About MoneySecrets: MoneySecrets offers a peek into the financial lives of our fellow Kiwis. The story below was written using pseudonyms to remain anonymous. When commenting, please remember that the writer has laid bare their financial life, which can be a scary thing to do. Please be kind, and enjoy!
INTRODUCTION
Me 42, hubby 40, with two kids aged 12 and 6. I work part time as a teacher, and my husband shift works. Pre-kids we lived life paycheck to paycheck, spending all our pay on ourselves and activities. 14 years ago we bought our first house in rural South Island for 75k after scraping together a 7k deposit. We borrowed another 100k to renovate, and to have a fab and expensive wedding.
Then 12 years ago we got preg with lots of consumer debt - maxed credit cards and multiple hire purchases. We struggled to make ends meet so I went back to work soon after baby #1 was born.
When we started trying for baby #2 , we finally made a conscious decision to try and take control of our money after finding maternity leave so tricky financially with baby #1. We paid off all consumer debt using the “snowball method”, then worked on paying back the principal on our mortgage. We decided to buy a rental in a nearby town for 195k with the equity gain from paying down the mortgage on our home. We unfortunately had fertility issues and spent the next 5 years paying for rounds of IVF at a cost of 50k.
After baby #2 finally arrived 6 years ago, we kept working hard to pay off our mortgage, having only 70k left when the baby was born. Even though we had been stretched financially, house prices had increased and so had our equity. We decided to upgrade to a larger home and bought a second rental. This increased our mortgage to 500k, then 6 months later the market dropped pretty much overnight and we lost 150k+ in equity, leaving us with only 10k in equity across all three properties. We continued to work hard and pay off the mortgage, along with renovating to finish our home. Both rental properties were running at a loss of 10k a year, but we kept to our plan of buy and hold with the rental properties, and paying as much principal as we could manage.
2 years ago the market had improved significantly and we had gained enough equity to purchase a third investment property. We made an appointment with an accountant who projected our wealth at retirement. It was clear that if we wanted more funds at retirement, we had to change our strategy. After a lot of sleepless nights, we made the decision to purchase a third rental property for 750k, and now had a daunting 1.2m of mortgage debt (and 400k equity). This was a big financial turning point for us. While we had been ticking along ok making progress, we knew we had to make sacrifices to pay down as much debt as we could in order to reduce the risk of going underwater if there is a big market drop.
We decided to run our household as a business. We read lots and ended up following some of Dave Ramsey's principles. We set up a firm budget, and we track every dollar monthly (using a free online tool). Our goal was to do this for one year - one year with no extras, one year with no unnecessary purchases. Our kids quickly adapted - no icecreams at the shop! We have set financial goals and projections, monthly and annual reviews, and track our net worth which helps us keep on track. In the last 2 years we feel like we have taken full control of our money and our future, and made great gains. We have started to relax our spending in the last 6 months - while the progress has been fab, we have decided that it is also important to enjoy life. This means we have allocated more money to shopping, house, holidays, entertainment and now go out for dinner every few weeks!
| Earning and spending summary | |
|---|---|
| Annual income | $171,000 |
| Less tax and payroll deductions | -$57,242 |
| Less annual spending | -$93,250 |
| Equals remaining income | $20,508 |
| Net worth summary | |
|---|---|
| Total assets | $2,336,000 |
| Less total debt | -$1,000,500 |
| Equals net worth | $1,335,500 |
FINANCIAL GOALS
We’re on track to meet our goal of becoming mortgage-free in 10 years. This will allow us to have passive income from our rentals to replace one of our salaries if we wish.
We save for our retirement through Kiwisaver and work retirement schemes, and are on track to having enough to replace one of our incomes by the time we reach 65.
We also want to be in a position to help our children with their financial goals.
Assets
| Assets | |
|---|---|
| Cash | $20,000 |
| Kiwisaver | $300,000 |
| Real estate | $2,000,000 |
| Shares | $8,000 |
| Vehicles | $8,000 |
| Total assets | $2,336,000 |
Property: Our family home is worth around 600k. The three rental properties are worth around 300k, 300k, and 800k.
Superannuation: We started our retirement savings early by each paying 6% into our superannuation schemes (before Kiwisaver had started). My work super is at 100k and is an old teacher retirement scheme that I can access at age 55. I found out recently that only the base salary is matched to 3% (not any relief, units, or allowances) so changed to Kiwisaver which matches my total salary. Hubby has a fab super that he’ll get as cash whenever he leaves the company - it’s at 200k and can also be accessed for hardship if needed. This allowed us to take risks with our investment properties.
Kiwisaver: We joined Kiwisaver around a year ago after finding out about the $500ish payment from the Government each year (and because I get a higher employer match). Our goal is to invest 15% of our income. I contribute 6% plus 3% from my employer, and hubby is contributing 9% and matched 6% from his employer, so we’re almost there! Our Kiwisaver balances are small because we started them recently. We’re in growth funds that are managed by our bank. We also have Kiwisaver for our kids, and got the $1000 kickstart before that incentive finished. We put $10 in the account for each kid fortnightly, and each kid currently has 3k.
