How to save money effectively in NZ

Saving is the secret to financial success. Put simply, it’s all about spending less than you earn so that you can put money aside for the future, whether an emergency fund, a home deposit, investments, or retirement.

Sounds simple, right? Not quite ... saving can be really hard, requiring discipline, good habits, and a plan. But it’s worth the trouble - if you’re good at saving, the better you can be with money management.

You could get by spending what you earn and living pay day to pay day, but most of the really good stuff that money buys requires saving. Retiring in comfort, buying a home, and even holidays are near impossible if you don’t put money aside.

It’s also been proven that money troubles can cause relationship difficulties and psychological distress. Savings reduces these worries, giving you the mental space to make better choices, the ability to deal with the unexpected, and the freedom to live how you choose.

Sounds pretty good, right?

To save effectively, you have to put money aside regularly. The best way to do this is to make it easy and turn it into a habit that you don’t have to think about.

Here’s how. Take money out of your pay as soon as it comes in, before you pay bills, and send it to Kernel, or a savings account (or wherever you’ve decided to put your savings).

This process should be an automated transfer, set up in advance, so that as soon as your pay arrives, it’s gone to fund your future. At first, you might miss the money, but eventually you’ll get used to it and may not even notice.

Too easy.

The process of putting money aside is the easy bit. Figuring out how much you can afford, budgeting, and trimming unnecessary costs may be a bit harder.

The trick is to take a really good look at your finances and make a solid plan right away:

• Look at your bank statements to get a clearer idea of how much you spend every pay cycle.
• Split these costs up into:

  1. Fixed and necessary spending on stuff like housing costs, basic groceries, petrol, and utilities
  2. Discretionary spending on stuff like eating out, subscriptions, clothing or holidays.
     
     If you need to trim your spending to save more, most of the reductions can come out of your discretionary spending.
     
     If things are really tight, you can also look at moving to reduce rent or mortgage, reviewing your insurance, taking advantage of the second-hand market, shopping around for a deal on utilities, or using less power.
• Figure out how much you can put aside each pay cycle once you’ve got a good idea of your spending. Make sure this number is achievable.

Once you’ve done this exercise, you may decide that you need to save more. If that’s the case, it’s time to trim a little fat from your spending, which can be really tricky, especially if there’s not much left over after bills.

Just remember - even a tiny bit of savings can go a long way, and if you’re only just getting by at the moment and can’t spare any money right now, it’s never too late to start saving in the future. If you start, you can also calibrate it over time so that you are better refining current needs with future desires.

Read more about the process of budgeting.

If you need to trim your budget, Money Hub has a great guide to cutting your household bills.

Looking at your finances and trimming the fat isn’t easy, especially if you’re new to budgeting. Thankfully, several tools can simplify the process, including a number of apps and websites that help automate the process (and provide useful insights powered by AI).

• Spendee App (free but with a paid version)
• PocketSmith (free but with a paid version)
• Wally Budgeting App (free but with a paid version)
• Sorted Budgeting Tool (free)
• Kernel budgeting spreadsheet (free - this one’s on us).

Read more about budgeting tools in our comprehensive guide.

We’ve covered the basics of budgeting and the best ways to save - but where should you put your savings? That depends on your financial circumstances. Here’s a list of priorities to think about.

Credit cards, Buy Now Pay Later, car loans, personal loans, payday credit, and other high-interest finance products suck cash out of your account, making saving much harder.

Like investments, the interest on these compounds, but unlike your investments, you’re not earning the interest; you’re paying it and the interest rates are often high. Yuck.

That’s why priority number one should be to pay this stuff off as soon as possible, starting with the highest interest rate. Read more about prioritising financial goals and paying off debt.

Note - we’re not including debt like student loans and standard mortgages in this category. It’s a good idea to pay these off, too, but they’re usually a lower priority than high-interest finance, and can be paid off over time while investing and saving.

Unexpected stuff happens all the time, whether a big bill at the vet, an unexpected job loss, or a broken-down car, this stuff can derail your finances if you don’t have money set aside.

The solution? An emergency fund. This is a separate source of funds that acts as a safety net when the unexpected happens. As a general rule of thumb, it’s a good idea to have at least three months' worth of living costs in your fund, but any amount will help.

Your fund could go into online savings accounts or cash funds. For some people, it can help to keep your emergency fund with a different provider so you’re not tempted to spend it in a non-emergency. Most true emergencies you normally have a day or two to pay the bill or get hold of the money.

Read more about how to set up an emergency fund and where to put it.

Now for the fun bit. Once you’ve got an emergency fund, you can start using your savings to reach your goals and plan for the future. The habits you set up when paying off debt and saving an emergency fund will serve you well here.

• Step one of this stage is to set a goal, or a few goals. They could be anything - to buy a home, retire at a certain age, go on holiday, or set your family up.
• Step two is to figure out how much money you’ll need to make those goals happen.
• Step three is to reverse engineer a plan to save and invest to get that money.

During this stage, you’ll most likely need investments to supercharge your savings. The good thing is, investing works pretty similarly to saving - once you’ve chosen suitable investments, all you need to do is keep up the regular habit of putting money aside according to your plan, and you’re golden.

• A savings account with a bank: these are easy to open and convenient, but generally pay a low interest rate. Make sure you’re aware of any fees, withdrawal periods, or withdrawal penalties.
• An online savings account: These often have a higher interest rate and lower fees than bank savings accounts. They’re also handy if you want to keep your savings away from everyday bank accounts to make them a little harder to spend. Check out interest.co.nz to find a list of current interest rates on savings accounts from most major providers, including Kernel.
• Term deposit: offered by most banks, these require locking your money away for a set period of time, and as a result, pay a higher interest rate than immediately available balances. Before depositing in these, make sure you know the withdrawal period and what penalties are charged for withdrawal. Check out current interest rates on term deposits.
• Cash funds: A cash fund is a portfolio of fixed interest securities and cash and cash equivalents managed by a fund manager. They hold investments such as term deposits, savings accounts at banks, and bonds. They are broadly diversified and usually feature higher returns than savings accounts and many term deposits. Check out the Kernel Cash Plus Fund.

Read more about saving options in NZ

• Bonds
• Managed funds, including index funds
• Individual shares
• KiwiSaver. Read the Kernel guide to choosing a KiwiSaver fund.

When you’re saving for a longer-term goal, it’s a good idea to put your money into investments that should earn a higher return. They may feature higher volatility (more pronounced and frequent changes in value), but by investing over the long term, you smooth the bumps and significantly increase your chances of a higher overall balance.