How our makeover saved this man €10,000 a year
James Sloan is a young, free and single Dublin man who is renting a house with three friends. The 36-year-old engineering graduate, who works as a sales account manager with a hi-tech multinational, earns just above the average wage.
He never has any money left at the end of each month and finds it impossible to save. As his ultimate dream is to buy his own home, his New Year resolution for this year is to get on top of his finances so he can start saving for a deposit on a house.
The Sunday Independent teamed up with Keelin Fitzgerald (inset), of the Kildare financial advisers The Money Advisers, and private health insurance expert Dermot Goode, to give James the makeover he needs to kick his finances into shape.
Fitzgerald uncovered about €800 in expenses a month that James could cut out. If he can save this money instead of spending it, he would build up a nest egg of about €9,600 a year – which would put him well on track to getting a deposit together for his dream home over the next two years.
James spends about €330 a month on rent. He drives an Audi A4 and pays about €94 each month to cover car tax and insurance. He is also paying off a car loan. As he uses his credit card often, he usually has a credit card bill of a few hundred euro each month.
James's rent, loan and credit card repayments, car tax and car insurance gobble up about just over a fifth of his take-home pay each month, according to Fitzgerald.
James then spends another quarter of his take-home pay on groceries, petrol, and utility and mobile phone bills.
"The other half of James's salary is spent on less essential expenses such as entertainment," said Fitzgerald. "James has a choice to make – curtail spending or say goodbye to his dream of buying a house in two years."
The Money Advisers set a monthly budget for James, covering his household bills, petrol, groceries, entertainment, health expenses, shopping, taxis, lunches, hobbies, mobile phone and bank fees. If he can stick to this budget, he will reduce the amount he usually spends on those things from about €1,895 to €988 a month.
For example, James racks up an average of about €283 a month on entertainment. He needs to cut this back to €170 a month, according to Fitzgerald. Although he normally spends between €80 and €96 a month on his mobile, he clocked up a mobile phone bill of €219 in December. He needs to keep his monthly mobile phone spend to €80, said Fitzgerald. James spends about €260 a month on physiotherapy sessions – although these monthly fees are a big expense, they will soon be coming to an end.
James coughs up about €250 a month on groceries and €170 a month on petrol. "A single guy should not be spending more than €250 per month on groceries," said Fitzgerald. "James should limit his petrol to €40 per week."
Until the end of last year, James spent about €170 a month on cigarettes – but he has since kicked that habit. Staying off the fags will save him €2,040 this year.
As he owns a car, car tax is a must for James. The young Dublin man pays his car tax every three months, rather than upfront at the start of the year. Were he to pay his car tax upfront at the start of the year, he would save himself €66 a year. Even if he pays his car tax upfront, at €514, the tax due on James's Audi A4 is still quite high. Were James to switch to a newer and more environmentally friendly car, such as a Toyota Yaris registered after July 2008, he could easily halve his car tax bill.
It would be worth James's while building up an emergency fund to cater for any one-off expenses, such as annual car tax, or other unexpected expenses as they arise. "It offers great peace of mind to have an amount set aside to deal with these expenses rather than having to rely on credit cards or bank loans," said Fitzgerald.
Another habit that James needs to kick is using his credit card to withdraw cash. "James has no surplus at the end of each month and uses his credit card to withdraw cash so that he can supplement his income," said Fitzgerald. "This is very costly."
The interest charged on credit card cash withdrawals can be as high as 21 per cent. Some credit card providers hit those who use their cards to borrow money with interest from the date the money is borrowed. This means that even paying off your credit card bill in full each month is no guarantee that you can avoid the hefty interest charged on credit card withdrawals.
Credit card fees are also eating into James's pocket – with credit card charges for one month alone clocking up to €15. James should tear up his credit card so he can cut out these chunky fees and avoid the temptation to borrow money on his credit card.
James will need to get a mortgage if he is to buy his own home – and he could probably qualify for a mortgage of €120,000, based on his earnings.
James gets a bonus every three months – as well as his monthly wage. "What James will qualify for will depend on the bank and how they view his quarterly bonus," said Fitzgerald.
"Some banks only take additional income up to 10 per cent of gross salary into account when deciding on a mortgage – so it would depend on how guaranteed his bonus is."
As well as his salary and bonus, other things the banks will take into account when deciding whether or not to give James a mortgage include his credit history and any loans or credit card bills he has outstanding. "James would also need to show a record of saving an amount equivalent to the mortgage repayments for at least six months," said Fitzgerald.
