Having just started my first pilates class, I realise how unfit I am and am determined to maintain and achieve my targets. Finance should be treated in the same manner. 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, here are John Lowe the Money Doctor’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 rate 0.3% gross from KBC Bank )
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…
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!
4. Income protection, in case you are unable to work for any reason.
It also has the 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.
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 then will not have the money to support the State pension for the 1.8million pensioners at that time. We all need to address this now whatever your age.
7. Buying a home with the help of a mortgage.
It is still difficult obtaining mortgage approval and finding the 10% deposit ( 20% for 2nd-time borrowers ) is as difficult meeting the income requirements of 3.5 times your income.
Twelve years ago that was 5 times and in some cases even up to 8 times. Those with mortgages should be reviewing their rates and if they can obtain a better deal – move!
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 the 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 €28,560 when it stops on the 18th birthday. Most families use this money for living purposes.
10. Building up your personal investments.
The buzzword 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.
Currently, we are in the 2nd longest and 26th BULL (rising) market of all time only 4 years shy of the longest (1987 – 2000 stopped by the DOM COM bubble) but the next market is a BEAR (falling) but when will that be?
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 and AMRFs still need to manage their monies as they need to produce at least 5.5% return on their pensions otherwise they will run out of money. Caveat emptor.