Hi there,
Back in January, I shared our financial journey with you. One of the biggest challenges to home ownership is saving for a deposit, especially with the rising cost of living!
Here are two simple strategies to boost your home deposit using KiwiSaver:
Get a 50% return on investment (ROI) with government contributions
If you contribute at least $1,042.86 to your KiwiSaver account between 1 July and 30 June each year (just $20 per week), the government will contribute $521.43 through the KiwiSaver Government Contribution. That’s a 50% return on your investment – far better than any savings account!
If you’re a full time employee and contribute at least 3% of your salary, you’re likely already meeting this threshold and will automatically receive the government contribution. However, if you’re self-employed, a full time parent, or a student, you’ll need to make voluntary contributions to qualify.
Harness the power of compounding returns
Compounding returns occur when your returns earn returns, helping your KiwiSaver savings grow faster over time. The higher your starting balance, the greater your long-term gains.
For example, using Sorted’s assumption of a 4.5% annual return for a growth fund, here’s how compounding might look:
| $10,000 Starting BalanceYear 1: $10,000 x 4.5% = $10,450Year 2: $10,450 x 4.5% = $10,920Year 3: $10,920 x 4.5% = $11,414 | $100,000 Starting BalanceYear 1: $100,000 x 4.5% = $104,500Year 2: $104,500 x 4.5% = $109,702Year 3: $109,702 x 4.5% = $114,639 |
Each year, returns build on previous growth, increasing the amount earned. And this example doesn’t even include your own contributions, employer contributions, or government contributions, which further accelerates your KiwiSaver account!
Even though both accounts grow at the same rate, the person with a higher balance benefits more in dollar terms. That’s why it’s worth contributing as much as possible early on to maximise long-term gains.
Why increase contributions to your KiwiSaver account
In New Zealand, the minimum KiwiSaver contribution is just 3%, but in Australia, their superannuation rate is already 11.5% and increasing to 12% this year!
If possible, consider increasing your contributions to your KiwiSaver account to 10%. It’s one of the best ways to build your balance faster and take full advantage of compounding returns. You can find out more about how to increase KiwiSaver contribution rate here.
If you or someone you know would like to chat about KiwiSaver or securing your first home, click below to get in touch:
Looking forward to helping you on your journey!
Warm regards,
Bourne Wong
