Financial planning fundamentals
The financial planning pyramid
Protection first, then growth
Financial planning isn't just about growing wealth. It's about building on solid foundations — and the order you build in matters.
The financial planning pyramid is a simple model for thinking about that order. Each layer needs to be stable before the one above it makes sense.
Layer 1 — Protection (the base)
Before you invest a dollar, make sure a crisis can't wipe out what you have.
This layer includes:
- An emergency fund (three to six months of essential expenses)
- Income protection insurance — if your income stopped tomorrow, could you cover your costs? Could you support your family?
- Life insurance — if you have dependants, is their financial position protected if something happened to you?
- Health insurance — depending on your situation and public health waitlists, this may be relevant.
In NZ, ACC covers a lot of accident-related income loss, but it doesn't cover illness. A long-term illness without income protection is one of the most common causes of serious financial hardship.
This layer isn't exciting. But it's the reason the rest of the pyramid doesn't collapse.
Layer 2 — Stability
Once you're protected, build stability:
- Consumer debt cleared or under control
- An accurate budget with a positive savings rate
- KiwiSaver contributions at a level that captures the employer match and member tax credit
- A clear picture of your net worth and whether it's growing
This is where most people spend most of their financial lives — and where SortMe is most directly useful.
Layer 3 — Growth
With a stable base, growth becomes the focus:
- KiwiSaver optimised (right fund, right contribution rate)
- Additional investments outside KiwiSaver — managed funds, shares, property
- Mortgage paid down strategically
- Wealth building with a long time horizon
Growth without protection and stability is fragile. A medical event, job loss, or market shock can undo years of progress if the base layers aren't solid.
Layer 4 — Optimisation (the top)
The top of the pyramid is where tax planning, estate planning, and wealth structuring live. Most people don't need to think deeply about this until their net worth is substantial — but it's worth knowing it exists and that professional advice becomes more valuable here.
How to use it with SortMe
Use SortMe to assess where you sit in the pyramid. Do you have an emergency fund? Is your debt under control? Are you saving consistently? Those answers tell you which layer you're working on — and what to focus on next.
When to get advice
The jump from Layer 2 to Layer 3 — moving from stability to active growth — is where a financial adviser adds the most value. Getting the investment strategy, KiwiSaver fund, and insurance mix right requires a view of your whole situation. Naked Finance works with SortMe users to navigate that transition.
These articles are financial education, not personalised financial advice. For advice specific to your situation, talk to a licensed financial adviser.