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Saving
A little becomes
a lot over time.



Inside . . .
     Set your savings goals

     The power of compound interest

     Make a savings plan

      Tips for successful saving


brought to you by the retirement commission
Set your savings goals
 Learning to be a regular saver is a big step         See how much your savings
 towards getting your finances sorted.                will add up to over time.
 Saving helps you get what you want –
 whether it’s an iPod, an overseas holiday or
 a house deposit. In most cases, it’s better to
                                                                                                         Try our Regular
 save than to go into debt. Through the power
                                                                                                        savings calculator
 of compound interest your money will grow
 the longer you leave it.
 Saving takes discipline, but if you really want to
 you can do it. Just keep it simple, set realistic
 goals and you’ll watch your money grow.

 Save for emergencies
 It’s a good idea to save some money for
 emergencies. Put two to three months’ pay
 aside in your emergency fund. You never
 know when you may need it.

 Save for retirement
                                                                                                                                                              ret rem
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 The earlier you start saving for retirement              Getting
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 the better. For more information see our             Inside
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 Retirement planning booklet.                          How
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 KiwiSaver is an easy way to save for                                                                           Is it
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 retirement. It can also help you save for a                                                Ins d
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 first home deposit. For more information see                                                The

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 our booklet KiwiSaver – Is it right for you?
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Savings plan
A. What are you saving for?
(e.g. new couch)




B. How much does it cost?
(e.g. $3,000)

$



C. How much do you have now?
(e.g. $700)

$



D. Subtract C from B – this is your savings goal
(e.g. $3,000-$700 = $2,300)

$
E. How much can you afford to save regularly?
(check your budget)
(e.g. $100 a week)

$                                            every week/fortnight/month



F. Divide D by E, this is how long it will take to reach
your savings goal:
(e.g. 23 weeks)

                                                 weeks/fortnights/months



G. What action will you take to start saving?
(e.g. Open a savings account and set up an automatic payment)




                                                  Try our Goal machine
                                               calculator. Enter how much
                                             you want to save and by when,
                                               and it does the calculation
                                                         for you.
The power of compound interest
If there’s any magic in saving, this is it –                                          Save or pay off debt?
the power of compound interest.                                                       If you have high-interest debt
When you’re saving, interest is regularly                                             like hire purchase or credit
added to your savings (usually every month).                                          cards, it makes sense to pay
If you don’t touch the interest, but let it                                           back your loans as fast as
add to your savings, then you start to earn                                           possible before you start
interest on your interest, as well as on the                                          saving. That’s because the
original amount you saved.                                                            interest you pay on your debt
                                                                                      will be more than you earn on
The longer you leave your money, the more
                                                                                      your savings.
powerful the compound interest effect. So the
earlier you start saving, the more you make.                                          However, there are some cases
                                                                                      when it’s good to pay off debt
Think you can’t save?                                                                 fast and save at the same time.
If you save $10 a week from age 20, here’s                                            These include saving for an
how it will grow with compound interest.                                              emergency fund and savings
 Age           Capital                 Interest*              Total*                  schemes like KiwiSaver (where
                                                                                      others contribute to your
 25            $2,730                  $180                   $2,910
                                                                                      savings as well).
 30            $5,750                  $780                   $6,530
 35            $9,080                  $1,960                 $11,040
 40            $12,760                 $3,910                 $16,670
 45            $16,820                 $6,860                 $23,680
 50            $21,300                 $11,120                $32,420
 55            $26,250                 $17,060                $43,310
 60            $31,720                 $25,160                $56,880
*Rounded to the nearest $10


You’ll have $56,880 by the time you’re 60.
Results are in nominal dollars, based on net real rate of return of 2.5% p.a.




                                                                                Get your saving
Kiwi story
 Sam sets savings goals
 Sam’s at high school. He lives with      However, Sam is really into his
 his parents on a dairy farm and          music and up till now he’s been
 works with his father milking the        spending most of his wages on MP3
 cows every morning and night. It’s       downloads and new stereo gear.
 hard work but he earns good money        So he sets a goal of only spending
 – about $380 a month, which is a         $20 a month on his music and
 lot more than most of the other          putting $80 a week in a savings
 kids he goes to school with.             account. He calculates that he will
 Sam sits down and works out some         have the $2,000 in six months and
 goals. He singles out two things he’ll   after two years will have $6,500 –
 need serious money for in the next       enough to buy the car he wants.
 two years.
 First, he wants to go with his mate
 Mike and his family to Bali (great
 surf in Bali) – that’s in six months’
 time and he’ll need $2,000.
 Second, he wants a car. Not any old
 bomb, but a decent car worth a few
 grand. He’s patient enough to wait
 a couple of years to get it.




                                            Get your saving
Tips for successful saving
  Be realistic                              Start small
  Your biggest enemy when you are           If you save regularly, even the
  saving is temptation. You will see        smallest amount can turn into
  lots of things that you want to buy       serious money through the magic
  instead of putting your money into        of compound interest.
  your savings. You can avoid this trap
  by setting realistic savings goals.
                                            Start early
  Think hard about what you are really      Saving for your own retirement is
  willing to give up for your savings.      one of the easiest decisions to put off.
                                            But talk to those retired people who
  Keep it separate                          are now enjoying the benefits of their
  Open a separate savings account           own savings. Generally they’ll say that
  or fund to keep your savings away         starting regular saving early was one
  from your everyday money (this            of the best decisions they ever made.
  could even be an account at another
  bank, if that makes it easier to resist
                                            Get into the habit
  temptation).                              Start a small savings scheme even if
                                            you are still paying off a loan (such
  Make it automatic                         as a mortgage). You’ll get into the
  Once you’ve worked out how much           habit of saving, and start to build a
  you can afford to save, set up an         small nest egg. You’ll also start to
  automatic payment so the money            build your knowledge of savings and
  goes into your savings account on         investment options.
  pay day. Or ask your employer to set
  up a salary deduction so the money
                                            Make a plan
  goes into your savings account or         You’re more likely to achieve your
  super fund rather than your regular       savings goals if you put them in
  bank account.                             writing. Use the savings plan in
                                            this booklet or the Goal machine
                                            calculator on sorted.org.nz.


  Complete your
  savings plan
                                              Get your saving
Kiwi story
 Sam sets savings goals
 Sam’s at high school. He lives with      However, Sam is really into his
 his parents on a dairy farm and          music and up till now he’s been
 works with his father milking the        spending most of his wages on MP3
 cows every morning and night. It’s       downloads and new stereo gear.
 hard work but he earns good money        So he sets a goal of only spending
 – about $380 a month, which is a         $20 a month on his music and
 lot more than most of the other          putting $80 a week in a savings
 kids he goes to school with.             account. He calculates that he will
 Sam sits down and works out some         have the $2,000 in six months and
 goals. He singles out two things he’ll   after two years will have $6,500 –
 need serious money for in the next       enough to buy the car he wants.
 two years.
 First, he wants to go with his mate
 Mike and his family to Bali (great
 surf in Bali) – that’s in six months’
 time and he’ll need $2,000.
 Second, he wants a car. Not any old
 bomb, but a decent car worth a few
 grand. He’s patient enough to wait
 a couple of years to get it.




                                            Get your saving
Where to now?
 1   Made a savings plan?

 2   Saving for an emergency fund (2-3 months’ pay)?

 3   Saving for the long term?



     Next step:
     Write down one thing you are going to do to start saving…
     e.g. set up an automatic payment into your savings account.




Sorted booklets
Order from sorted.org.nz/ordering
or call 0800 SORT MONEY (0800 767 866)




                                                                   Sorted 018 January 2010

				
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