Kia Ora!
In this newsletter:
Hot tip of the month – Dollar–cost averaging could be your path to wealth
Did you know – Tell the phishers to go fish
First-home buyer tips – Goodbye First Home Grants
Property – Property investors aren’t coming to market
Investments – Last chance for free cash from the Government for 2024
Banks – What Debt to Income (DTI) means for you
Reserve bank – OCR stays put; lending rule changes may affect you
Business – Manage your cashflow now to stay afloat later
Insurance – Think you can’t afford insurance? It’s time to get creative
Hot tip of the month
Dollar–cost averaging could be your path to wealth
Dollar–cost averaging is an investment strategy where you invest regular small amounts consistently, regardless of market conditions. This approach means that during market lows, your investment buys cheap stock and during market highs, your investment buys fewer units. This reduces your risk of waiting for the right time to invest, only to miss out, and the pressure to predict the short-term market movements. While it doesn’t guarantee profits or protect against losses, it’s well-suited for long-term investors focused on accumulating wealth steadily over time.
Did you know?
Tell the phishers to go fish
The internet has given us access to so much… but has also given scammers access to us. Phishing, when scammers try to steal personal information, is the number one scam affecting New Zealanders right now. In fact, Kiwis lost $198 million to scammers just last year. Many scams are very sophisticated, and scammers’ ability to mimic valid websites and emails has grown with the use of AI.
Some ways to protect yourself from phishing scams include never replying or clicking on links in suspicious emails. Forward suspicious emails to the company directly for investigation, then delete the email. To report a phone text scam, copy the number and send it to the Department of Internal Affairs reporting system: 7726 (SPAM).
First-home buyer tips
Goodbye First Home Grant
As at 1pm 22 May 2024 you can no longer apply for the First Home Grant. The announcement came out of nowhere!! For those pre-approved for the grant, you will need to use it within the next 6 months. There is no guarantee that your grant will be extended beyond the pre-approved period.
The savings from scrapping the scheme have been reallocated within Kainga Ora for the building of more social housing. The First Home Grant worked for those in some regions, but it has been tough for many living in the main centres to access the assistance.
Thoughts from Elise
May has been a mass of announcements, with the budget announcement on 30 May in the same week that the Reserve Bank announced the introduction of Debt to Income (DTI) limitations.
Normally when a budget is announced we look for the additional spending to see who has increased funding to improve their services or capacity. This budget, the government deficit required consideration and careful management and the tax cut has come at an incredible cost.
Those that are on the minimum wage will receive an extra $25.04 in their hand a fortnight. The new tax brackets have cost the public service sector, with over 3,000 jobs cut across the public service. $5.86b has been cut across 240 saving and revenue initiatives. Education, health and infrastructure have been under funded for decades and have received some investment in this budget but the tax cut and expected decrease in tax revenue has affected the amount that can be allocated. Pharmac funding was increased, but not enough to cover common cancer treatments.
Check out what the difference will be to your pay packet at https://www.budget.govt.nz/taxcalculator/index.htm
On a positive note, at Building on Basics we have our own announcement. I am super excited to introduce our newest team member, Gordon Bell.
Gordon has over 30 years’ insurance experience helping people protect themselves and their loved ones.
He ensures clients have the correct cover so at claim time they security, certainty, and dignity and he helps ensure all claims are paid quickly, fairly, and with minimal stress.
Property
Property investors aren’t coming to market
Tony Alexander is a leading economist who runs regular surveys in conjunction with Crockers Property Management. May’s survey of residential property investors gauged how they are seeing the market and what their plans are.
The key results of the survey are:
- The proportion of investors looking to buy has fallen to a record low of 17%.
- Of those looking to buy, only 17% would consider a new property versus 30% a year ago and 53% in July 2021.
- A record low 50% of investors say they will hold their property for at least ten years or have no plans to sell.
Both real estate agents and property managers are reporting that there are a higher-than-normal number of rental properties likely to be put on the market come 1 July.
