If you have kids born between the mid-to-late 1990s and the early 2010’s, you may be somewhere in the zone of watching them transition out on their own. These digital natives were the first generation to grow up with access to technology, and being online before being able to read or write was normal for them. Because of this, they can be savvy entrepreneurs well-versed in all things future.
Want to really know where AI is going to take us? Watch this generation.
They face unique challenges, though, when it comes to managing their money that their parents’ generation may not fully understand.
In this checklist, I’ll provide 4 practical tips and strategies for you (yes, only gen Z readers allowed) to manage your money and make a start financially.
- Get started now:
Getting started now will be one of the most important lessons for you to consider with growing wealth and money management. This means learning how to work first before play, how to manage money from a young age, setting financial goals, and making a plan to achieve them.
Starting at the beginning means learning some basics and not moving forward until it’s second nature: Setting a budget, saving, and investing, repaying debt – these are the foundations that can be built on later as income increases. What’s different from their parents, is that Gen Z will also understand digital assets with ease. Don’t be afraid to experiment here and learn how this new asset class may work in the world to come.
Getting to the starting line early means taking advantage of the time value of money – this is the concept that money has more value the earlier it is invested (compounding returns).
For example, if you invested $50 per month in KiwiSaver from the age of 5 onwards, at the age of 30 this could be around $60,000 (not quite 20% required for a house deposit but it’s still better than nothing!)
- Set Some Goals:
The next step in effective money management is to set financial goals that are actually achievable.
Starting with some short-term goals, such as saving for a car or a trip, you can then move on to setting longer-term goals, such as saving for retirement or buying a house (KiwiSaver is a fantastic tool for this goal).
To set effective financial goals, you should allow for the following:
- Identify your values and priorities and know it’s okay if it differs from your parents or even your peer group.
- Consider SMART goals: Specific, Measurable, Attainable, Relevant, and Time-bound goals. Why, because this framework actually works (just make sure it’s written down)!
- Create a plan: Once you have set your goals, create a plan to achieve them. This can include setting a budget, saving and investing, and reducing debt (starting with your higher interest cost debt first).
- Template your spending:
One of the most important tools for managing your money is a template – giving every dollar a specific job to do, is the best way to ensure you have a plan for your money which crowds out the plans others will always have for it. A spending template is simple a plan that outlines your income and expenses and helps you to spend your money wisely and on purpose.
Gen Z budgeting hacks:
- Identifying your income: This includes any money you receive from a job, allowance, or side hustles.
- Identifying your expenses: This includes all the money you spend, such as rent, food, transportation, and entertainment.
- Tracking your spending: You can use a budgeting app or spreadsheet to track your spending or even use money management tools your bank provides (ASB and ‘My Money’ as an example).
- Condition your cashflow: As your income and expenses change, you should adjust your budget accordingly. If you feel you can do better, increase the rate at which you invest and treat it as an expense rather than an optional extra.
- Invest:
Investing and the repayment of high interest debt is important for achieving financial goals and building wealth. You can start by setting aside a portion of your income for investing in a high-interest savings account for funds that may be consumed within 1-3 years, or a low-risk investment (managed fund) if your have 3-7 years to invest as an example.
*Care should be taken if you choose to invest in anything high risk for a short period of time. Please seek out advice specific to your situation.
No matter your age, you can always learn how to work hard, spend less than you earn, and invest in some sort of meaningful way. What’s actually achievable is almost secondary to the money and wealth-mindset that can be created by following the simple steps outlined above.
For more general information around shares, managed funds, crypto and property, check out great podcasts like the NZ Everyday Investor. Please do your own research and try your best to make informed decisions investment decisions based on your risk tolerance and financial goals.
