Time for a financial MOT

As we press reset in different areas of our life, at the start of 2022, it’s a good time to take a look at your finances. PAM RYAN catches up with a Cork financial advisor to get tips on everything from debt to savings and pensions
Time for a financial MOT

It's a good time to carry out a financial MOT. Picture: Stock

ONE of the main stressors in life for many people is money - where is it coming from and where is it going.

Doing your own financial review regularly is a good recommendation, however, sometimes we need advice from a professional to help us help ourselves.

Elaine Wilson, ACCA, LIB, QFA, Financial Planner and Director at SurePlan Financial, is the Financial Fairy Godmother, who “gives the advice I’d give myself”.

Here she shares some valuable tips and advice for anyone carrying out a financial MOT as we settle into 2022.

You need to know where savings - either short, medium or long-term - are best served in order to maximise your investment. Picture: Stock
You need to know where savings - either short, medium or long-term - are best served in order to maximise your investment. Picture: Stock

Save, Save, Save! But where?

Some of us have more savings in our bank accounts now than ever before, due to Covid-19 reducing some of the ways in which we would normally spend our money, eg, little or no holidays, meals out, clothes shopping splurges.

If this money is just sitting in your current account, it might be time to make it work a bit harder for you.

“When it comes to savings, everything is measured against time,” says Elaine Wilson. 

“When do you need your money? If you need your money within 12 months, in deposit.”

Deposit accounts are the perfect place for your emergency fund, holidays savings or setting cash aside for a wedding. According to this expert, if you invest this money in the short-term and there is a correction in the market or adverse returns, then you will be taking it out at a loss and nobody wants that.

Elaine says: “The second time frame is anywhere between 12 months and four years.”

For this medium timeframe the wisest options are to choose between deposit and investing, depending upon how easily you wish to access it, should the need arise – eg, new car needed earlier than anticipated, etc.

She continues: “And the third category is long-term, that’s five years plus. It is wisest to invest in that respect because the number one thing you want to do is keep ahead of inflation.

“If you put your money on deposit and it is there for 10 years, you are guaranteed to lose money because inflation will erode the value of your money.”

Bullet-Proof Your Retirement

Many of the workforce and retirees have a pension. But lots of others do not. It has been suggested that the State pension may no longer be a certainty once we reach retirement age, so having your own pension will bring great peace of mind.

According to Elaine, when it comes to pension saving, it comes down to two choices: affordability or when and how you want to retire.

She says: “Let’s say you want to retire at 60 and you want to have €2,000 a month in retirement, every month for 20 years. You will need a fund of, let’s say, €500,000 when you are 60. And if you are 30 now, how much do you need to save now to reach that?”

If you have done the maths and your current income will not help you support your retirement dreams just yet, something is always better than nothing at all.

“Affordability is looking at what income is coming in and what can you afford to set aside. 

"Let us say you are comfortable saving €100 a month into your pension. If you are on a lower tax bracket, you get a 20% tax break and if you are in the higher tax bracket, you will get 40% tax relief. So, I take my €100, and I add tax breaks on top of it. And if you are an employee and your employer pay a contribution into your pension, then I will add that again. If your employer says they will pay €150, you pay €100 and you are going to pay your tax refund at 40%, that is €66 in tax breaks, so that €316 would be going into your pension but it is only costing you €100.”

That’s not looking too bad now, is it?

Elaine Wilson, ACCA, LIB, QFA, Financial Planner and Director at SurePlan Financial
Elaine Wilson, ACCA, LIB, QFA, Financial Planner and Director at SurePlan Financial

Navigate Mortgage Applications

Due to the pandemic, and a change in spending habits, many people have saved and continue to save mortgage deposits quicker than ever. You might have your deposit all set to go and you’re ready to make your application - but you are asking yourself, how do I navigate this minefield?

“Go to a broker,” advises Elaine. “Do not go direct to the banks, because if you are going direct to banks, you are going with one bank, one criteria, one set of rules, one set of rates and one set of terms and conditions. And they differ unbelievably.

“Pay attention to fixed rates and don’t get caught up in bank gimmicks – a lot of people think cashback sounds great but nobody gets anything for free.”

As well as that, focus on buying a home and not a house.

“If you are thinking of buying your home, make the decision based on what’s right for you. And do not worry about the outside noise because when property prices drop, it will be too late. The event will have occurred. So, make sure that you identify your house in the right location, that has what you’re looking for. Make a priority list.”

Life Assurance is a Family Investment

Life assurance is an often-misunderstood expense. It is really an investment in your peace of mind and your loved ones’ financial wellbeing after you have passed.

Elaine says: “When you are thinking about what type of life assurance do I need, and how much do I need, you are looking at your circumstances. Number one, all the debt should be cleared from the proceeds of life assurance, such as mortgage, and then how much do we want to financially protect our loved ones.”

The latter refers to legal fees, inheritance taxes, funeral costs, and living with a lost income.

Income Protection

There will always be a pay cheque at the end of the month, right? Wrong, and the last two years have proved that.

Elaine says: “[Income protection] provides long-term security on your income. If you cannot work due to an accident, sickness, or illness, that prohibits you from doing your job. It’s probably the most important insurance that you can have.”

If affordability is an issue, you could insure 50% or 75% of your salary.

Specified Illness Cover

This covers you should you encounter an illness on a pre-specified list.

“It’s a lump sum that’s paid out. It’s paid out tax free, if you suffer from a specified illness. The main reason for claims is cancer.”

You do not need to be unable to work to receive your pay out. This illness cover could help you adapt your home if necessary, or maintain your family’s standard of living.

If you are struggling to get your head around investing in stocks, then seek out an investment manager. Picture: Stock
If you are struggling to get your head around investing in stocks, then seek out an investment manager. Picture: Stock

Interested in Investing?

According to Elaine, investing in individual stocks and shares is so much higher a risk than traditional investing that it is actually gambling.

However, if you really want your money to work for you, you may really want to invest.

“What I advise is what’s called a fund. But that fund has loads of investors coming together. 

"There’s an investment manager that’s overseeing it and he or she would decide what stocks and shares to invest in.”

Unless you have the time and knowledge to do it better than an investment manager, who does this all day, every day, for a living, seek professional advice.

Have You Heard of these Employee Benefits?

Employers can offer their staff even more than pension contributions. Death in Service means, if you die, while still employed by the company. Elaine explains: “They’ll pay out so many times your salary. And that is paid out tax free.”

These are worth keeping in mind the next time you are at the negotiating table.

If you are struggling, then reach out. Don’t bury your head in the sand, talk to your lender. Picture: Stock
If you are struggling, then reach out. Don’t bury your head in the sand, talk to your lender. Picture: Stock

Debt Management and Repayments

Maybe 2022 is the year you want to be consumer debt free. Or you want to pay your mortgage down quicker. On a monthly basis, Elaine would advise paying your secured debt first, like your mortgage. Following that you will know exactly how much you have left to make a dent in your consumer debt each month until it is gone. Your consumer or non-secured debt would be your personal loans, Credit Union loans, credit cards, etc.

“Pay the highest interest rate first,” she urges. If you do hit a bump in the road, Elaine advises: “If you’re ever in trouble, seek advice, engage with the lenders. 

"If you are trying to do everything you can to pay your debt, they will be a lot more lenient, than on someone sticking their head in the sand, not returning phone calls, ignoring correspondence and all that.”

For more, see sureplan.ie.

More in this section

Sponsored Content

EL_music

Podcast: 1000 Cork songs 
Singer/songwriter Jimmy Crowley talks to John Dolan

Listen Here

Add Echolive.ie to your home screen - easy access to Cork news, views, sport and more