Do you think you'll never buy a house? Or get ahead? There are some incredibly good reasons to just keep saving, no matter how dire you view your chances. Even if you never buy a house, savings give you freedom in life.
A conversation about two young apprentices ona North Shore building site led to this article. One has decided it's impossible to buy a home and get ahead and has just borrowed $40,000 to buy a car. The other drives the proverbial s***box and is saving every cent he can for whatever opportunities the future brings him.
You never know when a business opportunity might present itself. Or savings could give you the freedom to go back and study or take parental leave or time off work without being saddled with debt.
Ask around and you'll no doubt know someone who has bought the boss's business or taken their experience and started from scratch.
Savings make it easier. Just ask hair salon owners Craig Gullett and Michelle Van Staden. Gullett and his sister Van Staden came to New Zealand 11 and 13 years ago respectively.
Gullet had owned a business in South Africa at the age of 25 but needed to start again here to build reputation and a client base. For 10 years he worked hard and saved hard, living frugally. Those savings were invested in shares, which grew over time.
Last year, when Covid hit, he decided the time was right to either start his own salon or buy an existing business and his sister agreed to invest. Gullett met Amy Gardiner from Clyth MacLeod Business Brokerage, who presented various options including 1925 Hair Salon in Auckland's Newton Rd, which he bought with Van Staden.
Between the siblings they had $55,000 between them and borrowed the remainder to buy the $80,000 business and invest $10,000 in start-up costs.
Small businesses are often a steppingstone to home ownership. Managed well, the business will provide a good income and build capital. Businesses that can expand into new branches or territory can return good capital growth.
Clyth MacLeod general manager Glorianne Campbell says most younger business-buyers spend between $40,000 and $100,000 to get themselves into business. Many first-time buyers are in their 30s, which means they have 10+ years' work experience and savings under their belts.
"We sell a vast range of business types and price range," says Campbell. Clients are "everyday Kiwis" from a diverse mix of cultures. At the lower end, some clients are buying a job. "Equally they are providing a vehicle for the buyer to advance in life with a business they can grow and have enormous satisfaction from. You are your own boss. You have a varied role, usually an active owner/operator in the business."
$100 invested every week for 10 years in the NZX50 at 15.89 per cent (the market average) would amount to more than $97,000. Photo / 123RF
People who do save little and regularly and invest in growth will see that money grow faster than inflation, building up a nest egg. I used Sorted.org.nz's My Savings calculator to work out what $100 a week would have grown to invested in the NZX50 over 10 years. The index has returned 15.89 per cent, on average for that period. Your weekly contribution would have amounted to just over $97,000. More than half of that would be capital growth. Tax and inflation would affect that and investment returns may not be the same in the future. Nonetheless you'll amass a good sum of money.
Not everyone is cut out to own or run a business. People who keep saving in shares/funds and other growth investments will also continue to build capital. Housing markets do go in cycles and there may be a time in the future when property becomes relatively more affordable than it is now.
You can't always plan the future as well and you may find yourself living in a different town, city or country where that capital can be put to use in a house or business. You can save little and often. If you do this before you map out your future, all the better. It will give you options.
