instead of taking it away.

• Pay down (bad) debt. It’s easy at this stage to have let some debts sit and stagnate. You can cover the repayments, so why bother checking them? Dealing with your high-interest credit card debt can save you a huge chunk of change, freeing up more resources for wealth building. If you have multiple debts, it might be a good idea to look into debt consolidation; it might save you thousands of dollars in interest.

• Review your insurance. Insurance is an integral part of any wealth building journey, ensuring that a major negative event doesn’t take you and your family completely out of the running. If you don’t already have insurance, investigate your options in life insurance, health insurance, and income protection insurance at a minimum. And if you already have insurance, speak with an adviser to review your needs and costs. You may be able to save a significant amount by switching policy or provider.

• Get advice. Once you’re in your 40’s, you’re at a stage in life where you can’t just leave your wealth building on autopilot. If you want to get the most out of your income, savings and investments, it’s best to prioritise speaking with an adviser. 

How to build wealth in your 50’s

It’s never too early to start building wealth, but it’s also never too late. You can start your wealth-building journey in your 50’s just as easily as you can in your 20’s – it’s just the strategy that changes. 

Here are our suggested focuses:

• Downsize your lifestyle. The kids have flown the nest and your current home is a little too large for your actual needs. Now is a great time to look into selling up and moving somewhere smaller and more manageable. This is also a great way to free up the equity you’ve built up over the years and put it into passive income generating investments.

• Manage risk carefully. Your investment strategy in your 50’s should be low on risk and high on stability. If you’ve made a plan for retirement that relies on your investments, you’ll need to make sure that they are still valued where you need them to be when you finish working. Lower risk investments don’t build wealth as fast, but they do build wealth consistently.

• Plan for retirement. Retirement doesn’t just happen overnight, and you’ll need to check that your current wealth will be enough to cover you after you stop working. Wealth-building is a lifelong process, and it doesn’t just stop after you turn 65. However, your strategy will need to change depending on your needs, so it’s best to review everything, top to bottom, to ensure you can have the retirement you deserve.

Building wealth is possible at any age, with any income, and with any level of financial knowledge. If you’re interested in starting your journey on the right foot, get in touch with our team of Qualified Financial Advisers for your free Discovery Session today.