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 John Lowe of Money Doctors top 10 financial needs :
1. Having an emergency fund to cover unexpected expenses
Keep usually three to six months' net annual income in a totally accessible deposit account (best demand rate 0.15% gross from KBC Bank and Permanent TSB) for emergencies, sudden loss of income and that investment opportunity that only comes up once in a while.
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… best of the balance transfer deals is An Post Money’s 12 month offer at 0%.
3. Short-term saving for cars, holidays, and so forth
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
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 is especially useful 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, as well as the health benefits. Also remember if you have dependents, you should have stand-alone joint life cover until your youngest’s completion of 3rd level education in case anything happens to either one of you.
6. Starting a pension plan (in my opinion it is never too early)
I could write a book on this, there is such a problem in this country with starting pensions. In 20 to 30 years' time, I believe the government then will not have the money to support the State pension for the 1.8 million pensioners at that time. We all need to address this now, whatever our 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 second time borrowers) is as difficult, meeting the income requirements of 3.5 times your income. Twelve years ago that was five times and in some cases even up to eight times.
Those with mortgages should be reviewing their rates and if they can obtain a better deal – move! And don’t forget the Help to Buy Scheme for first time buyers buying new or self-build homes – ends 31st December 2019 unless extended in this month’s Budget.
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 costs €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 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. Currently, we are in the 2nd longest and 26th BULL (rising) market of all time, only three years shy of the longest (1987 – 2000 stopped by the DOTCOM bubble) but the next market is a BEAR (falling). 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. Email me for further information.