01 Jan 2020

New Year, New Financial You

  • Financial Advice
  • General Interest

“2019 was the quickest year ever” or so I heard countless times as we approached the Christmas break. Indeed, as we came to the end of the year and discussed the highs and lows of the previous 12 months with our friends and family it was hard to believe how much happened – the time lines of each event often felt more recent or distant than it actually was. ‘Tempus Fugit’ they say, and when you look back at how quickly last year moved they may be right!

One thing that has changed for us all in the year gone by is that our priorities have slightly changed in some way. Some of us may have rang in the New Year with the joy of a new addition to the family. Some may have taken on new commitments in the shape of a new or larger mortgage, some may be taking on school or college fees in the year ahead for the first time. Others may have lost a family member during the last 12 months emphasising the importance of making the most of the time they have ahead of them. I was listening to an interview with a palliative care nurse before Christmas and one of the points she made was that looking back at their lives, none of her patients have ever said to her “I wish I had spent more time at work”.

Our different life stages mean that we all have a different outlook on our finances and how we use them to match our unique priorities.  There are some key areas that we must look after as best we can both for the benefit of ourselves and our family.

Funding our family’s future expenses
For those who have young children, funding education and life expenses will always be a concern.   Parents look forward to their little ones starting primary school, moving up into secondary, hopefully someday going to third level education (possibly away from home!) all of which cost money.   Not to mention the other expensive joys of them learning to drive, maybe studying an Erasmus year, turning 21, doing their masters, not to mention someday buying a house or getting married.

Regular savings plans area a very simple method of putting money aside for the future costs associated with children.  We are each allowed gift up to €3,000 per annum per child without them having to pay inheritance tax on it sometime in the future and if it’s possible, it’s a very good idea.    €250 saved each month growing at 5% per annum will amount to c€60,000 after 15 years.  By doing so from an early age a substantial nest egg can be built up for when it is needed.  A simple bare trust can accommodate this for parents with the maturing funds being gifted to their children at a time they see fit down the road.

Looking after our income to protect our lifestyle and future plans
The majority of assets we generate during our lifetime come from our earnings. Our earnings are not just a reflection of what we do everyday but also the work and effort made during our student and educational years. Our income is the most important financial asset that we have and it pays for our mortgage our car, our family, our savings and our pensions. It takes care of the present and the future and it needs to be protected.   

If you are a self-employed GP, Consultant or Doctor, the state illness or invalidity benefit of €208.50 per week is very unlikely to go far in meeting your personal expenses and costs. The financial burden of missing work due to illness or injury can be hugely stressful and certainly not conducive to a quick recovery. Income protection policies provide you with a replacement income in the event of an illness or injury. You can arrange for it to kick in whenever your sick pay ends so that you are looked after for the long term. If you are under covered or worse don’t have any cover, it’s a pertinent time of year to review and assess your needs to make sure you and your future plans are protected.

Life cover, the boring essential for everyone
There’s nothing exciting about life cover, it pays out a lump sum in the event of your death. Nobody wants to think about such things but anyone with dependants needs to make sure it is taken care of.    With life cover you are not protecting yourself but those who are left behind. Also, be sure to cover those whose demise would impact financially on you. It’s not just the earner that needs to be covered in a home but the key people in the house whose workload is expensive to replace.

Pension Planning (for GPs, Consultants and Doctors)
GPs benefit hugely from the GMS pension scheme which pays into their pension in line with their GMS capitation income.  To make the most of their benefits they must also save some of their private income into their pension so they can maximise the tax advantage and provide for their future. Hospital Doctors benefit from the superannuation scheme which is a defined benefit scheme that gives them credit for each year they work towards their pension. Forty years of service gives them a very attractive pension but many doctors are short years due to travel and foreign education and need to enhance their pension using PRSA AVCs or buying back years. Consultants often have a mix of years in the public sector and in private medicine. Each portion of their income should be funded for pension.  The revenue place limits on what can be done but maximising the opportunity is the critical factor.