Vehicles: we both have older cars. We plan to continue to run these into the ground, and hopefully treat ourselves to new ones when our mortgage is paid off. We see money in cars as a liability rather than an asset, so prefer to put money into paying off debt at the moment.
Debt
| Debt | |
|---|---|
| Mortgages | $1,000,500 |
| Total debt | -$1,000,500 |
Student loan: I had 80k in student debt that I paid off 4 years ago.
Personal debt: 2 years ago we eliminated all consumer debt. We pay cash for all purchases. Large purchases like a washing machine come out of our Sinking Fund.
Mortgages: all our mortgages just came off 5.8% last month - very exciting to see how much debt we can pay off now. Plan to have paid off in 8-10 years, this means we will have passive income equivalent to one of our incomes (unless we buy another rental and this income will go directly to paying down principal debt) - however the goal was never to be ‘rich’ it was to be able to be financially independent in our 50’s with enough money for extras like holidays, maybe a new car or boat!
Income
| Income | |
|---|---|
| Salary or wages | $170,000 |
| Investment income | $1,000 |
| Total annual income | $171,000 |
| Annual after-tax income | $122,758 |
| Total weekly income | $3,288 |
| Weekly after-tax income | $2,361 |
Salaries: We’re a teacher and a factory worker, each making 90k. I'm proud that we have good, secure jobs. Even though we aren’t in the “high” income bracket, we are making great progress by setting goals, using a budget, and discipline. We used to hustle and made an extra 30k by tutoring (me) small gardening jobs (hubby). This is not ideal long term, and we have reduced this since 2019 to reduce stress.
Investment income: This is an estimate of annual returns from our Sharesies portfolio.
Rental income: This year we hope to make 10-15k of profit (ignoring changes in capital value) - it would be the first time we have made a cash profit! Since we’ve based this income section on historical income, we haven’t included this expected income over the next year.
I am proud that we are not pressured into social status about what car we drive, the schools our children go to, etc.
I am proud of the great team we are as a family. We are all on the same page, we chat about our shared goals and vision, and this helps to keep us focussed.
Expenses
| Expenses | |
|---|---|
| Housing | $20,000 |
| Groceries & supplies | $16,000 |
| Eating & drinking out | $3,000 |
| Entertainment | $500 |
| Transport | $10,000 |
| Utilities | $5,000 |
| Sports & hobbies | $2,000 |
| Health | $1,000 |
| Shopping | $12,000 |
| Kids | $3,000 |
| Personal care | $2,000 |
| Travel | $3,000 |
| Insurance | $10,000 |
| Pets | $750 |
| Gifts & donations | $5,000 |
| Total annual expenses | -$93,250 |
| Total weekly expenses | -$1,793 |
I track our expenses using a free online tool called “Every Dollar”. It keeps me honest and accountable. It shows me where we overspend. We’ve based this expenses section on our spending over the last 12 months. Some further notes on our spending below:
Eating out: This includes icecreams, takeaways, day trips, not many meals out. Thi is the easiest way to reduce spending and incr saving.
Entertainment: We made the decision to reduce this - we were previously spending thousands each year.
Shopping: This is the hardest one to reduce - I love shopping. I have found 18 months since trying to buy as little that things now need replaced e.g makeup, underwear etc
Travel: We made the decision to save as much as possible over the last 2 years, but we are planning a holiday in summer for 4k.
Insurance: We have medical and life insurance.
Pets: 1 dog.
Gifts and donations: I love to support organisations and buy gifts for friends.
Remaining income
| Earning and spending summary | |
|---|---|
| Annual income | $171,000 |
| Less tax and payroll deductions | -$57,242 |
| Less annual spending | -$93,250 |
| Equals remaining income | $20,508 |
All money leftover each fortnight is transferred to an account I call Sink fund. This account has a balance of 5k, but every time this account gets to $6k I transfer 1k to our floating mortgage. I always have up to 50k on floating. I make up a sheet on the fridge and cross off each $1000 as it is paid. It’s great having a visual that we see daily, and is very motivating for us.
Two years ago we started putting $100 into Sharesies each payday. It has been exciting and a fun way to invest. We did this instead of increasing my Kiwisaver by another 3% as it is accessible before we turn 65 if required or incase of an emergency or if our children needed financial help to uni etc?
We aim for a savings rate of 45-50% (including super / Kiwisaver, extra mortgage payments, kids’ Kiwisaver, and emergency funds).
Inviting feedback from readers
Im still learning and improving new systems for our household finances - would love to hear of any tricks and tips!
We aren’t doing much for our kids other than a small 10$ fortnightly Kiwisaver contribution. Should we be doing more or should we just keep doing what we are so that we are in a position to help later on?
Also what could we do with our emergency fund and Sink Fund? They are currently in the bank earning no interest.
