How to get your finances in order – top 10 tips to help you get you started
This is a short question but not a short answer. Also, there may be a different answer for each individual. We do need to make and complete a 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. Below I have tried to give you 10 of the most common needs.
1. Having an emergency fund to cover unexpected expenses
Keep at least three to six months’ net annual income in a totally accessible deposit account for emergencies, sudden loss of income or 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 off 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 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, for smokers is to give up for 12 months – your insurance premium will be about half the cost, as well as the health benefits. Also remember if you have dependents, you should have separate life cover until your youngest’s completion of 3rd level education to cover costs in case anything happens to either one of you.
6. Starting a pension plan (it’s never too early)
There is such a reluctance 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 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 can still be difficult obtaining mortgage approval and finding the funds for a deposit is as difficult, meeting the income requirements of 3.5 times your income, where twelve years ago that was five times and in some cases even up to eight times. (FTB will soon get 4x income)
Those with mortgages should be reviewing their rates and if they can obtain a better deal – move lender! And don’t forget the Help to Buy Scheme for first time buyers buying a new or self-build.
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. Beware of falling into the Personal Contract Plan (PCP) trap as this 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
It costs a lot more than you’d think to send ONE child through 3rd level education in Ireland. 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. However, most families use this money for living purposes.
10. Building up your personal investments
For clever investing, large or small 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.