BY JOHN LOWE
Top 10 financial needs
It is important to know what you are spending and where you are spending it. Keep a diary, or how about downloading a specialised phone app (e.g. the Money Doctors app) and record your spending for 4-5 weeks or a calendar month. Request a report and receive:
• Your top five spends
• The total amount spent
• lots more useful information to help you drill down into your spending habits.
Whenever I start a new health drive, I realise how unfit I am but become determined to maintain and achieve targets.
Finance should be treated in the same manner. We do need to face reality, so 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, here are my top 10 financial needs:
1. Have an emergency fund for unexpected expenses
Usually three to six months net annual income in a totally accessible deposit account (best demand rate 0.01% gross from KBC Bank and Permanent TSB) for emergencies, sudden loss of income and that once-in-a-blue-moon investment opportunity.
2. Pay off any personal loans and credit card debt
To repeat, 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 ... best of the balance transfer deals is An Post Money’s 12 month offer at 0%.
3. Short-term saving for cars, holidays etc
Holidays come around every year so there is no point in taking a three-year loan for your summer holiday unless you plan to sit at home for the next two years after the holiday!
4. Income protection, in case you are unable to work for any reason
This also has then added benefit of being the only type of insurance (outside of a non-assignable life policy in your pension) that attracts tax relief at your marginal rate of tax. This is especially relevant 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.
Also remember if you have dependents, you should have standalone joint live cover until your youngest’s completion of third level education in case anything happens to either one of you.
6. Starting a pension plan (it is never too early)
I could write a book on this, there is such a problem in this country. 20 to 30 years time, I believe the government then will not have the money to support the State Pension (as at January 2022 it is € 253.30 per week ) for the 1.8m pensioners at that time. We all need to address this now whatever age – so start a pension plan.
7. Buying a home with the help of a mortgage
It is still difficult obtaining mortgage approval and finding the 10% deposit ( 20% for second-time borrowers ) is as difficult as meeting the income requirements of 3.5 times your income. Mortgages should be reviewed yearly – and don’t be afraid to move if you can get better terms.
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 (e.g. when buying a car) 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 costs €42,000 to send one child through third- level education in Ireland, and that’s without third-level fees that are bound to be introduced in
the coming years (currently just registration fees). Saving your Child Benefit payments from day one (€140 per month per child) and earning no interest will yield € 28,560 when it stops on the child’s 18th birthday. Most families use this money for rearing their children.
10. Building up your personal investments
The buzz word is ‘diversification’ – in other words, don’t put all your eggs in one basket. While the stock market is the best return of all asset classes over any period of time, timing is essential.
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.
Those with ARFs (Approved Retirement Fund pensions) still need to manage their monies as they need to produce at least 5.5% return each year matching the imputed distributions and annual management charges on their pensions, otherwise they will run out of money.
And that’s not all!
CHANGING mortgage provider might seem like a lot of unnecessary hassle with all the paperwork etc – but is it worth it?
The simple answer is, yes. You could potentially save hundreds a month, thousands a year and perhaps tens of thousands over the lifetime of your mortgage if you’re willing to endure a certain amount of bureacratic bother.
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.
And don’t stop at your mortgage. Comparison websites like bonkers.ie or switcher.ie are invaluable when it comes to rooting out the best offers in not only mortgages, but loans, insurance premiums, deposit and current accounts, credit cards and lots more.
Energy bills are a constant drain on household finances and the ‘switching’ logic applies here too. Many providers offer deals for new customers and there is no real limit on how many times you can change provider over the course of your bill-paying lifetime.
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, and it looks like things might stay that way to a large extent now, even though the pandemic is (hopefully) largely behind us.
You may well be eligible for tax relief on expenses like light, heat, telephone and broadband as a result of working from home.
TV bills
Satellite TV packages can be substantial. 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 programmes, series and films 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 licence. 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 licence.
Smartphone savings
Buying your own phone and opting for a pre-pay plan makes much more financial sense than bill-pay plans that tie you down to long-term contracts. There are numerous options out there and if you shop carefully, you could save yourself hundreds of euro a year.
Shopping
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: 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 we’ve said it before – don’t shop on an empty stomach – research confirms we spend more and buy more high-calorie and junk food when hungry!
This is part two of a two-part series of finance in 2022. Read part one here.
John Lowe, QFA, APA Debt Mgt MCC, PIP, Dip.Iod., Fellow of the Institute of Bankers, is owner & managing director of Providence Finance Services Ltd trading as Money Doctors, Stillorgan Co Dublin.
He is author of Money Doctors 2022. [email protected]; www.moneydoctors.ie. Social Media - Facebook, Twitter (@themoneydoc) Linkedin, Instagram & Pinterest.
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