Your emails keep me busy, and I’ve picked a few to share with you.
03 Nov, 2024
Last week, I set aside a whole day to just answer emails. I’ll often have to do this, but I’m still way behind and rarely get to the bottom of my inbox. I’m hoping that now that I don’t have a job anymore, I will have more time. Every day, I receive emails from readers, and they are often a full-blown summary of what is on their minds. They go here, there, and everywhere, laying out scenarios and asking questions. While some ask specific questions that I can instantly reply to, many of my email exchanges have continued for years, always hitting “reply”, thus creating a long stream of dialogue. I’ve watched their progress and been heartened by it. I’m always so honoured that people trust me enough to share.
No two emails are ever the same. There might be some common themes, but every person and mix of households is different, meaning although I can often send some helpful resources, I can never send a generic reply. Hence, it takes up a lot of my time.
I’m old (school) and fully believe that if a person has gone to the effort to ask me a genuine question and share a personal situation of their own, it would be rude not to reply. Most, but not all, reply to my reply.
When I share the extent (not the content) of my emailing with others, a common question is, “How do you make money from it?” The short answer is that I don’t; I consider this my volunteer work. I have a Buy Me A Coffee option with an “if you think I have helped you today, please consider supporting me” message, but apart from that, I do it simply because I like to help.
I always think, “If I didn’t answer their question, then who exactly would?”
The fact that there is no cost involved means there is also no obligation on either side. I like this approach for the main reason that my role is not to ‘make someone’ do anything. I’ll provide some resources and wisdom, and then it requires them to get off their butt and do it themselves.
Having answered random strangers' emails (many of whom have become people I genuinely care about) and heard back from so many of them with such positive updates about how they have improved their financial situation, I’ve concluded that my taking half an hour to craft them a helpful reply is a community service worth continuing with.
My inbox is cluttered with hundreds of different threads of conversations, which in turn means I struggled to find a true focus for a blog post this week. But I often think I’m receiving and sending out some real wisdom, and it's a shame it never reaches a broader audience. So, today, I’ve scrolled back through my inbox from the last week or two and pulled out a few threads from some emails I’ve received. If you have emailed me recently, don’t worry; privacy is 100% respected, and all names and identifying elements have been changed.
What do I want you to take from this? A little nugget of knowledge to add to your situation. And an opportunity to talk with the people in your own life about money.
Email #1 from Abby
I’ve been saving money for my two kids since they were little. They are now in their late teens. I started with $5 a week each and have slowly increased it to $20. Finding this money was often a struggle, and I have never told them I am doing this. Initially, I put it in a savings account for each of them. When the amount grew to a few thousand, I invested it in a term deposit for a couple of years, but the returns were disappointing. I decided to invest this money in the share market instead, as I’d heard the returns were better. I used Sharesies and chose some investments I’d heard recommended for kids (all managed funds/ETFs). These investments have never made any money; they are all negative.
Should I be expecting returns? I have recently read The Simple Path To Wealth by JL Collins, which has me rethinking these choices. At what point do I know that I have picked the wrong shares? He suggests a Total World Fund or S&P 500 Fund. After all these years, each child now has about $7,000, and I plan to keep adding $20 each week until they are in their early 20s. I hope they will then take it over and continue. I still have not told them about this money as I don’t want them to think they can spend it as soon as they get it.
My response was along these lines:
OK. Here is the thing. Firstly, Abby is wonderful; she thinks of her children's future, but my issue is that as she went on a journey of learning about investing, she forgot to take those children with her, too. If she is in her mid-40s and is only working out what to invest in now, then what hope do her kids have? They will repeat her mistakes of low-performing term deposits and niche investment funds that charge fees but don’t make money. She needs to educate them, too. I encouraged her to tell her children about this money and all her reasoning behind it. Just start a conversation, which she did. It had not occurred to her the micro money lessons a small weekly investment could provide. Were her teens overwhelmed, interested and grateful that their mother had scrimped and saved to make this happen? Nope. They are teens. So, imagine how crushed Abby would feel if she had kept her lips sealed and waited for the grand reveal at age 21. The beauty of having the conversation now was that she said, “At least the conversation is now open”. Talking about money will show Abby how much her children don’t know, and that together they can fill the knowledge gaps. Also, she sold the niche investment funds and reinvested that money as per JL Collins's advice. She shared this new information with her children, too.
