Reader case study 3: Low income earner wanting to dip toes into investing

Welcome to our third reader case study. This is where I encourage you, the readers, to write in with your situation that you want looked at.

I do my best to answer your questions and provide recommendations for your situation. I also encourage you to post your thoughts in the comments sections to help out our subject.

Today, we have Kelly (not her real name) wanting to know how she can start investing.

Kelly’s email in bold.


I find your blog really useful and am so pleased to have come across it. It has guided me in my first steps to financial independence.

My situation:
I am a hesitant and nervous investor. Not knowing much about investing and how to choose where to place my hard earned coins (also finding analysis paralysis my issue).

I prefer to keep safe and build my bank balance up and put in the maximum percentage into KiwiSaver. I was earning well and (I think) I saved well. Sadly a LOT (70%) of my cash savings is gone after a poor choice in partner so my life has taken a dramatic turn at age 34: I quit my job and became a full-time stay-at-home-solo-mom to a 1 year old.

With my new lifestyle choice I’m very keen to increase my passive income (why be defined as single income just because I’m single!?) and invest long term.

I am luckily able to work remotely so there is some active income coming in but I will not be full time for a while longer yet, if I can! My income has literally dropped by 2/3rds from what it was and I’m only just keeping my head above water. I’d like to get smart with money and stop hiding behind the ‘it seems scary and risky so I’ll just think about it a bit more’. I’d love some advice please.

I’ve started my journey investing through InvestNow with NZ Top 50 but would love to develop a strong portfolio. I want to ensure I’m financially secure for my (and my child’s) future and so that I don’t have to rely on the dreaded ‘single income’.

My financial goal is to build up some passive income, and one day buy a house. I’d also like a comfortable retirement.

I rent out a self contained cottage on my parents property, that includes electricity, internet, food, and some childcare costs.

I'm a full time stay at home mum and IT professional. While my child sleeps I do approximately 8 hours work a week from home, a post-tax income of $30K.

My monthly expenses are:

  • Board (includes food, electricity, internet): $1,120

  • Mobile phone: $55

  • Health insurance: $270

  • Play centre: $25

  • Debt: $867

  • Miscellaneous: $30


66k (ANZ growth fund)

Non – Kiwisaver investments
Ryman stocks - $700
Vector stocks - $1,200
Investnow NZ50 fund - $1,000

Savings 22k


Monthly income (after tax)

Monthly expenses

$17,000 personal loans. Both loans are at an interest rate of 5.5% and repayments are $100 per week.

Fixed assets

Investments or savings
Savings $22,000
Non – kiwisaver investments: $2,900
Kiwisaver: $66,000

Total assets - $90,900

Net worth - $73,900
Monthly budget surplus - $130. Although $100 of this is going towards:

  • Investnow fund ($50 a month)

  • Savings account ($25 a month)

  • Kiwisaver ($25 a month)

Life happens

A couple of years ago Kelly was cruising financially. A high paying job, married, and getting ready to buy a house.

A bad separation has resulted in her losing her deposit on a house, and is now a full time mum.

This has really put a halt on her financial progress through no fault of her own. Please don’t think you are invincible and bad things only happen because of bad decisions. Bad things can and do happen through no fault of our own, so take advantage of the good times.

She has done exceptionally well to adjust to her new lifestyle though. If she continued living like her old lifestyle, she would be spiraling into debt. She recognised early that her income is much lower than it used to be, and that something needed to be done to lower her expenses.

She has moved to her parents self contained cottage. She’s doing amazingly well keeping her expenses to less than $2,400 per month, and over one third of that is for debt repayments alone. She’s not allowing herself to spend money on travel, entertainment, and other leisure activities because she knows she can’t afford it. Smart.

I think Kelly will be fine. She recognises these sacrifices she is now making will only be for the short term in the grand scheme of things. Eventually her income will increase and she can make some real steady progress towards her goals of home ownership and a comfortable retirement.

She is only 34 after all and has time on her side.

In the meantime though, it does make it difficult to make investment recommendations when her monthly surplus is basically $0.

Let’s see what we can help out with.



1/. You have $22,000 in savings. Although it is great to have an emergency fund, this seems a bit excessive, since your expenses are only $2,367 per month. A typical emergency fund would only be 3 – 6 months of expenses. So $7,500 to $15,000 in your case.

You may have also earmarked this to contribute towards a house. I wouldn’t recommend buying a house when already in high interest debt. However, I would recommend using it instead towards your current debt. If you can pay off your $12,000 loan with these savings, then you will save $1,000 in interest payments and also free up an extra $433 a month.

This will still leave you with 4 months of expenses as an emergency fund - $10,000.

It makes no sense to save 2.5 or 3% after tax in a bank account, when you have debt with an interest rate of 5.5%. Effectively you are lending money to the bank and buying that money back but at a higher rate! It’s your money.

