While the « New Year, I’m New » approach isn’t for everyone, many people will be looking to iron out their finances for 2022.
This task may seem daunting, but there are some simple steps you can take to help manage your day-to-day finances and achieve your long-term goals.
We asked Susan Cashin, financial planner at Brewin Dolphin Wealth Manager, for some advice.
where do I start?
It’s common to procrastinate when it comes to confronting your spending habits, Ms. Cashin said.
But once you start the process, she said you might be surprised at how many quick saves you can make with a few small tweaks.
“For example, if you like a daily cappuccino at a cost of €3.50 per day during the work week, assuming you do that 50 weeks out of the year, you spend €875 on your daily treatment,” said Ms.
“Maybe this is a very nice vacation cost, or if you are a really sane person you can use it to create an AVC for your pension.
« If you do this, you can get a tax break of up to 350 euros on this payment, » she explained.
How do I create a realistic budget?
Before you start creating your budget, you’ll need to determine your net income, and note how much money you’re getting from all sources.
Once you do, Ms. Kashin suggests following the next five steps.
1 Track your spending.
Look at all your basic expenses first because it’s the easiest – so make a note of the mortgage, rent, childcare, heating, energy, insurance, etc.
To keep track of non-essentials, like cappuccinos or discretionary clothes and hair, keep a notebook or note on your phone about everything you spend.
Double-check this against your Revolut or your bank statement to make sure you don’t miss out on these easy click expenses.
2 Define your goals and objectives
Jot down what you would like to achieve in 2022 and beyond.
For example, are you looking to secure a happy retirement, buy a house or go on vacation.
Remember that Rome was not built in a day, so make sure that the goal is realistic, as if it is out of reach you will not stick to it, and then you will return to bad habits.
3 plans for how to achieve your goals
Find out how you will achieve these savings or goals.
For example, check all utility providers to see if savings can be made here.
Many people do not change providers and lose hundreds of euros in savings as a result.
Also check if you can save by switching insurance providers.
4 Adjust your bad habits
This is the hardest step because it involves some sacrifice, but keeping track of your end goal and monitoring your progress towards it will ease the pain of giving up a cappuccino, blowdry or takeaway.
When considering a purchase, back it up.
For example, if the new dress is €100, consider that you have to earn approximately €190 from work to save that €100 net – this can be a really good way to cut down on unnecessary spending.
5 Reconsider your plan
The most successful plans are those that we constantly reconsider.
Don’t increase the budget in January and then don’t revise it until December.
Keep checking in, and as you see your goal become more achievable, this will motivate you to make more adjustments.
Should I set long and short term goals?
Yes, setting long- and short-term goals is the key to success, according to Ms. Kashin.
« Initial, short-term goals build the building blocks for achieving longer goals, » she said.
Research shows that it takes an average of 18 to 270 days to break bad habits or modify our behaviors.
Therefore, Ms. Kashin said setting achievable short-term goals will ultimately help you succeed in achieving your long-term goals.
« For example, setting an initial goal in the first quarter of reducing your spending by 20% and achieving it, will instill the belief that you can reach those long-term financial goals, » she explained.
Can I Save Too Much Tax Credit?
Most people use the PAYE system, so taxes are deducted at the source.
But you’ll still need to check benefits, tax schedules, and ranges, which you can do in Revenue’s online system.
Medical expenses qualify for a 20% relief, but Ms. Kachin said many people lose or forget their receipts.
« A simple step like scanning it on your phone or even storing it in an envelope means you won’t miss it, » she said.
Ms. Cashin said she would encourage everyone to make sure they claim all of their allowances for 2022.
What about pension planning?
Ms. Kashin said if she had not already done so, she would suggest starting a personal contribution to a pension.
« For many people in our 30s, this may seem like a very long-term goal, but the truth is that most of us will now live well into our 90s, » she said.
« If you plan to retire at age 65, the pension amount must last at least 25 years, » she added.
For those who already have a pension, Ms. Cashin said she would advise you to review it once a year.
She explained that most pensions are invested with some degree of equity investment, and values can go down as well as up.
She said the initial assumptions would be illustrative, so knowing how the fund is performing is very important.
« It’s also a good idea to ask about fees and costs and to make sure you get your annual benefit statement, » she said.
Ms. Kashin said that when she meets a new client, she will often ask them three questions — “How much is your pension worth?”, “How much is your fee?” and “How did it perform last year?”
She said that the majority of people cannot answer these questions.
“So I turn the question around and ask if you have an apartment, will you be able to answer the same questions about them?
« In short, for many people their pension is likely to be the next most valuable asset after their home, so it should be given the same importance and respect, » she said.
Another important factor, Ms. Kashin said, is researching any old pensions you may have from previous jobs.
“Keep your address up to date on these and see where you can arrange access online.
« Organize a review of it where it may be invested in strategies that don’t match your investment goals, or have very high fees, » she said.
Ms. Kachin said that many pensions and personal investments with life companies are not claimed every year.
« So keep a note of it with your will and other asset schedule, » she said.
Should I consider investing?
With the current negative interest rate environment, many people will be looking to invest for the first time in 2022.
But Ms. Kashin cautioned that for some the risk might not be appropriate, or really appropriate, for their financial goals.
« All decisions, including investments, are about assessing the potential benefits and seeing if they outweigh the risks, » she said.
“In the current environment, it is possible that your money in the bank will not get any interest or you may lose money because of negative interest rates,” she explained.
Before investing, Ms. Cashin said you will need to check if the money you plan to invest is needed in the short term.
« Ask if you have debt to pay off before you invest and be sure to keep a rainy day fund, » Ms. Cashin suggested.
She said they recommend clients keep enough cash to cover basic living expenses for at least 6-12 months, as well as cash to cover any unexpected expenses.
« Do your research again and if you can, talk to a professional counselor to explore all of your options, » she said.
If you can take a long-term view of investing, Ms. Cashin said investing money in your pension fund where it gets tax-free growth might be a better option.
But, before making any decision, read the lowercase letters.
“Check all fees and costs and make sure you get them in writing.
“Ask what happens if you need access to your money early, and get the answer in writing,” she said.
And as a final word of warning, Kachin said that if an investment sounds too good to be true, it generally does.
“Investments promising huge high returns tend to be high risk as well, anything promising or claiming unrealistic returns should be avoided at all costs.”
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