Talk to your kids about money. All the time. A little and often. Always in a positive way. Before they leave home, they need to know how money works and how to use it to create the life they want. I don’t want your children writing to me years from now, aged 45, saying, “Mum never taught me about money.” Money touches every aspect of our lives; you do your children a disservice by not teaching them how it works.
Example of how we talk about money in our whare:
There have been a thousand small conversations. This is just one of them. This week, I received my final pay from work. We had a guessing game as to how much it was. Jonny and our daughter went back and forth until they settled on the correct number: $4,800. “Why so much?” she asked, which allowed me to explain that for every week I worked, I built up holiday pay, and given I hadn’t used much of it, my employer stored it for me. When you leave a company, they pay you out. I explained that she, too, is accruing holiday pay with her employer. Then we talked about what to do with it—a two-minute conversation. A money lesson was taught.
Email #2 from Bree
Bree was on maternity leave and had some helpful advice to share with me. Firstly, before the birth, she had set a budget for spending on the new baby but had scored so many sweet deals on Facebook marketplace she had over-budgeted and had money to spare—a huge win, given that she was heading into a period of reduced household income.
Secondly, with all the time spent sitting and feeding her baby, she had some financial podcasts playing in the background (meaning that ‘talking’ about money in their whare is a normal part of the conversation). As someone on maternity leave, she wanted others to be aware that since July 1st 2024, there’s been a change with the paid parental leave, which allows you to opt into KiwiSaver contributions. If you opt-in, the IRD will make employer contributions of 3%. She didn’t want to miss out on this opportunity to add to her KiwiSaver balance while she was off work because she is so aware that typically, females leave paid work, and their KiwiSaver balances suffer for it. This change motivates her to keep contributing to her KiwiSaver while on parental leave.
My thoughts on Bree’s email:
Before having her baby, Bree was budgeting and saving for their arrival. Genius move. She had researched what she might need and what it might cost, and then she was shopping with a list. Spending less meant she’d freed up some money to apply elsewhere in her budget. I’ll often push back when people tell me children cost a fortune. While we can’t escape all costs, many we can. Think outside the box.
Even on a reduced income, Bree sees saving for her retirement as an essential thing to do. A non-negotiable. She has educated herself on the fact that many women have a far lower KiwiSaver balance than men, and one of the reasons is that they have to take breaks from work to have children and raise a family. To prevent this, she has actively decided to divert some of her paid parental leave income to her retirement, and her future self will be grateful for this. You can find more information about KiwiSaver and Paid Parental Leave on the IRD website. While looking at your KiwiSaver, ensure you are in a low-fee fund (I pay just .25%); if you are Bree’s age, you need to consider being in a higher growth fund. Why? Because you are decades away from retirement, a higher growth fund might have more ups and downs in the short term, but it will make you more money over the long term. Yes, there are exceptions to this rule (first-home buyers, hardship withdrawal), but most of us are not the exception.
Example of how I handled KiwiSaver when I became a mother:
Jonny and I have shared finances. No matter who earned it, any money that enters our bank account is ours to manage together. We adjusted our spending to match our lower income when I gave up my job and income to have our baby. His contributions to KiwiSaver continued because he was still in employment, but mine stopped. Therefore, I immediately set up a voluntary monthly payment into my KiwiSaver fund from our joint bank account. I, too, saw what Bree saw, a genuine chance that my balance wouldn’t keep pace with his, so I consciously decided to ensure that never happened. These days, my balance is actually higher than his.
Email #3 from Chris
I’m saving for a house using my KiwiSaver…
I couldn’t get past the first sentence before I was crafting a reply:
Well. I’ll stop you right there, Chris. Chris had plenty more to say, but I wanted to challenge the fundamental assumption that KiwiSaver is for saving for your first home.
