It’s only the second week of the new year and you’re probably fed up reading about resolutions already. Think of 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 financial goals
An obvious one, but how many of us have in the past purchased a financial product without thinking of the long-term impact of such a move? Writing down your financial goals may not mean you’ll achieve them but research tells us that it will probably increase your chances of doing so. Let a financial planner/advisor help you tease them out.
2: Review your mortgage
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 may make you liable for a cheaper mortgage. A broker will research the options in the mortgage market for you. Thirdly, consider paying more than the minimum if you can. 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. 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. Just remember to tell your bank you want the over-payment to go against the principal amount.
3: Review your pension
You may not do it this week or next week, but at some point, this year take the time to ask a financial advisor to review your pension(s) 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 and paying fees that are too high, why reward your non-performing fund manager even more? Ask for recommendations to move to a new provider. Firstly, 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 and 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. Fees and charges are also a factor. Are they too high? If you’re losing too big a chunk on fees, it may be time to switch or renegotiate. Your financial advisor will do most of the heavy lifting here once you provide him with some basic details and give him/her permission to gather the details for you.
Next week, financial resolutions for 2018.
Conor Martin is MD of Tara Financial Services and writes Nest Egg every week in the Meath Chronicle