Money Talks: How to financially plan when you're in your thirties
Plan now to futureproof your finances.
Life as a 30-something brings lots of new and interesting financial challenges such as buying your first home in your case. But this decade is also the one in which the thought of retirement and other financial issues that crop up in between become a little more real. The good news is that you are now old enough to recognise what you “should” be doing but thankfully still young enough to be able to take the time to create a long-term strategy when it comes to your hard-earned money.
Considering your age, you should seriously look at creating some pension provisions. Is your employer willing to contribute to a pension scheme on your behalf if you also join? If so, then certainly join as soon as you can and start to take advantage of this ‘free money’ that is available to you i.e., the employer’s contributions and the very generous tax relief available to you on your employee contributions. If this is not an option, I would recommend that you set up either a Personal Pension or PRSA. The maximum you can pay into a pension based on your age is 20% of your salary (so €650 per month).
However, as your main priority currently is saving for your mortgage, maybe commence payments on a lower basis to get started and you can then gradually increase these contributions over time. Start with a payment of say €200 per month for now and look to increase when affordability improves. The good news is that you will be able to claim tax relief at your marginal rate (40%) so you will be paying €80 less tax every month which is a No Brainer really.
As you are looking to purchase your first home in the next two to three years, your immediate priority is to save for the deposit and to also ensure that you can demonstrate to a prospective bank that you can pay a monthly mortgage payment. For now, you need to save as much as you can monthly into a bank deposit account. The other general rule of savings is to always ensure you have an emergency fund of 3-6 months expenses in an easily accessible bank deposit account to cover any unfortunate surprises that may arise.
Once you have achieved this level of emergency savings and your new house is not absorbing any excess funds you have accumulated, you can then start to look at some medium-term savings options over 3-5 years of which there are many attractive options available.
Just as having an emergency fund will protect you from any unfortunate surprises, insurance prepares you for the unexpected and provides you with an added level of day-to-day security. As you currently have no financial dependents, life cover is not a priority right now. You will be required to take out Mortgage Protection Cover in conjunction with your mortgage. This will ensure that your mortgage will be paid off in full should you die prematurely before the end of the term of the mortgage.
Both Income Protection and Specified Illness Cover are very important insurances to consider and as you are so young, the cost of both covers would be relatively cheap if you apply now. Specified Illness Cover will pay you a tax-free lump sum on the diagnosis of one of the listed specified illnesses. I would recommend covering yourself for at least €50,000 in this regard. Income Protection Cover would pay you a replacement income in the event of being unable to work due to accident or sickness. You can also avail of 40% tax relief on income protection premiums. Both covers would obviously be hugely beneficial if you were off work sick and unable to meet your financial obligations on a monthly basis due to the loss of income.
You should also think about Health Insurance. Even if you are currently enjoying a healthy lifestyle, there are reasons to have health insurance including faster access to consultants, reduced waiting times for procedures and access to private and semi-private accommodation in public hospitals. Tax relief also applies to premiums.
As you move into your forties and beyond, your life circumstances will change so your financial plan should be reviewed regularly and tweaked if necessary. The financial decisions you make in your 30s will impact you for the rest of your life so choosing a good advisor now to help you to get your financial house in order you will certainly reap the benefits over the long term.
I wish you the very best on the path to securing your first home and it is a very exciting time but do remember that whilst your money can be a means to an end, you need to live a little too! Do not be afraid to spend a little on having great experiences and making precious memories as after all that what life is really all about.
- Carol Brick, Managing Director of HerMoney has over 20 years of experience in the provision of professional Financial Advice see hermoney.ie
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