A New Zealand personal finance author has shared how to save for a 20 per cent house deposit faster and why investing in the stock market is better than accumulating money in a savings account.
Frances Cook, 32, said as housing prices are on the rise, it can seem daunting or impossible for first home buyers to enter the property market, but the best thing she recommends is ‘not panicking’ and thoroughly consider your financial goals.
‘Depending on your goal in life, buying a home can actually hold you back,’ Frances told FEMAIL, adding: ‘Putting together a house deposit of $100,000 can feel impossible, and may lead some people to give up.’
Those wanting to buy a house or rent in an area closer to a major city may wish to consider investing in stocks – an avenue Frances deems to be ‘doable’ and an option that works ‘for all stages of life’.
‘You can use stocks to build up a level of financial independence that lets you securely rent forever, or you can use it to help to you build up a deposit,’ she said.
When considering financial options, it’s important to seek advice from a professional to determine what’s best for you.
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New Zealand personal finance author Frances Cook (pictured) has shared how to save for a 20 per cent house deposit faster and why investing in the stock market is better than accumulating money in a bank account
‘Rather than frantically putting your money into a savings account and watching house prices keep going higher while you struggle to keep up, you can put it into stocks instead,’ Frances said.
‘Stocks have actually increased more in value over the last ten years than housing has, so it can help you keep up.’
Unlike property that requires a large lump sum deposit, investing in stocks and shares gives the individual the freedom to choose the figure for themselves.
Frances said online investing platforms, such as Raiz, FirstStep and Spaceship, allow users to start for as little as $5, which is perfect for beginners.
‘The only trick is a long-term strategy; stocks can go up and down a lot over ten years, even if you eventually come out ahead,’ she said.
Those wanting to buy a house or rent in an area closer to a major city may wish to consider investing in stocks – an avenue Frances deems to be ‘doable’ and an option that works ‘for all stages of life’
‘Rather than frantically putting your money into a savings account, and watching house prices keep going higher while you struggle to keep up, you can put it into stocks instead,’ Frances said
While some may consider investing in stocks to be a ‘risky’ option, Frances said there can be more benefits than investing in property or opting to not invest at all.
‘Choosing between property and stocks is a bit like choosing between chocolate and vanilla – different people prefer different things for different goals,’ she said.
‘The big problem is that a lot of people can’t get any chocolate right now, because saving up $100,000 minimum is a huge goal.
‘Meanwhile being able to start with $5 investing in shares lets you figure out how you want to invest, and you’ve got less on the line if something goes wrong.’
‘Being able to start with $5 investing in shares lets you figure out how you want to invest, and you’ve got less on the line if something goes wrong,’ she said
Frances has also shared this financial information on video platform TikTok where her content has been viewed by thousands
Frances added the ‘golden rule of investing’ is to have ‘diversification’ from a range of assets rather than just one in case something bad were to happen.
‘With property you have hundreds of thousands of dollars tied up in one asset, with a lot of debt hanging over your head, and a disaster like earthquake or fire could ruin it at any time. Even if you have more than one property, it’s usually all in the same town, and almost always all in the same country,’ she said.
‘Meanwhile, let’s say you’ve invested in stocks. You might put some money into the ASX200, the top 200 companies in Australia, or you might decide you also want to put some in the S&P500 for the largest 500 companies in the US.’
Through ‘diversification’ you will be improving your options by spreading the money around and investing in multiple companies.
INVESTING PLATFORMS IN AUSTRALIA AND NEW ZEALAND FOR BEGINNERS
Spaceship Voyager is an Australian financial services company offering investment and superannuation products, specifically designed to engage younger people
The platform is fee-free for balances less than $5,000 and will cost 0.10 per cent per year over that
In only three years, 100,000 Australians have begun investing with Spaceship
Raiz is another platform that allows Australian customers to micro-invest the remaining round up of everyday purchases in exchange traded funds
‘If you put your money into an index fund, then you’re spreading your investments across lots of different companies from the very start, which is something most experts recommend,’ Frances said
‘Don’t feel bad about starting with only a little bit of money – it lets you get a feel for what you’re doing, and you’re less likely to panic when the market inevitably goes down.’
Some may also wish to consider taking up a ‘side hustle’ to generate more money, such as dog walking, baby sitting, Uber driving and freelancing
Investing in stocks is also often a better option than having the money sitting in a savings account, as the value of money decreases in value over time with the ongoing rise of inflation.
Frances said the standard advice is to have at least $1,000 in cash for emergencies and up to three months of life expenses saved if possible.
‘A savings account right now will get you one per cent interest, if you’re lucky. Meanwhile stocks earn on average seven per cent per year,’ she said.
‘People often think of stocks as a really risky investment, when really, the risk is just that they bounce around and can be unpredictable. If you expect that from the start, are ready for it, and don’t lose your nerve, you’ll be fine.’
‘The only trick is it is a long-term strategy; stocks can go up and down a lot in those ten years, even if you eventually come out ahead’ she said
FRANCES’ TOP FIVE BUDGETING TIPS
1. Keep a money diary – write down everything you spend then note down what you truly needed to spend on (food, rent, petrol, etc), and also whether it made you happy. A budget won’t work if you try to cut out what makes you happy.
2. Cut out what you don’t need – this may include online shopping, a certain food or luxury
3. Consider your big expenses – for the average person, 60 per cent of spending is for large expenses. The areas of biggest spending also have the most potential for savings. Can you change your housing? Are you willing to ditch the car one day a week?
4. Consider smarter spending – if you love going to cafes, but usually just for the atmosphere and company, meet a friend for coffee instead of brunch to save money
5. Don’t bother wasting money trying to impress people – we’re all the main character in our own lives, so it’s easy to think other people are watching what we do more than they are. Spend for things that you enjoy, and can afford. Cut the rest
Before investing, it’s essential to note that stocks are a ‘long-term game’ that’s not as difficult to understand as people may think.
‘The market will always go up and down, and you mustn’t panic when it does; factor that in from the start, and give yourself at least five to ten years for any money you put in there,’ Frances said.
She also said to ‘beware of killer fees’ that are often the ‘silent wealth killer’ when investing.
‘Research shows people who pay high fees don’t get better results, in fact, they often do worse. An industry rule of thumb is that anything under 0.5% is a reasonable low fee,’ she said.
Frances has also shared this financial information on video platform TikTok where her content has been viewed by thousands.