Mortgages, pensions, money-saving tips – if you’re savvy and proactive, you might be able to save yourself thousands of euro in 2021
Switch mortgage providers
Paperwork, legal fees, valuation fees – changing mortgage provider is a bit of a pain. Is it worth the hassle? Yes. Say your house is worth €250,000 and you have €200,000 left to pay over a 20-year term. According to the bonkers.ie mortgage calculator, monthly repayments could range from €1,031 to €1,233. That’s a difference of €202 per month, or €2,424 per year, or a staggering €48,480 over the term of the loan. Of course, these figures likely exaggerate the extent of the savings on offer, as your own mortgage rate is likely much lower than the highest rate on the market. Still, the reality is people tend to go to great efforts to get a competitive interest when applying for a mortgage, only to end up overlooking the ongoing maintenance costs.
Additionally, many lenders are offering cashback mortgages of up to 2pc to new customers. Importantly, there are no clawback conditions on these cashback offers so you’re free to switch again as soon as you want. The MoneyGuideIreland website gives the example of a person with a €300,000 mortgage who (in one year!) switches mortgage to PTSB followed by a switch to Bank of Ireland and then EBS and finally to KBC. Doing so would result in €21,000 cashback; take away estimated legal fees of €5,000 and you’re left with €16,000 in profit. The hassle factor is significant, of course, and your bank manager might not be too happy, but it might be worth weighing up the pros and cons with your financial advisor.
Start saving into a pension
Interest rates have been effectively zero for years now. This, coupled with pension tax incentives and the fact that the age of eligibility for the State pension is expected to rise over time, means it makes a lot of sense to start saving into a pension. This is especially the case if your employer offers you a pension. Some companies will offer to match your own pension contributions; as Zurich Life points out, your €100 and your employer’s €100 adds up to €200, but it only costs you €60 due to tax savings.
The earlier you start, the better; roughly speaking, a 10-year delay doubles the cost of your pension contributions. Indeed, even that fact doesn’t quite capture the magic of compound interest in this regard. Let’s say you start saving €3,000 a year into your pension fund at the age of 20. You save for 10 years and then you stop, leaving the savings in the fund for the next 40 years. Assuming your fund returns 7 per cent annually, it will be worth over €709,000 at this stage – not bad for a €30,000 investment (€3,000 annually for 10 years). Alternatively, let’s say you wait until you are 30 to start saving €3,000 a year into the fund and continue doing so for the next 40 years, earning the same 7 per cent annual return. At the end, your fund will be worth almost €644,000. That is, you have less money, even though you invested four times as much money as the 20-year old.
In reality, few 20-year-olds are investing into a pension; the average age to start a pension in Ireland is 37, according to Irish Life. Of course, it’s never too late to start; it just means you will need to invest more money every month.
Equities, although volatile, have historically provided the best returns for long-term investors. Your financial advisor can advise you on how best to assemble a low-cost, globally diversified portfolio that matches your risk tolerance.
Claim your tax reliefs
Medical expenses, overpayment of tax, claiming expenses, tuition fees, flat-rate expense allowances for particular professions – there are many ways of claiming back money from the taxman. There is a four-year time limit for claiming tax refunds and the process can easily be done online via Revenue’s MyAccount service. More people than ever before are working from home as a result of Covid-19, so you may also be eligible for tax relief on expenses like light, heat, telephone and broadband.
Satellite TV packages can be hefty. A much cheaper alternative is to opt for a Saorview-approved TV which allows you access innumerable free-to-air channels. Alternatively, you might consider ditching the TV entirely and instead accessing your favourite Irish and international programmes online. UK channels such as Channel 4 and E4 are freely available online, while people can use a virtual private network (VPN) to access BBC’s iPlayer. Scrapping the TV allows you to avoid the €160 TV license. Note that this means not having a TV in your house; if you have an unused TV in your attic, you still have to pay the license.
Half of all mobile phone users are bill-pay customers, with an average monthly spend of €42, according to a 2019 Comreg survey. However, buying your own phone and opting for a prepay plan makes much more financial sense than plans that tie you down to long-term contracts. Right now, Three’s subsidiary brand, 48, offers all calls and texts as well as 100gb in data for just €10.99 a month, while GoMo has a similar plan for €12.99 monthly. Either package will save you hundreds annually.
Track your spending
It’s hard to cut down on your spending if you don’t know where your money goes every month. Tracking every purchase made over a few weeks will help in this regard. Similarly, it’s easier than ever before to check your online bank statements, which might remind you that you have subscribed to services you no longer use.
Wherever you shop for groceries, it’s often worth choosing the cheaper generic goods produced by the supermarket multiples as opposed to the usual brand names.
A few other tips: take your own bags to the store rather than paying up to 70 cents for a bag bought at the checkout; buy non-perishables in bulk if there’s a genuine discount; make a shopping list beforehand and stick to it, rather than succumbing to impulse buys; and don’t shop on an empty stomach – research confirms we spend more and buy more high-calorie and junk food when we’re hungry.
The government introduced a stay-and-spend scheme to encourage the hospitality sector over the October-April period. You can claim the income tax credit for money spent in holiday accommodation or “eat in” food and drink. The minimum spend is €25 per transaction. You must submit a copy of your receipt with the claim and the maximum tax credit available is €125 per person. In other words, if you spent €625 in qualifying expenditure over that period, you can reduce your tax bill by €125. The long winter lockdowmeansmany people have forgotten about this scheme, but if you have receipts from October 1, you should submit them to Revenue and save yourself a few quid.
Get the right advice
Consulting with an independent financial adviser (IFA) is a great way to plan out a sound financial future for you and your family. An IFA can help you with investing or saving your money, planning for your retirement, making the most of a lump sum such as a redundancy payment or an inheritance, buying a property or taking out a mortgage. They can also help with things like insurance requirements, tax and they can give sound financial advice if for example you are thinking of starting a family.
Shake it up
Many people are slow to change their utility (e.g. electricity, gas) supplier, mainly because they expect it to be an overly complicated, and perhaps fruitless process in the end. The reality is however that it is surprisingly simple and there are often significant savings to be made over the course of a year – often amounting to hundreds of euro. Check out sites like Bonkers.ie or Switcher.ie where you can easily compare rates for the various providers, and if you choose to go ahead and switch you will be guided through every step of the process via the site.