Friday 24 May 2019

'How can I organise myself to finally fly the nest?'

Email your questions to lmcbride@independent.ie or write to 'Your Questions, Sunday Independent Business, 27-32 Talbot Street, Dublin 1'. Stock image
Email your questions to lmcbride@independent.ie or write to 'Your Questions, Sunday Independent Business, 27-32 Talbot Street, Dublin 1'. Stock image

Eoin McGee: Principal of Prosperous Financial Planning

Q: I'm a single man in my early thirties and I'm finding it hard to motivate myself to plan financially. I've recently moved back to my parents' home after finding it impossible to find a decent flat anywhere in south Dublin that I can afford. I have €30,000 savings that I hope to help me get on the property ladder at some point in the next year or two. I'm paying my folks a nominal rent of €250 a month and I've no debt. Would you have any advice on what my financial priorities could be in a situation like this, or if I should just keep my head down and save like mad?

David, Dublin

It is admirable that you have taken the terribly difficult step to move home in your early 30s. It is very hard on you but do try and remember it is equally hard on your parents.

When it comes to financial priorities, I think you need to set yourself a target to work towards, break that target down into manageable chunks. Be realistic about how much you are going to need but also how much you can afford to save each month and then work out how long it is going to take to get there. Once you know how long it is going to take, communicate this with your parents.

You mention you want to move out within two years. You don't mention where you want to buy but according to the most recent Daft.ie report a three-bed house in south Dublin will cost you €550,000. Ignoring your ability to get a mortgage, the deposit for such a house would need to be €55,000 as a first-time buyer and you would need to allow some on top of that to fit it out, pay for solicitors and cover other costs. You would not see much change from €70,000.

On top of this I would strongly recommend you don't wipe out your savings completely when buying a house. You need to be left with some emergency cash for when things go wrong or go right in life. This pushes your savings goal up over the €80,000-plus mark, but let's just work with that figure.

You have €30,000 saved already, if you want to get to €80,000 within two years, assuming 0.10pc net interest on deposit, you will need to save a whopping €2,078 per month for the next two years to get there.

If however you go for Wicklow, the average house price there is €339,000 and all of the above figures now become a bit more manageable.

A €33,900 deposit, plus €15,000 for solicitors and fi-out etc and still have around €10,000 in savings after moving in means that you would need to add €1,200 a month to your €30,000 to get to €58,900.

Once you work out your numbers then you can break it down to six-monthly targets.

Keep your accounts clean, stay out of overdraft and don't dip into your savings unless it is a planned withdrawal for a holiday or Christmas.

You need to be consistent with your savings and you should work out how much the mortgage is going to be a month and save at least 1.2 times that amount. For example, if the mortgage is going to cost you €1,000 a month you should be saving at least €1,200 per month consistently but you can deduct the €250 per month you are giving your parents from this figure, provided you can prove the €250 a month.

It will be a tough road so reward yourself along the way with things like short breaks away. Lastly, be nice to your parents.

Factoring inheritances

Q: I'm looking to put together a financial plan for myself and my new wife, (we're in our late thirties), but I'm wondering would it make sense to factor in an expected inheritance of about €100,000 into this plan in order to make the most of it, or whether I should put it out of my mind and plan as if we don't expect it anytime soon?

Andrew, Co Waterford

When it comes to inheritance, we typically work with a client to establish how likely is it to occur, when will it occur, (is the person giving you the money 103 years old or 22?) but also, how much is it likely to be after tax.

You need to consider the likelihood that the person may spend the money on themselves, which they are perfectly entitled to do, and is something we encourage our clients to do. Or, they may gift it to somebody else other than you.

If it is a 100 per cent sure thing you are getting this money, then ask yourself why are they not giving it to you now? There can be some small tax advantages to doing it now instead of later, so what is holding them back?

Having gone through these discussion with clients we then build the financial plan and if the plan works without the inheritance then we ignore it, and if the plan needs the injection of cash to make it work then we would often discount the amount, increasing it until we figure out exactly how much would be needed.

When it comes to financial plans and predicting the future it is accepted by us that we won't get it right, ever. We can have a very well educated and informed guess, but we make sure when building a financial plan that we are on the right side of wrong.

For example, I would be much happier in this instance to assume you were getting nothing and be wrong than to work on the assumption you would get €100,000 and be wrong about that.

Auto-enroll or not?

Q: I've heard a lot of talk about auto-enrolment pensions coming in shortly, but given that I'm already (and belatedly) starting a private pension plan of my own, could an auto-enrolment pension not be very limited in terms of options, and might the tax relief work differently? I'm a single woman working as a legal secretary, aged 42.

Fiona, Co Meath.

The details around what auto-enrolment pensions will look like has yet to be finalised however it is fair to assume that people will have to have an auto-enrolment pension or one which is the same or better. So, if you start one now and it is the same or better than the auto-enrolment pension, I can't see a situation where you would be forced to cancel it, but you may decide to cancel it yourself and move to the auto-enrolment option.

But let me be really clear. Do not use auto-enrolment as a reason to delay (further) your decision to start a pension. Just do it, today.

We do not know about the terms and conditions of the new pensions and yes, they are expected to be limited in fund choices in order to keep them simple. As regards the tax relief, the Government may mess with this but, in my opinion, that would be a stupid thing to do.

While we will endeavour to place your questions with the most appropriate expert for your query, this column is not intended to replace professional advice.

Sunday Indo Business

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