James needs to start managing his bank account now – bearing in mind that a perspective mortgage lender will trawl through his bank statements. James should clear his credit card bill as soon as possible and avoid any overdrafts or spending that could prompt his bank to reject him.
James will have to save a good chunk of the purchase price of his dream home to have any chance of buying it. Most lenders will only offer a mortgage if the borrower has enough savings to cover a tenth of the price of the home. So if James qualifies for a mortgage of €120,000, he will need to save up a deposit of €13,500, assuming the purchase price of the home is €135,000.
"James will also have to save up to cover additional fees such as stamp duty and legal fees – which could come to €3,000," said Fitzgerald. "On top of that, he would need to build in some fund for house furnishings – say another €5,000. Therefore, his target savings fund should be €22,000."
If James can save €800 a month into an account that earns 1 per cent interest after tax, he would build up a fund of €22,000 over two years, according to Fitzgerald.
"James needs to ringfence his savings from his spending money," said Fitzgerald.
Some of the best regular savings accounts are offered by KBC Bank, Ulster Bank and Rabobank. KBC's regular saving account pays 3.5 per cent interest, Ulster Bank's pays 2.5 per cent, and Rabobank's pays 2 per cent interest.
A new health plan can deliver savings
James is lucky enough to have a boss who is footing the bill for his private health insurance.
We asked the private health insurance expert Dermot Goode of money-saving site healthinsurance-savings.ie to have a look at James' plan – Laya Healthcare's Company Care Excess – and tell us how good he felt it was.
"James is insured on an excellent corporate plan – it covers public and private hospitals and includes cover for routine medical expenses such as GP and physiotherapy," said Mr Goode. "This plan also includes limited cover for the three hi-tech hospitals (Mater Private, Blackrock Clinic and Beacon Hospital) – that is, full cover for the listed major cardiac and day-case procedures, subject to a €200 excess per admission." (Excess is the first part of a claim you must pay yourself.)
As James' employer is paying for his private health insurance, his boss must charge him benefit-in-kind tax on the full cost of the plan. "James can claim back a fifth of this benefit-in-kind tax in tax relief directly from the Revenue Commissioners," said Mr Goode. "James can submit tax relief claims going back four years if he hasn't done this already."
While James holds good cover, Mr Goode believes his boss could get a sim-ilar plan for a cheaper price. "There are updated versions in the market, which will offer similar benefits and generate savings for his employer and for James – as there will be a corresponding reduction in James' benefit-in-kind charge," said Mr Goode. One of the alternative plans recommended by Mr Goode for James' employer to consider is Laya's Total Health Complete.
Deadline for 400,000 Vodafone shareholders
If you're one of the 400,000 or so Irish Vodafone shareholders, you have less than two weeks to return the form which will determine whether or not you pay tax on the payment you receive under the company's deal with the US telecoms giant Verizon.
Vodafone shareholders have until February 20 to return the Form of Election, where they state whether they will receive their payment as capital or income.
To avoid paying tax on your 'return of value' – that is the payment you get under the deal – you should indicate that you wish to receive your return of value as capital.
If you bought Eircom shares in 1999, those shares became Vodafone shares in 2001 when Eircom sold its mobile arm Eircell to Vodafone.
If you still hold those shares, you have most likely made a loss on your initial investment in Eircom and the Revenue Commissioners have indicated that you won't have to pay any tax as a result – as long as you receive your payment as capital.
However, if you don't return the Form of Election on time, or you choose to receive your Return of Value as income rather than capital, you will have to pay tax.
The deal between Vodafone and Verizon is expected to be completed by February 21. Shareholders will also get new Verizon shares under the deal – and will start to receive those shares from February 24.
Protection against stealth game charges
If you're still reeling from a massive bill inadvertently clocked up when playing online games, you might be relieved to hear that games producers have been told to get their act together on consumer protection by April 1.
The British consumer watchdog, the Office of Fair Trading (OFT), has given producers this deadline to ensure their games do not breach consumer-protection law.
Under new rules, consumers should be told upfront about the costs associated with a game and any in-game advertising.
The rules also make it clear that in-game payments are not authorised and should not be taken unless a parent or credit card holder has given his or her express consent to the charges.
As many of the online games played by Irish consumers are produced by British companies, Irish gamers should benefit from the new rules.
Some people have racked up bills running to tens of thousands of euro playing online games. The Dublin consumer watchdog, the European Consumer Centre, recently investigated a case where a man ran up a €20,000 bill over a year playing online.