Look after the pennies and the pounds will look after themselves was one wise old saying I remember from childhood…in other words, make sure you take care of the small details and rigorously check all financial transactions.
Wellbeing at the start of every year is the hot topic for most people. Physical and mental wellness are key resolutions for early January. In a recent survey, Grant Thornton found employees in the workplace all suffer from stress. They also found that 70% of that stress was financial. Adding financial therefore to that wellness list is now de rigeur and in January a really brilliant time of the year to address your finances as we cope with pandemics, wars, global economic uncertainty and changing financial circumstances. We need to face reality, we need to plan and complete that plan. Ultimately, financial planning is about tailoring a solution to meet your precise requirements. Having said this, there are a number of ‘universal’ needs that most of us face. So to start you off on your plan, you MUST complete a budget…know how much it costs to run your life on a monthly basis…then you can plan…email me for a FREE budget planner spread sheet.. has all the categories … nice and simple.. even tots itself up…here then are John Lowe of MoneyDoctors.ie’s 10 universal financial needs :
1.Having an emergency fund to cover unexpected expenses.
Usually 3 to 6 months net annual income in a totally accessible deposit account ( best demand deposit rate is 0.75% gross from An Post Money) for emergencies, sudden loss of income or that investment opportunity.
2. Paying off any expensive personal loans and credit card debt.
If you only pay the minimum balance of your credit card debt each month, it will take you up to 20 years to totally clear that debt ! A sobering thought… Transfer your card balance at 0% – best of them is An Post Money at an incredible 12 months.
3. Short-term saving for cars, holidays, and so forth.
Holidays come around every year so there is no point in taking a 3 year loan for your summer holiday unless you plan to sit at home for the next two years after the holiday ! Christmas loans should only be for one year.
4. Income protection, in case you are unable to work for any reason.
It also has then added benefit of being the only type of insurance ( outside of a life policy in your pension ) that attracts tax relief at your marginal rate of tax. This especially for sole earners in families.
5. Life assurance for you (and, if relevant, your partner).
Very few now smoke but an added incentive is if you do smoke to give it up for 12 months – your insurance premium will be half the cost apart from the health benefits. If you have dependents, they need to be protected in case anything happens to either parent right up to completion of their 3rd level education. You should also make a Will – young or old, once you have children and/or over € 25,000 in assets, you should make a Will…now launched on www.moneydoctors.ie/wills ….an 8 document Will package only € 50 + VAT .. you will never need a solicitor either for the drafting or when the time comes to process the Probate. Your executor/trix can do it themselves.
6. Starting a pension plan (in my opinion it is never too early).
My word I could write a book on this, there is such a problem in this country. 20 to 30 years time, I believe the government will not have the money then to support the State pension for the 1.8million pensioners at that time. We all need to address this now whatever your age. More than half the country’s working population are hoping to rely on that state pension when they retire as they have nothing else.
7. Buying a home with the help of a mortgage.
It is still difficult obtaining mortgage approval and finding the 10% deposit is as difficult meeting the income requirements of 3.5 times your income ( 4 times joint annual incomes for 1st time borrowers ). There are at least 6 lenders who will consider giving you more than this as they are allowed under the exemption rule…but be quick as these lenders run out by March/ April. 14 years ago that was 5 times and in some cases even up to 8 times. Those with mortgages should be reviewing their rates to see if they can obtain a better deal – don’t be afraid to switch !
8. Saving for major purchases.
We all need to save but especially for those larger items like a car, deposit for a house or extension. Falling into the Personal Contract Plan ( PCP ) trap means you have a revolving loan that never ends unless you save for that lump sum to pay off on maturity of the loan.
9. Planning for education fees (if you have children), whether for private school or university
It cost € 42,000 to send ONE child through 3rd level education in Ireland, and that’s without fees that are bound to be introduced in the coming years ( outside of registration fees ) Saving your Child Benefit from day one ( € 140 per month ) and earning NO interest will yield € 30,240 when it stops on the 19th birthday. Most families use this money for living purposes.
10. Building up your personal investments.
The buzz word is “diversification” – don’t put all your eggs in one basket. While the stock market is the best return of all asset class over any period of time, timing is essential. The year has been volatile but still “on the up” since the start of the year despite wars in Gaza Lebanon and Ukraine… gold is a good barometer of the volatility.. 8 years ago you could buy the precious metal at $1,000 per troy ounce. Today it is well over double that.
To this, I suppose I might add long-term care planning if you’re worried that your pension and/or the state may not provide for you sufficiently in retirement. For example, those with ARFs still need to manage their monies as they need to produce at least a minimum 5.5% return on their pensions each year otherwise they will run out of money. Caveat emptor.