Investments
Last chance for free cash from the Government for 2024
The Government contribution for KiwiSaver is payable to those between the ages of 18-65 and is pro-rated for the first and last year of belonging. For every $1 you contribute, the Government gives you $0.50 up to a maximum of $521.43pa.
The dates for calculations are 1 July 2023 – 30 June 2024.
If you are unsure if you have contributed enough get in touch with us. Even if you are on a suspension holiday, you can do a voluntary contribution.
Banks
What Debt to Income (DTI) means for you
From 1 July the banks will need to meet the new DTI rules. For owner-occupiers, the maximum debt that you can borrow is 6 times your income. For investors, it’s a maximum of 7 times your income.
DTI is an additional check for lenders to decide borrowing ability. The lenders have been prepared for this for some time and some have already been applying the rules.
The lenders will each interpret DTI differently as they do with most rules, especially for investors. Lenders may shave off a part of your rental income prior to calculating affordability to account for costs such as rates and insurance.
Reserve Bank
OCR stays put; lending rule changes may affect you
The May OCR announcement kept the OCR at 5.5. This can be seen as good news as the Reserve Bank indicated an increase was still possible. They noted that domestically, the price inflation of higher dwelling rents, insurance costs, council rates, and other domestic services “poses a risk to inflation expectations”.
The RBNZ also announced changes to the LVR restrictions, with lenders able to have 20% of their debt allocated to owner-occupiers borrowing over 80%, and 0.5% of their lending allocated to investors borrowing with an LVR of greater than 70%.
They have also enabled investors to borrow with a 30% deposit as opposed to a 35% deposit. The main inhibitor will now be the DTI rules on top of the high income-servicing test and interest rates.
The OCR is not likely to be coming down until the second half of 2025, as opposed to the earlier indications of the first quarter of 2025.
Business
Manage your cashflow now to stay afloat later
When business and income is going well it’s easy to not worry too much about upcoming bills for both the gross margin and overheads. But you can’t assume future profits will cover current costs billed at a later date. As the money is coming in you need to be setting aside funds for:
- Business tax
- Provisional tax (if there are business partners then each owner needs to take care of their own provisional tax from the drawings they make).
- ACC for your business and your employees
- Replacement of capital equipment
- Funds for expansion or development of marketing tools such as websites and other advertising collateral
We have been moving towards tighter times and discretionary spending dries up with the increased cost of living. Clients may be slower to pay or the work that you do may be for smaller sums, as your revenue shrinks some of your overheads may not.
It is important to:
- Watch your costs regardless of good times or tight times
- Set up facilities to draw on funds when the times are tight.
If you wait until you are desperate for funds or are falling behind in payments, you may not be able to get the finance in place. Work with your accountant to get your financials complete, future forecasts in place, and ensure you have a business plan that you are working to.
Insurance
Think you can’t afford insurance? It’s time to get creative
The rising cost of living is putting a crunch on many household finances. The tighter the finances get, the more we feel a need for financial certainty. Behind rent and mortgages, food and insurance are the next biggest expenses. A recent article shared the story of a woman who had just cancelled her health insurance because she couldn’t afford it and was then diagnosed with an illness, financially hurting herself and her family. Cancelling policies should be a last resort, and while not always avoidable there are things that you can do to retain your policy – and the answer is not always in the level of cover.
Our newest addition to the team, Gordon Bell has over 30 years’ experience finding creative solutions to give his clients certainty, control and dignity when the worst happens. He adds to the BoB team’s ability to provide insurance and finance support, ensuring you and your loved ones are cared for.
Gordon’s creative solutions can include:
- Increasing the number of covers you have for a greater discount across all your covers – sounds backward we know!
- Extending your wait period before you receive your cover (note that having emergency funds available can help you through that period).
- Getting an early pay out of your life cover (they call this accelerated).
We are always available for a chat about your situation.
Book a meeting or send us an email.
Until next time,
Elise and the Team