It used to be the case that when you retired at 65, the superannuation supplied by the government was enough to live on. It helped that most people owned a home; if they rented it, rent was not as prohibitively expensive as it is now. Many were lucky enough to also receive a regular pension from their former employer, something they had paid into throughout their working lives. But houses started shooting up in price, as did rent, pension schemes were wound down, superannuation was no longer keeping pace, and no one appeared to be overly good at saving.
What to do?
Create a retirement savings scheme called KiwiSaver that all New Zealanders could pay into so that when they turn 65, they will have an extra store of money that they can pull a little income off each fortnight to bridge the ever-widening gap between what the government superannuation payment is, and what life actually costs.
Great idea! Now, Kiwis are saving for retirement. However, a few years into the scheme, former non-savers, who had now become Kiwi savers, decided they wanted to buy a house for themselves. Having failed to save any money for their deposit, they looked at their empty bank accounts and then at their KiwiSaver account and realised that they had saved some money for retirement, but that is no good to them right now, in the prime of their lives. They had failed to realise they also needed to save for a home while saving for retirement.
And the raid on KiwiSaver began. It moved from being recognised as a retirement savings scheme to a first-home buyers scheme. I regularly hear parents encouraging their children to invest high percentages of their income into KiwiSaver for their first house. Given that I have now been answering emails for a very long time, I’ve kept in touch with many who decimated their KiwiSaver to purchase a house, and with hindsight, many regret doing so. Why? In retrospect, they realise that had they been educated earlier in life to save for a house and retirement, they could have done both. They now pay a large mortgage and struggle to ‘forfeit’ a portion of their income into their KiwiSaver account. If, like Bree, they also stop working to have a child, the problem is exacerbated. Given they now experience first-hand the difference between paying interest on debt and earning it on an investment, they wish they still had an intact KiwiSaver account compounding and growing for them. KiwiSaver needs time, and when you drain it to zero, you will never get those early years of compounding returns back.
How can you both save for retirement and a house?
I’ve been learning from people who have left it too late to save for retirement and a house. You have to start young. Luckily, I have a child with whom I can practice my theory. My teenage daughter cannot fathom either retiring or buying a house. At her age, nor could I. But regular money chats around our home have made her aware that if all goes well if she chooses to, one day, it is likely she will both want to have a house of her own and retire. She needs to become an investor early in life and continue investing to achieve both goals.
From her first paycheque for doing jobs around the house, we have made her invest half of her income. Not ‘save’; savings get spent. We want her to become an investor who grows an asset that makes money. As she got a part-time job and summer work, the same 50% investment rule applies. Sounds harsh? It’s not; she still has the other 50% to blow in whatever way she likes! If I got to dictate the rules, I’d push for an 80% investment rate, but in our home, we all get a say in how we handle money, and she negotiated for a 50:50 rate. Fair enough.
Before she began earning her own money, we made a monthly $40 investment into her KiwiSaver. Now that she works, she invests 3% into her Simplicity High Growth KiwiSaver account, and her employer does the same (even though she is under the age of 18). As her income increases, so will her contributions. She then invests 50% of her take-home pay using Sharesies in a Smart US 500 ETF (USF). As per Abby’s email, our daughter knows exactly how much money she has and where it is. This is her money, and we just help her manage it.
In short bursts, I explain to her that given we started investing for her retirement so early (she was just a newborn), provided she never stops or drains her account, she will have plenty by the time she reaches retirement age. And what of the money invested in the share market? For now, we advise her to keep adding to it and let it grow, and then if one day she decides she wants to buy a home, this investment will form the foundation of her deposit. Or it will provide enough passive income to pay her rent.
We are helping her create options.
Parents, guardians, caregivers and anyone who gets to play a part in the life of someone young. Create accounts, contribute to them if you can until they can take over the contributions themselves, and discuss with them what these investments could be used for in the future. Make them play an active role, and when the time is right, give them full control and step back and allow them to manage their own money. But always be that trusted adult on the sidelines, ready to answer any questions they may have.
