The importance of being prepared…

As financial advisers, a huge part of our role is helping people plan… plan to buy a first home or an investment property, plan for retirement, plan for financial decisions such as starting a business or family, and just as importantly, plan for when things go wrong…

I know it’s not fun to think about what would happen if we died, or became disabled or seriously injured, or diagnosed with cancer or a major illness. I personally spend way too much time dreaming about what I would do if I won lotto, the reality is I have a 1 in 383,838 chance of winning… however I have a 1 in 4 chance of being diagnosed with cancer, ugh grim I know.

It’s no secret many of us Kiwi’s are guilty of having a “she’ll be right” attitude, and whilst sometimes ignorance may be bliss, the fallout of not being prepared can be catastrophic, especially for our loved ones. So, let’s get real and have the hard conversations…

So what does it look like if we die prematurely and are unprepared…

One of the most important things you can do, which is often ignored or put in the too-hard basket is estate planning. This includes things such as wills, trusts, and enduring power of attorneys. For most people it is as simple as having a will in the event you were to pass away. So, let’s look at what happens if you die without a will…

If you die without a will, it is called dying intestate… As an upfront and honest person, I am going to be blunt, dying intestate and leaving your loved ones to navigate that process and pick up the pieces after losing you is a serious stitch up, and makes an already horrific thing that much worse.

If you have assets worth more than $15,000 (that includes things like KiwiSaver), your estate must go through a legal process and be distributed as per NZ law, this can take anywhere from 6-24 months.

Once the court has appointed somebody to administer your estate, they then have to figure out how to get affairs in order, i.e. clear or close debt, pay bills, close bank accounts, close and cancel utilities and services, gym memberships, phone plans, and so on. Even things like accessing social media accounts can become a nightmare.

Then it comes to distributing the estate, without a will this is done in accordance with NZ law and dependent on your situation. Are you single, in a relationship, have children etc? You can find out more about how this is distributed here

Now I would be lying if I said wills were perfect and fool proof, because they aren’t. They can be argued or challenged in court and can still become complicated in some instances, but most of the time they are pretty seamless and having one is always so much better than not.

Let’s look at an example and the difference that being prepared can make…

John and Jane are in their late 30’s and have two young kids. John is the main income earner as Jane looks after the little ones. They own their own home, have exciting plans for their future and life is good.

Scenario 1

John unexpectedly passes away. John and Jane never got their wills sorted or spoke about what would happen if either of them were to pass away. John does have life insurance, but Jane unfortunately isn’t a policy owner so cannot access the funds and it is instead paid into his estate.

Jane deals with the loss of her husband, whilst looking after the little ones. As John’s income has stopped but Jane cannot just access his life insurance or estate, she must figure out how to come up with the money to pay the mortgage or risk losing the house that she and John made their home.

It takes 10 months for John’s estate to be administered and distributed, and for Jane to be able to access any of the funds. Jane went from a stay-at-home wife/mum to a single mum working part-time and relying on financial support from friends and family to get by.

Scenario 2

John unexpectedly passes away. Jane owns John’s life insurance policy and can claim against his insurance, providing her with immediate financial relief. She has the funds for his funeral and to cover the mortgage and household expenses for the next 5 years. Jane can go through the grief of losing her hubby without the added financial stress.

John and Jane had wills in place and his entire estate was seamlessly transferred to Jane within a few weeks. Above that, John had made sure that if anything ever happened to him, Jane would have everything she needs to make things as stress-free as possible. He had all the information about their financial affairs in one place, he kept a log of passwords for everything, and he even had funeral instructions that Jane could follow.

This “example” is something we see all too often, and the key difference is literally just having a will, some good insurance advice, and some forward thinking.

Hopefully, you’re picking up what I’m putting down here…. It PAYS to have a plan.

So how do we recommend you start to get your affairs in order?

Chat with our team… At the Money Men, our mission is not to just provide financial advice but to educate and empower our clients. There are lots of great advisers out there that will have these robust and detailed “what if” conversations, but there are also plenty that will just sell you an insurance policy and be on their merry way… It’s important to find an adviser that is going to really understand you, and the risks you may face and who takes the time to facilitate and drive these conversations.

Get legal advice… Seeing a lawyer can sometimes be daunting, mostly because they can be expensive. Do some research and find a practice that works for you. There are plenty of law firms that will give you upfront costs and not charge for every phone call. You can expect to pay roughly $400-$600 for a straightforward will. If you have a business or need to establish a trust, then there are more costs but think of it like this… the more complex your situation the more likely you are to be doing something right and the more you have to protect.

Check out My Will Wishes… We came across Anna’s My Will Wishes book and can’t speak more highly of it. It’s the perfect missing piece of the puzzle people need to get down all the important things that don’t go into a will. Having something like this makes an enormous difference in helping loved ones through their loss and allows you to have a say in what you would want. We give all our clients a copy of this when sorting their insurance and the feedback we get is amazing!

Welcome to 2022!

We’re back in the office and ready to roll into the New Year. We hope you’ve had a chance to refresh and energise because there’s a big year coming up and plenty of opportunities to get ahead financially.

