Personal finance: The biggest mistakes you’re making at each stage of life
He said mistakes young people make around interest often involve things like car loans, credit cards, personal loans and store cards.
“Those finding themselves borrowing, that is using their future money ahead of time.
“[They] will find themselves sometimes paying exorbitant amounts of interest that can have huge ramifications, especially in the long-term.”
Compounding wealth
Overlooking the power of time is another costly mistake young people make, Hartmann said.
“When you’re in your 20s, you just don’t really understand how much power you have, because of the time you have, in terms of compounding wealth.”
Emergency savings
Hartmann said the role of emergency savings is something that many people overlook.
A recent survey by Kiwibank found almost a third (28%) of people said they didn’t have enough in their account to cover an unexpected $500 bill without borrowing, selling something or putting it on a credit card.
Hartmann says having emergency savings is the foundation of being financially stable.
Settling in (late 30s and 40s)
Often a stage in life when people are settled in their career, have taken on mortgages and have young families, financial mistakes at this stage can have major short- and long-term implications.
The power of mortgage repayments
Hartmann said not knowing how much power someone has to restructure a mortgage in their favour could end up costing them tens of thousands of dollars in repayments.
“Mortgages are set up very much in favour of the lender to guarantee repayments over decades and it comes at a certain cost.
“But the repayments actually have a lot more power. Even tweaking those repayments can make an outsized difference in terms of how much interest you pay and how long it goes for.
“Not looking at how much anyone, a borrower, can impact the outcome would be a costly mistake.”
Not looking long-term
“People in their 20s, they might not run their long-term numbers because their life is not settled. But the moment you’re kind of settled, to not look long-term and run, for example, some numbers for retirement … means that you’re not taking advantage of time.
“The earlier you run those numbers the easier it is to make small tweaks that can get you on track for the long term.”
The role of transferring risk to insurance companies
Hartmann said some insurance products are typically left a bit too long before people take them up.
“Probably when people are in their 30s, for example, they’re not really understanding how, for example, it would play out if they experienced disability or trauma.”
Income protection also gets overlooked early on, Hartmann said.
“Somebody in their 30s, who’s settled into their career will probably not realise how valuable that career is in the aggregate …
“That’s actually the biggest asset they have because over time they’re effectively going to earn millions of dollars.”
Later years (50s and 60s)
Drawing down savings for retirement
Hartmann said it was important early to look at how much savings you’ll have built up when you retire and how you will draw it down.
“That is a really difficult moment because nobody gets any practice at that, and nobody has any recourse at that stage to do it over if they get it wrong.
“It’s one of the hardest things to do because there’s so much uncertainty.
“If you take a look at it earlier, then you can start to make plans for your spending in retirement and get through these very challenging situations of actually making retirement savings stretch above NZ Super.”
Hartmann added that a major mistake some people make is thinking they need to close down their KiwiSaver when they hit retirement and that their money should not stay invested.
“Retirement can be a very long time based on longevity stats.
“To not understand that money needs to stay invested and keep growing for the long-term during retirement would be a misstep.”
Holding onto insurance products too long
Premiums can be expensive. And if you’re still paying for life insurance that was set up to cover young family members who are now adults, it may be time for a rethink.
“People tend to hold onto them perhaps a little too long until it becomes quite uncomfortable and [they] could have just let some things go,” Hartmann said.
“In your 50s, 60s, when you’ve built up some wealth, you can cover more of your risks in different ways, perhaps more on your own.”
It’s not too late to make changes
“Later on, it’s more about disempowering attitudes that it’s too late to make a difference, when clearly there are opportunities.
“Giving up on it as too late would be a major mistake.”
Cameron Smith is an Auckland-based business reporter. He joined the Herald in 2015 and has covered business and sports. He reports on topics such as retail, small business, the workplace and macroeconomics.
