All you need to know about finance through the generations

Poor saving and spending habits are costing us a fortune, a leading financial expert warns.

Mindless spending on everyday treats such as coffee and a bar of chocolate can add up to a whopping €1,642 a year alone.

Putting this small daily amount in the right savings scheme would get a 20-year-old to millionaire status by the time they reach 65, according to Paul Kelly, managing director of trustedadvisor.ie —  a network of financial advisors across Ireland.

“But no matter what age you are, if you don’t buy that cup of coffee and bar of chocolate every day, you could save €1,642 in a year,” he explains.
“Financial planning involves creating a budget, tracking expenses and looking to the future.”

Paul witnesses plenty of clients who are clueless about their finances. 

“A lot of people do not keep track of  their money, they think they do but when I put everything in front of them – they are astonished by what they see.”

Here are Paul’s top money tips for every stage of your life ...

TWENTIES

Avoid mindless spending — as outlined above, little treats soon add up to thousands a year. And that could mean a deposit for a house is sorted by the time you hit your 30s.

Try save 5% to 10% of your income, and give it to a trusted source to save – like a parent!

On payday, use a standing order so you just get used to X amount of savings leaving your account every month, just like your phone bill or rent.

Use cash as much as possible — debit cards are handy but it can be very difficult to keep a handle on how much you are spending when you “tap” as you go.

At the start of the month, take out a set amount, let’s say €200, and put €50 each into four envelopes. You can only use one envelope per week for all your discretionary spends – week one and two will be tough but it will be a piece of cake by week three and you might even have some money left in your envelope by the end of week four.

Take on a second job — you’re still young enough to have the energy for a weekend shift or two. Casual work can be well paid, often with generous tips if it’s hospitality based.

THIRTIES

Get health insurance early — higher charges apply to people who are 35 years of age or older. There is a 2% loading for each year over 34 years of age for people when they first take out health insurance. So, for example, if you are 35 the cost is 2% higher than for a person aged 34 but if you are 44 then the cost is 20% higher.

Escape the rental trap — whether it’s living in a mouse-sized studio, sharing a flat with 10 others to share the costs, or crashing in your parents’ spare room for a longer time than you’d like, it’s critical to save as much as you can. 

A traditional sequence of events may have been to get married, have a child and then purchase your home, it could be argued that this has inverted itself, with marriage last on the priority list due to expense.

Now home ownership is top of the queue for young people in their 30s. You will need at least two years of planning ahead of applying for a mortgage to allow elbow room for saving, getting your credit in order and showing capacity to repay on a monthly basis. 

Boost your promotional chances — don’t put off that night course or masters degree any longer. The more qualifications you have, the more you will earn. It’s that simple. 

FORTIES

Children ain’t cheap — but putting your Children’s Allowance of €140 a month into the right fund could see it add up to €48,888 over 18 years.

And while it might sound grim, you need to start thinking about protecting your family should the worst happen. 

If there were a survey of readers who were asked what is their most important asset, the majority would say their home. This is incorrect — it is the income you earn over your lifetime!

This asset goes uninsured for so many yet if you had a machine in a corner of your house producing money each month, you would certainly insure it!

Protection is the name of the game for families and a mortgage protection policy does NOT replace a breadwinner’s ongoing income. A life assurance policy to replace income is crucial for any surviving spouse. 

If you remain unmarried and have children (one third of babies in Ireland are now born outside of wedlock) remember, only a spouse is entitled to the widow/widower’s pension. Unmarried partners are not and they also have inheritance tax issues upon death that are not straightforward.

Do you need to play catch-up with your pension? Now is the time to do it.

Pensions are a poorly branded concept, yet they are almost the last game in town where the Government gives you anything, allowing €40 back out of every €100 contributed. Your pension pot remains tax free until you use the money in retirement!

Relying on the State pension is risky. There is a fear that the State pension may end up being means tested due to the funding timebomb, thus putting more pressure on private sector workers to have a pension.

A person earning €3,000 net a month, circa €50,000 gross salary, will be in for a shock if they think the State Pension of €12,000 per annum will suffice in retirement.

Think about this massive reduction in income and the need for your own pension fund should be clear. 

FIFTIES AND BEYOND

When you get close to retirement, it’s crucial to get expert advice so you can stop worrying about the future. 

Some older parents might have saddled themselves with debt to help their adult kids get a mortgage while others might like to downsize to free up money for some dream holidays.

“Few people have the same goals at 55 as they had at 35. Life changes and this means that your financial planning needs to be revised,” says Paul Kelly.

Using any inheritance, redundancy or savings pots that are being under-utilised to clear your mortgage is a prudent use of your financial resources.

It removes a monthly outgoing and is a realistic goal after much of the heavy lifting of your 30s and 40s in terms of home purchases, raising children or trying to start your own business. 

If you think you need help with your finances, expert advisors in your local area can be found at trustedadvisor.ie