We thought we’d kick the year off by looking at the challenges and opportunities that lie ahead in 2022. We’ll touch on inflation and what it means for Kiwis. We’ll look at how best to apply for a loan with the banks now in full forensic mode thanks to the new CCCFA rules. Finally, we’ll talk about the chances of property prices levelling off and our thoughts on preparing for if they do.

It may all sound a bit scary but it’s worth remembering that with change comes opportunity, and we believe that with some smart planning you can not only protect yourself and even get ahead this year.

Inflation is on the up and up and up and up…

Unless you’ve been holidaying on a private island with no internet, radio or TV then you’ve probably heard all the talk about inflation.

It’s an important subject because inflation is the reduction of purchasing power of a currency. That is to say, the New Zealand dollar now buys fewer products or services than it did at the same time last year. In fact, it’s the biggest increase in consumer inflation that New Zealand has seen since 1987. The knock-on effect is that everything becomes more expensive as inflation rises, and we mean everything; from a bottle of milk to the interest payments you’re paying on your mortgage.

The question then becomes why has it happened?

The answer is long and quite complex, but to summarise briefly the below factors conspired to drive higher levels of inflation in our economy:

The government pumped money into the economy in the form of grants due to the prediction of a recession.
The economy actually continued to power on and no major recession occurred.
Asset prices rose.
There was strong demand but the reduced supply of products and services.
There were labour shortages.

We’re predicting that inflation is likely to continue to rise throughout the year, but there is an upside for those people who have been cautious while times have been good. When inflation rises the unfortunate reality is that some people who have overextended themselves may have to reduce their debt, this provides opportunities for people who aren’t in this position to acquire consumer goods, investments and even property at discounted rates.

CSI: NZ Banks. How to get a loan in 2022?

With new CCCFA rules having landed this is a question we get all the time. If you’re not familiar with what the CCCFA rules are it’s worth reading our previous blog to familiarise yourself as these rules have dramatically changed the bank’s attitudes to lending money.

The banks are now almost forensic in their examination of the accounts and spending habits of people looking to borrow money. The reality is that if you want to borrow money you’ll need to ensure that your bank statements are clean for a minimum of three months. This means reducing any spending that may be seen as frivolous by the bank. Things like takeaways, nights out, retail spending etc will need to be managed tightly before your application to give you the best chance of success.

This level of financial interrogation has seen the number of accepted mortgage applications fall by 25% which has led some experts, including us, to argue that these rules have gone too far and are too invasive and prohibitive to be realistic in the long run. To put it quite simply we don’t think that you should be punished by a bank because you’ve decided to have a three-piece quarter pack after a really tough day at work, especially in an economy that will require consumer spending to keep moving.

Banks are now using your previous spending habits to establish a pattern.

But the harsh reality is that banks are now using your previous spending habits to establish a pattern. They are trying to answer the question as to if you can pay your mortgage and bills if interest rates go up. They are taking any expenditure in the last three months from your statements and basically saying that you will always continue to spend like this even if interest rates do rise and therefore you may not be eligible for a loan.

The reason we think this is so silly is that most people are capable of budgeting out their wages or salary to pay their bills. Most people will naturally reduce their spending on nice to haves if they need to spend that money on more important things like bills or a mortgage. People are grownups and as such can budget and prioritise, the CCCFA rules, however, are making banks treat grownups like children and that is where they go too far.

There is good news though; if you are looking to apply for a mortgage for a first home there is the chance that you’ll face less competition if you can successfully get the loan. There are also some really basic things you can do to ensure you have the best chance of succeeding in your application. Give us a call as we deal with this challenge every day, and we can give you some tips and help you navigate this more complex process.

Will the property market finally cool in 2022?

This is another question that we have been bombarded with recently. The media has begun to speculate that 2022 might finally be the year house prices cool off in New Zealand and lots of people are asking whether this is true.

We’d begin by saying that we’re always hesitant to make a definitive call on this question as we’ve seen dozens of commentators with egg on their faces. These commentators boldly claim house price rises are unsustainable and that a “sharp correction” is imminent only to find that in the months following house prices continue to boom. What we would say however is that this year it’s looking far more likely than at any other time in the last decade. This is due to several factors:

The new CCCFA rules reducing the number of new homebuyers in the market.
Inflation driving up interest rates causing some people to hold off buying while others struggle to service their levels of debt.
The long tail of Covid that’s at best unpredictable given the contagious nature of the Omnicron.

So back to the question; will house prices level off in 2022? The short answer is maybe. The long answer is that if they do and you’re a first home buyer, an investor, or just looking to upsize then now is the best time to get your finances in order. This will ensure that you are ready to pounce and take advantage of any great deals or opportunities as they present themselves.

Here’s to a big year

As we said upfront there are lots of changes, challenges, but most importantly opportunities on the horizon in 2022. We know how scary a year like this may seem but we’d encourage anyone reading this to consider how exciting it could be too.

If you have any worries about your finances after reading this we’d love you to drop us an email or give us a call so we can chat about how can help. On the flip side if you’re interested in getting ahead this year we’d equally love to hear from you.

We’re looking forward to getting stuck into the new year and we hope to hear from you soon.

Cheers,

The Money Men

Category Finance