Money words, made plain.

Short definitions of the FIRE, KiwiSaver, tax and budgeting terms New Zealanders come across, with how each one shows up in your own plan.

  • 50/30/20 budget

    The 50/30/20 budget splits take home pay into 50% for needs, 30% for wants and 20% for saving and paying off debt.

  • Asset allocation

    Asset allocation is how your investments are split between types such as shares, bonds, property and cash.

  • Barista FIRE

    Barista FIRE is leaving full time work and covering part of your spending with flexible part time income while investments cover the rest.

  • Bright line test

    The bright line test taxes any gain on residential property sold within two years of buying it, for sales from 1 July 2024.

  • Coast FIRE

    Coast FIRE is having enough invested today that, with no more contributions, it could grow to your retirement target on its own.

  • Compound interest

    Compound interest is earning returns on your past returns as well as on the money you put in.

  • Debt avalanche

    The debt avalanche pays off the debt with the highest interest rate first while making minimum payments on the rest.

  • Debt snowball

    The debt snowball pays off your smallest debt first while making minimum payments on the rest, then rolls that payment into the next smallest.

  • Dollar cost averaging

    Dollar cost averaging is investing a fixed amount on a regular schedule, whatever the market is doing.

  • Emergency fund

    An emergency fund is cash set aside for unexpected costs or lost income, often three to six months of essential spending.

  • ESCT

    Employer superannuation contribution tax (ESCT) is the tax taken from your employer's KiwiSaver contributions before they reach your account.

  • ETF

    An exchange traded fund (ETF) is a fund you buy and sell on a stock exchange, usually tracking an index.

  • Fair dividend rate

    The fair dividend rate method treats 5% of the opening market value of your offshore investments as taxable income each year.

  • Fat FIRE

    Fat FIRE is reaching financial independence with a larger portfolio that supports a higher spending lifestyle.

  • FIF rules

    The foreign investment fund (FIF) rules tax New Zealand residents on overseas shares and funds once their total cost goes over $50,000.

  • FIRE

    FIRE stands for financial independence, retire early: building enough invested wealth that work becomes optional.

  • FIRE number

    A FIRE number is the invested amount you need for your investments to cover your yearly spending, often 25 times annual spending.

  • Fund fees

    Fund fees are what a fund manager charges each year, usually as a percentage of your balance plus any fixed dollar fee.

  • Index fund

    An index fund tracks a market index, such as the NZX 50 or S&P 500, instead of picking individual shares.

  • Inflation

    Inflation is the rise in prices over time, which means the same dollar buys less each year.

  • KiwiSaver

    KiwiSaver is New Zealand's voluntary workplace retirement savings scheme, generally locked until you turn 65.

  • KiwiSaver first home withdrawal

    A KiwiSaver first home withdrawal lets you take out most of your KiwiSaver savings to buy your first home, after at least three years as a member.

  • Lean FIRE

    Lean FIRE is reaching financial independence with a smaller portfolio built around lower, frugal spending.

  • LVR

    A loan to value ratio (LVR) is the size of a mortgage compared with the property's value. An 80% LVR means a 20% deposit.

  • Marginal tax rate

    Your marginal tax rate is the rate of income tax you pay on your next dollar of income.

  • Net worth

    Net worth is everything you own minus everything you owe.

  • NZ Super

    NZ Super is the New Zealand government pension paid from age 65 to residents who meet the residency rules.

  • Offset mortgage

    An offset mortgage links your savings and everyday accounts to your home loan, so you only pay interest on the loan balance minus those savings.

  • Open banking

    Open banking lets you securely share your bank data with apps you choose, without giving them your banking password.

  • PIE fund

    A portfolio investment entity (PIE) is a New Zealand fund taxed at each investor's prescribed investor rate, capped at 28%.

  • PIR

    Your prescribed investor rate (PIR) is the tax rate on your PIE and KiwiSaver earnings: 10.5%, 17.5% or 28% for New Zealand residents.

  • Real return

    A real return is an investment return after inflation, which shows how much your buying power actually grew.

  • Rebalancing

    Rebalancing is buying or selling investments to bring your portfolio back to its target asset allocation.

  • Revolving credit

    Revolving credit is a home loan that works like a large overdraft: your pay goes in, spending comes out and interest is charged daily on the balance.

  • Rule of 72

    The Rule of 72 estimates how many years money takes to double: divide 72 by the yearly return.

  • Safe withdrawal rate

    A safe withdrawal rate is the share of your portfolio you can spend each year with a low chance of running out, commonly 4%.

  • Savings rate

    Your savings rate is the share of your income you keep instead of spending.

  • Sequence of returns risk

    Sequence of returns risk is the danger that a market fall early in retirement drains a portfolio faster than the same fall later on.

  • Sinking fund

    A sinking fund is money you put aside regularly for a known future cost, such as insurance, rates or a holiday.

  • Term deposit

    A term deposit locks your money with a bank for a fixed time at a fixed interest rate.

  • Zero based budgeting

    Zero based budgeting gives every dollar of income a job, so income minus planned spending, saving and investing equals zero.