Email #4 Dani
Your podcast has me feeling all the feels at the moment, and I don’t know where to start. I only stumbled across it yesterday and haven’t been able to turn it off. I wish I had found you years ago when X, Y and Z happened. I owe $6,000 on a student loan, $2,000 on a credit card and $300 on BNPL, and I’m a single parent with no financial support from my ex. I don’t have any savings, but I do have KiwiSaver of $32,000. As it stands today, my net worth is $23,700.
I love emails like Dani’s:
Dani was not asking me for anything. She is one of many who find it cathartic to explain their situation. Writing it down is often the very first step. Dani doesn’t realise that at around the same time, I received another email with the subject line “Mortgage Update”. This is an ongoing email exchange where they update me on their progress. The stand out in that email was, “I’ve exceeded what I planned to do”. They had set themselves a financial goal of reducing their mortgage by a specific amount, and they then beat that goal, bringing them ever closer to being debt-free. They wanted to share their good news with someone they know ‘gets it’.
When I read an email like Dani’s (and there was more to it than I’ve shared), I can tell she’s just had a huge ah-ha moment. Before my podcasts, it was unlikely that she had ever thought to calculate her net worth, but within 24 hours, they are here, writing down their debts and assets and working out exactly what financial position they are in today. This is their starting point, and with some new knowledge on board, the only way is up. People like Dani tend to make radical changes. All the podcast episodes she listened to exposed her to a new way of thinking about her money, and she was into it!
It might seem obvious to me, but not to you.
I assume the best of everyone. I also assume they have a level of understanding about money because they are an adult. I’ve been proved wrong again and again. Yet every time someone asks me about the basics of money, I’ll stop everything I’m doing to help them understand. I’m yet to respond to Dani, but I’ll get to it shortly. But when I do, given she is on the cusp of change, I’ll make sure I share with her common sense, simple tools, resources, etc., to help her plan her next steps. I’ll often share my Financial Independence Series for those just starting. Whenever someone asks you a question about money, ascertain where they are and help them in a way that serves them. Keep it simple. If you are like Dani, just starting, and it would help you to share your financial situation with someone, find a trusted friend to chat with. It helps.
Email #5 Eddie
I get so confused about capital gains tax if I were to sell shares. The IRD talks about your ‘intent’ when purchasing them, and they basically say, ‘if you aim to make a profit from shares gains, then capital gains tax applies’. But wouldn’t all people have this aim? Yet Ruth, you just sold some recently, and I didn’t hear you mention it.
Hmm, that got me thinking:
It's a fun tax query, indeed. Have I mentioned before I have zero financial qualifications? But I had read the information on the IRD website about intent, etc. And it is vague. Grey. Unclear.
Regarding my selling $103,000 of shares recently, it didn’t trigger any tax event. I’d been buying them for years; this was my first time selling them. I track my buys (and very rare sells) using Sharesight, so I can provide this information if I’m ever asked for it by the IRD. But I can’t see that I will be. To the best of my knowledge, the taxpayers who would come to the attention of the IRD would be active share traders, individuals who are buying and selling all day long. I’m a buy-and-hold investor, likely looking to skim the cream from the top of my investment occasionally. I’m not buying today, to sell for a profit ten minutes later.
Eddie’s email was timely because I remembered that our Prime Minister had recently sold an investment property and pocketed the tax-free capital gain of hundreds of thousands of dollars. Therefore, my common sense approach tells me that neither Eddie nor I are in danger of breaching any tax laws with our buy-and-hold ETF investment approach.
This is a different blog post for you this week, and as it sits today, I have 20 flagged emails in my inbox that require a response. The longest is 1,000 words, and the shortest is about 100. If you are awaiting my response, sit tight, I’ll get to it. If you have written to me and I’ve never responded, I will have; just check your junk folder! And if you plan to send me an email but find it turning into an epic novel instead, perhaps a Phone A Friend call would be better? I can talk faster than I can type.
