Simulators fascinate me. Flight simulators. Simulators made into video games. They allow you to experience areas of life you may not otherwise.

When investing, I’m looking to simulate where investments could go. What’s the worst-case scenario – and the best?

In fact, one of the most important lessons I learnt in personal finance comes from a video-game simulator.

Sid Meier, a Canadian programmer and church organist, is behind one of the best video-game concepts ever. In 1991, he created Civilization for MicroProse Software. I played it as a Taranaki teen on an IBM 386.

What do you do in Civilization? You start in 4000 BC and ‘Build an Empire to Stand the Test of Time’.

Start with technologies like pottery, the wheel, and the alphabet and move through the ages to nuclear fission and spaceflight.

But your civilisation will only prevail if you exercise knowledge and skill to put certain things in place. And against the computer or other players, it’s a race against time.

Source: Wikimedia

The lesson for personal finance

In playing Civilization, you learn what that puts a civilisation on the road to success.

For early societies, the most crucial addition is the granary.

Economic history tells us that the key for a society to get ahead and prevail comes down to generating surplus and having the ability to store that surplus.

That was the function of the granary. It ended hand-to-mouth living, enabling people to store the bounty of harvest and concentrate on developing other technologies.

Early Chinese granary — an early symbol of a farmer’s strength and wealth. Source:

The principle works the same for households. Those who can generate surplus will get ahead. Particularly now, when modern finance provides ways not only to store your surplus but turn it into a wealth-generating machine.

Many Kiwi households have forgotten the time-honoured principle of the granary

It was a shock the other week to see the release of the report on Kiwi savings versus global savings. This is based on OECD projected household savings for 2020 as a percentage of disposable income. Kind of vital, showing us where savings are going across a range of developed countries.

Within the OECD, we currently sit at the bottom of the savings league, with a projected savings rate of
-1.23%. This sits just behind unemployment and debt-lumbered Spain at -1.94%.

Switzerland leads the pack with a savings rate of 17.64%. That could be a bit skewed since Switzerland is a safe harbour to the banking and funds industry. Yet Swedes save 16.34% of their income, Hungarians 10.77% and Germans 9.94%. Even the allegedly hedonistic Aussies manage 2.1%.

Wealth comes from savings, which comes from generating surplus

The Millionaire Next Door: The Surprising Secrets of America’s Wealthy was published in 1996.

Authors Thomas Stanley and William Danko set out to study the make-up of millionaire households in the US.

Attempting to woo their upscale targets, they ran a focus group offering a case of 1970 Bordeaux and three kinds of caviar in a posh Manhattan penthouse. Much of the catering was consumed by the trust officers in the next room, while the decamillionaires nibbled at the crackers and ordered Budweiser.

Turns out the bulk of America’s millionaires live in ordinary houses in nondescript neighbourhoods, drive old cars, have been married to the same spouse their whole lives and run dull businesses like scrap metal yards, accountancy practices, and fast-food restaurants.

I’ve just finished reading The Next Millionaire Next Door: Enduring Strategies for Building Wealth. (2018).

In 2015, Thomas Stanley was out driving his 2012 Corvette when he was T-boned by a drunk driver. Stanley died from his injuries.

Thomas J Stanley, 1944-2015. Source:

His daughter, Sarah Stanley Fallaw, took over his research to follow up on the original Millionaire Next Door with The Next Millionaire Next Door.

Turns out, America’s millionaires haven’t changed very much. They’re bling-free frugal. So they generate surplus to save and invest.

The US saves much more than we do. Their projected household savings rate for 2020 under the OECD survey is 7.03%.

Why is it so hard to generate surplus and savings in New Zealand?

Four reasons:

  • Low real wages.
  • High debt.
  • High cost of housing and living.
  • Poor financial education.

In 2016, adjusted for purchasing power, Australians earnt on average 32% more than New Zealanders. Americans 52% more.

NZ household debt sits at 164% of income (2018). It’s less than half that in the US.

Meanwhile in Auckland, March 2019 house prices still ran at 9x household income (10x on the North Shore), making it one of the most expensive cities anywhere in the world. A multiplier of 3x is the accepted marker of affordable housing.

As for financial education? Many households spend more than they earn. That’s not sustainable. As the property market turns some may learn that the hard way.

What should you do to generate surplus?

Increase your earning power. Go offshore if you can’t earn what you’re worth in NZ. Start a business so you can earn market price rather than employer price.

Clear debt. Don’t take on debt at silly multiples. Don’t buy in Auckland if you can’t afford it. Trust me, I’ve lived here on and off for 20 years. Much of this town is a traffic-strangled anthill. There are easier places.

Avoid — in fact, boycott — home auctions. You’ll get a lousy deal if you must bid to complete. Buy after things are beaten down.

Read Stanley’s The Millionaire Next Door and The Millionaire Mind. Adopt some frugal habits. Drive an older car. Get your T-shirts at The Warehouse.

And when you have some surplus, use it to boost your income.

Surplus boosting income

I used to own a rental property. After all the costs, it was hard to break even. You can be cash-flow positive, but that doesn’t mean the positive part leaves much.

You’ll likely need numerous leveraged rental properties to generate meaningful positive cash flow. Then you’ll be working hard as a landlord. And if the property market bubble continues to deflate, real gains may not come.

Dividend-paying shares can offer the best of both worlds. Strong cash-flow yield. Good prospects for capital growth — if do your homework and invest in the right businesses.

Look at some of the juicy dividend yields on these Kiwi stocks:

NZME Ltd [NZX:NZM] — 20.58%

The Warehouse Group Ltd [NZX:WHS] — 9.74%

Spark NZ Ltd [NZX:SPK] — 8.75%

Z Energy Ltd [NZX:ZEL] — 7.64%

Of course, there are risks. Dividends depend on the company’s dividend policy; dividend cover and future earnings. Again, do your homework or get a manager.

The important thing with investing is just to start.

Put in place a granary and start stocking it for a fertile future.


Simon Angelo

Analyst, Money Morning New Zealand

Important disclosures

Simon Angelo owns shares in NZME Ltd [NZX:NZM], Spark NZ Ltd [NZX:SPK] and Z Energy Ltd [NZX:ZEL] via wealth manager Vistafolio.