independent

Monday 21 April 2014

How to act your age when it comes down to finances

Career, childcare, pension takes toll on cash

Your age and family circumstances have a big bearing on what you do with your money, with young graduates having less demands on their income. Photo: Thinkstock.
Your age and family circumstances have a big bearing on what you do with your money, with young graduates having less demands on their income. Photo: Thinkstock.

Five years ago, a friend told me: "Enjoy your own money -- while you can". Two children, childcare fees, and a hefty mortgage later, I finally understand what she meant.

The unforgettable holidays to the Canadian Rockies and New Zealand fjords to which my husband and I had grown so accustomed have since been replaced with rain-filled jaunts in the country. Shopping excursions are spent rummaging through tiny jeans, track-suits and socks in the toddlers' sections of supermarkets, rather than ambling around the beauty counters of expensive department stores.

Your age and family circumstances have a big bearing on what you do with your money. The New Year is a good time to take stock of your finances -- and to re-evaluate your financial priorities. So do you act your age when it comes to your finances?

20-somethings

Your first financial priority in your 20s should be to secure a job doing something you enjoy -- and which pays enough to live on. Chances are you'll spend a good portion of your early 20s trying to establish your career -- such as finishing off college or an apprenticeship or building up experience in a job.

Unless you're well ahead of the game, chances are you're still living at home in your early 20s. Once you can hold down a steady job, you should be able to afford to rent your own place -- or to pay a mortgage. If you want to own your own house, start saving for your deposit now.

"A question which a lot of people in their 20s have to grapple with is: 'Should I start paying into a pension -- or should I keep my spare money to save up for a deposit on a home?'," said Bob Quinn, managing director of the financial advisers, The Money Adviser. "It all depends on what your financial goals are. If you contribute to your pension early, it eases the cost of your pension in later years. But if your burning ambition is to own a house, your priority will be to get together money for a deposit."

As you're in your 20s, you could still be single and you may not have any children. You should therefore spend some of your money enjoying yourself -- but steer clear of credit cards, overdrafts and other expensive debt.

30-somethings

Many people in their 30s already own their own home and have children. A lot of 30-somethings are also single -- and are either paying off a mortgage or renting.

When you're in your 30s, one of your main financial priorities should be to build up an emergency fund, according to Quinn.

"A lot of people in their 30s don't have any emergency fund as every cent is going towards putting food on the table and paying off a mortgage," said Quinn.

"Money, however, should be put aside to cover emergencies, or an unexpected hospital bill. Your emergency fund should cover the cost of household expenses for a couple of months."

If you have children, start saving for their education. And if you can afford private health insurance, consider getting it. Clearly, it is also important to cut out any unnecessary expenses.

If you haven't already done so, start putting money into a pension. The longer you kick the pension can down the road, the more of a shock it will be to your pocket.

40-somethings

If you have children, chances are your 40s will coincide with your children coming into the terrible teens and starting secondary school -- or college. These are expensive times so it's important to put aside money to cover them.

Your 40s is also a time to get on top of your mortgage debt, according to Quinn. "A lot of people in their's 40s have two or three properties," said Quinn. If you own a few investment properties with mortgages outstanding on them, decide if it is worth your while holding onto them.

If you're getting enough rent to cover the mortgage on an investment property, it could make sense to hold onto those properties until the mortgage is paid off. The rent you get from an investment property will be a handy pension when you come to retire. If you are losing money on an investment property and are not in negative equity, it could make sense to sell.

If you don't have life insurance, consider it -- particularly if your parents have a history of serious illness and if you have children or other dependants. "Don't fall into the trap of buying too much life assurance," advised John Geraghty, chief executive of the online brokers, LABrokers.ie.

50-somethings

"Your 50s is all about putting the icing on the cake for your pension," said Quinn. "Be clear about whether or not you have enough money to fund your retirement."

If you haven't got life insurance, you could find it very expensive to buy it in your 50s -- or you could find it hard to get an insurer who will cover you. Over-50s life cover could be worth considering. "Over-50s cover may be ideal for people who have a medical condition that otherwise makes them uninsurable," said Geraghty. "Premiums start at €15 a month and the most cover you can take out is normally up to €25,000."

60-somethings Plus

Most people in their 60s are approaching retirement. As long as a pension has been planned, it should start to kick in. The mortgage on a family home is usually paid off. If you have children, they have usually long flown the nest -- so you should no longer have to provide for them.

If you haven't already done so, plan your inheritance and do up a will. Find out the most tax-efficient way of passing on any assets you have.

Irish Independent

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