What you decide ultimately depends on your feelings towards emergency funds. Some people prefer a large safety net for those ‘just in case’ events. Whereas others prefer to take the financial advantage but with a lower emergency fund.

Besides, the emergency fund can also be rebuilt to a number closer to 6 months of expenses. Just because we depleted it slightly, doesn’t mean it must stay depleted. We have created an extra $433 a month in the budget. Some of that could be used.


2/.  Instead of sending $25 a month to your savings account, I would recommend using this to pay for your other $5,000 of debt.

Not only that, I would recommend using $400 of the $433 you created, and use this towards speeding up the repayments on the second debt. By paying $425 per month extra on your second debt, then you will save $75 in interest and have the loan paid off in 6 months. Then in 6 months you will have created another $433 a month available for deployment elsewhere.

3/. Then you will for the first 6 months be left with approximately $33 a month. I would suggest just using that as a back up savings. Maybe adding to your emergency fund in a high interest online savings account.

4/. You are heavily invested in NZ stocks. 100% in fact. I would recommend selling your individual stocks - $700 in Ryman and $1,200 in Vector, for two reasons. One, just holding stocks in two individual companies is highly risky and not at all diversified. These stocks are also included in your Investnow account so there is no point doubling up. Two, we need your portfolio to be more diversified to other geographies in case the New Zealand market tanks.

With that $1,900 I recommend looking at the other InvestNow funds since you know their system. To be well diversified, you really only need a world fund and maybe a bond fund or property fund. We will be treating your debt repayments as essentially a type of bond return, so in your case I would just invest this $1,900 in the Total World Fund (TWF). It is low cost and well diversified. It will give your portfolio the worldwide exposure it needs, leaving you with a 75% worldwide, 25% local split.

If you are worried about entering the market at a bad time, you can always spread the $1,900 payment out over 10 months at $190 per month. Or longer if you like.

Once you become more comfortable with investing you can consider other fund options. I explore several of them here.

5/. If however, your Kiwisaver contributions this year for the period ending 30 June have not reached $1,042, then I recommend using some of the sales of your shares to top up your Kiwisaver account. This will ensure you will receive $521 free money from the government. 50% return can’t be beat.

6/. 6 months later, and after your second loan is paid off, you now have $867 a month to play with, that you didn’t have before due to debt repayments.

I think you can split that up:

- $85 a month to Kiwisaver to ensure you get the $521 annual government tax credit

- $200 a month to the NZ50 fund

- $300 a month to the world fund

- $200 a month to a bond fund of your choice

- $85 a month towards rebuilding your emergency or house savings

Basically your debt repayments have been replaced with investments. By saving $860 a month you will make great progress towards your goal of passive income growth and potentially buying a house.

When you are less than 5 years from buying a home I recommend changing your Kiwisaver fund to a balanced or conservative fund, assuming you will be using Kiwisaver funds as a deposit. If you are planning to use any investment funds as a house deposit too, then you may want to consider rebalancing your portfolio so that you have more investments in bonds or other conservative savings vehicles.

7/. Your expenses are extremely low and I don’t have many recommendations there. I would ask though, $55 for a phone bill? Are you on a contract of some sort? If not, that is quite expensive and worth looking into.

Some people may claim that you don’t need to pay for health insurance in NZ. That is only a personal call that you can make. No one can tell you how you should feel about this.


Considering Kelly’s low income, in 6 months she could potentially be in a position to make great strides forward.

Living on expenses of just $1,500 per month (not including debt) is a big ask but she is doing it currently. When your income is low, the only option is to reduce expenses. If you can’t create a gap between your income and expenses, you will never get ahead.

Although Kelly wants to buy a house one day, she isn’t in a hurry to buy. This is great, as buying a house is a huge decision. Houses aren’t cheap. Only when she is in financially good shape, and willing to live in the house for a long time, should she consider buying.

If Kelly can somehow increase her income in the next few years, yet keep her expenses low, she will be able to save much more than $10,000 per year.

In the meantime, whilst her income is low, she must remain disciplined with her expenses. This time is a fantastic time to be a parent. Watching your child grow is a time that cannot be brought back so for now, income is taking a back seat.

It doesn’t always have to be this way. The current situation is only short term. As long as Kelly can keep her head above water for the next few months until her debt is paid off, it will only be upwards from there.

And finally, don’t forget to celebrate your successes. It isn’t easy to live so frugally for long periods of time. When you pay off your debt shout yourself a dinner or a bottle of wine.

This case study goes to show the impact of keeping expenses low and having in demand skills that can be used remotely. Kelly’s income is not the highest going around, and she has shown great discipline.

That’s all for today. If you’d like to be considered for a case study, feel free to flick me an email.

Chime in with your comments or suggestions for Kelly below. 

The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here