Monday 25 September 2017

Perfect time for your own four-year plan

John Cradden

WHEN it comes to personal money management, most of us probably plan on a year-by-year basis rather than over a longer time frame.

But with the Government's four-year national recovery plan going through the process of being rubber-stamped, maybe it's time to start putting together your own four-year plan.

After all, if we are going to have to endure four years of financial pain because of all the tax increases and severe cuts in public services and spending proposed by the plan, it's time to take much tighter control of our own money.

DAY-TO-DAY SPENDING CUTS

"The Government's four-year plan involved a lot of spending cuts. Most of us can do this also," said financial adviser Liam Ferguson of Ferguson and Associates.

"Despite the current economic circumstances, I still find that many people I speak with aren't entirely sure where the money goes each month. There's no substitute for the good old-fashioned spending diary."

Mr Ferguson suggests keeping a notebook with you 24 hours a day and making a record of every time you spend, whether it's in cash, credit card, debit card etc, and then break them down into categories, such as food, newspapers, drink, petrol etc.

"When you see the results in black and white, there may well be some surprise areas where you are spending more than you thought on items that you can cut back on," he said.

BUY OR RENT?

In terms of long-term planning, the big question for many young people will centre on housing; should they continue to rent for the next four years or aim to get on the property ladder within the same timeframe?

"I think that the ideal time to get a long-term fixed rate has passed, although for very low LTV's (loan to value ratios) it is still available," said Karl Deeter, operations manager of Irish Mortgage Brokers.

"At the same time, the best price on properties is probably not here yet either so it's a tricky one to call."

He suggests checking out online "buy or rent" calculators such as ex-estate agent economist Derek Brawn's comparebuy2rent.ie.

"A long-term lease right now might offer pretty good value and is something worth considering," said Mr Deeter.

"You could get a discounted rent in return for taking a five-year lease."

TRADING UP

If you have a young, growing family and need to trade up soon, then you will need to know where you stand with the current value of your home versus the mortgage owed.

"If you are in negative equity, then selling may not be the most cost-effective method right now," said Maynooth-based financial adviser Bob Quinn.

"You could consider renting a larger property until the market readjusts and renting out your own house."

If trading up is a longer-term ambition, understanding how your mortgage works and what rate you are paying will be crucial, he said.

PENSIONS

It's worth noting that despite the uncertainty over tax relief on pension contributions, it's still available at your highest rate.

"Maybe this tax relief will be reduced in the future; maybe it won't -- that depends on the next Government," said Mr Ferguson.

"But the one certainty is that tax relief is still available in full right now so I'd avail of it while it's still there."

Those close to retirement should be redirecting as much as they can to their pension and consider making additional voluntary contributions or if you are a public sector worker, buying notional service, said Mr Quinn.

He also suggested taking a look at bank statements and identifying any unfamiliar direct debits or standing orders.

"Many people close to retirement may have old savings plans or insurance policies that were set up years ago and they have forgotten about," said Mr Quinn.

"Typically older plans had encashment values attached to them and it's worth revisiting these plans."

Those already retired should review their investments to make sure they are genuinely diversified.

"A few years ago a diversified portfolio meant owning shares in both Bank of Ireland and Anglo," said Mr Quinn.

"As these investments were so closely correlated, it means if one tanked, so did the other.

"Look for a mix of investments that are uncorrelated, therefore limiting your exposure to any one industry."

INVESTMENTS

When you have taken care of your rainy-day fund and your pension, you should review your lump-sum investments.

Decide what type of investor you are and whether you are happier to invest in cash deposits, balanced managed funds, equities or some other asset class.

Your ability to take risk is the other key factor. In general if you are young, earning a high income and you do not have any dependants you can afford to take more risk. If you have money that you can lock away for a long time, you generally should be investing in assets which tend to do better over the very long term.

For those comfortable investing, the best advice is to diversify or spread your money across different types of investments and assets.

Your financial adviser should do a full risk assessment with you to help you figure out your 'risk profile' and what investment options suit you best.

Irish Independent

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