For many people lockdown has been a nightmare: their employment is on hold, COVID payments are being relied upon to keep the home fires burning, and lockdown is causing issue after issue.
For others, it has been a revelation. They can do the job they were doing at home, their incomes have been maintained and, because of COVID, they can’t spend their money on things other than household costs and online.
For many of the latter fortunate ones, they also have built up a tidy sum in savings – much more than they could ever have normally. John Lowe of MoneyDoctors.ie suggests five prudent uses for those hard earned savings…
1. Rainy day fund
I have always recommended you should have between three and six months net annual income in your Rainy Day Fund for 3 reasons –
- Emergencies (e.g. your clutch goes)
- Sudden loss of income (e.g. your hours are cut)
- Investment opportunity (e.g. your first house deposit )
So this is a good time to check your RDF and ensure liquidity is maintained.
2. Deal with debt
Short term high interest debt – that kills your income – your number one asset. You should allow a maximum 35% of your net annual income to maintain your financial commitments (mortgage/rent, car loans, personal loans, family loans, etc.) so if you do have short term debt, make additional payments to pay it off more quickly or pay if off altogether if you can
Credit card debt (could transfer it to An Post Money as they give you 15 months to repay at 0% interest ) and home loans (the cheapest form of borrowing in Ireland) - I would leave those two alone or until you have surplus funds in addition to your other requirements to address those liabilities.
3. Stock Market
The surplus then could be invested into a regular stock market saver account.. over any 10 year period, the stock market has always been the best return of any asset class… the two I like in particular are Zurich’s LifeSave Special Savings Plus account featuring their flagship fund Prisma – minimum €75 per month, maximum €2,500 - and Irish Life’s Pinnacle regular stock market saver account – minimum €250 over month featuring their flagship fund Multi Asset Portfolio fund (MAPS) with their safety feature Dynamic Shares to Cash.
This is a minimum five year investment as there are reducing penalties from 5% to 1% for withdrawals during this period, after five years no withdrawal penalties - an ideal savings vehicle for 3rd level costs.
There are 57.6% of the working population with absolutely no provision for their retirement other than hoping the State Pension will still be there when they do retire. So if you do have some surplus funds you could pay a lump sum into a pension fund to maximise your tax relief to start the ball rolling. Aged 40 to 50?
You could invest up to 25% of your net relevant earnings… the surplus funds would certainly help you achieve this as most employees cannot afford to pay anywhere near their eligible thresholds. If eligible, it is probably the best investment in Ireland. Take advice here.
5. The Deposit Protection Scheme
The Deposit Protection Scheme is still protecting so your money is safe up to €100,000 per person per institution and all NTMA State Savings including prize bonds are guaranteed by the government.
Alternative investment strategies include art, philately, numismatics, rock 'n roll memorabilia, wine investment, scripopoly, first editions and precious metals (gold has doubled in valued over the last five years) so whatever you’re interested in, now you can pursue and profit from that interest.