New Year’s resolutions don’t all have to be about giving up chocolate and alcohol
It’s only the second day of the New Year and you’re probably fed up with reading about resolutions. However, they don’t all have to be about giving up chocolate or alcohol, or rising before the sun to exercise.
These tips for 2018 don’t have to be done with any great urgency; rather, think about the following advice as something you can check in on over the year as your appetite for financial management ebbs and flows.
1: Decide on your goals
An obvious one, but how many of us have ever taken out life insurance, or embarked on a renovation without thinking of the wider impact of such a move?
Writing down your financial goals may not mean you’ll actually achieve them (sorry fans of The Secret) but it will probably increase your chances of doing so.
2: Get your mortgage into shape
If you already have a mortgage, there are three things you should be thinking about this year. The first is checking you’re on the right rate; after all, one thing we’ve learned from the tracker scandal is we can’t rely on the banks to get it right for us.
The second is to consider a switch to another product or competitor. With house prices continuing to rise, your loan-to-value (LTV) ratio will have fallen which should make you liable for a cheaper mortgage.
Thirdly, pay more than the minimum. While you could be doing something else with your money, for most of us, the peace of mind that comes with inching away at your mortgage is hard to beat. A little effort can, over time, produce substantial returns.
By overpaying each month you’ll reduce what you owe the bank and cut the term of your mortgage. It also means you’ll cut your interest bill. As you’ll be enhancing your LTV ratio, the bank may offer you a keener interest rate which will have another cost-reducing impact.
Consider someone on a €250,000 mortgage with 17 years left to go paying interest at a rate of 3.7 per cent. They are currently making repayments of €1,653 a month. If they increased their repayments by €100 each month it would knock 16 months off the mortgage term, saving them €7,302 (based on interest rates staying where they are).
If they bumped up payments to €200 a month, they would cut the term by 30 months and save themselves €13,454 in interest.
Bank of Ireland has a calculator which can help you work out your savings.
3: Review your pension
You may not do it this week or next week, but at some point this year take the time to read your annual pension benefit statement and figure out how your retirement is shaping up. You owe it to yourself.
And if you don’t have a pension, is it time to think about getting one?
If you have spare cash you can simply bump up your contributions. But if your pension is going nowhere, why reward your non-performing fund manager even more?
So how do you go about that?
You’ll need to figure out a couple of things. How much will you need in retirement? Will you have a mortgage? Will you get a full state pension of €12,300 or so a year? What if you don’t?
Armed with this information, you can see where you’re headed by examining the “statement of reasonable projections” in the pension documents that should be sent to you annually. This will show what income your current pot, plus future contributions, will generate.
If you’re falling short of your goal outlined in the first step, you may have time to rectify this. Typically, to get a pension worth half your salary, you’ll need to be saving at least 15 per cent (ideally 20 per cent) of your salary. Any employer contributions will count towards this, and making additional voluntary contributions (AVCs) will boost it.
Don’t ignore your pension fund’s performance. Is your manager returning as much as you’d expect given market conditions? If not, think about switching. If you’re in a group scheme and can’t, bring your concerns to the funds’ trustees.
Herrand Associates is committed to providing quality and dependable investment management to investors, founded on a Philosophy of Investment and Investment Approach aimed at producing an unparalleled experience for clients.
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