Top tips: How to shake up your finances this Christmas

It might be something many of us answer almost reflexively when asked how our Christmas was, but this year it will undoubtedly be true. A “quiet” festive season awaits us in 2020. So why not put that time you may otherwise have spent carousing into sorting out your finances.

Okay, it may not be as much fun but, with an uncertain year ahead, it should put you in a stronger position to weather what storms may come. To help guide you, here are some tips from the experts on what you should look at, from your budget to planning for the future, pensions and mortgages.

Take back control of your spending

Eoin McGee, Prosperous Financial Services and author of How to be Good with Money

“When people ask me what’s the simplest thing I could do to improve my long-term finances, I always say become conscious. Be aware of what you spend on and more importantly why you buy certain things.

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“Is it actually your decision or has a marketing department somewhere achieved their goal of getting money out of your pocket and into theirs?

“Like never before, being conscious about what we spend is a much easier task. With restrictions, we need to consider whether going into a particular shop is necessary. There is little or no ‘just browsing’ which means more and more of our spending is under our control.

“Take advantage of these unusual times to take back control of how and why you spend.”

Create a budget for your life

Marah Curtin, director of client engagement, Davy

“Without a budget, your financial picture is, at best, muddy. At worst, you might find yourself overspending or feeling confused and anxious about your situation. A good budget will keep you motivated and accountable toward achieving your personal and financial goals.

"The best budgeting secret I ever learned was the 50/20/30 rule – and what I love most about it is that it has balance built right into it.

“It’s a simple ratio that dictates how much of your after-tax income to allocate to each area of your life – 50 per cent for the essentials like a roof over your head, groceries and basic clothing; 20 per cent for your future, which includes paying down debt and saving for your retirement; and a whopping 30 per cent to spend however you like.

“While it will suit most budgets, your personal budget may need some wiggle room at times. For instance, if you’re playing catch-up on your retirement savings, your future bucket may expand or if you’re stuck in an expensive rental, your ‘50’ may not be there yet.

“What’s important is to know what a balanced budget should look like and to understand what goes into each of these categories. A quick internet search of the 50/20/30 rule will tell you everything you need to know about the finer details.”

Figure out your biggest financial objective

Derek Maguire, Financial Architects

“About 80 per cent of people do not get financial advice; they get a financial salesperson trying to sell them something for commission, which is not the same. Instead, people should be asked: ‘What is your number-one highest financial objective, above everything?’

“The answer, invariably, is: ‘Will we be okay into the future?’ People want to know whether they have enough to do them into the medium/long term.

"To help understand this, you need to look at how much it costs you to live with a basic lifestyle – essential costs only, [for example] food, clothing, school, phones, mortgage, etc. You can also check the same but including lifestyle costs – discretionary spending.

“Once you know how much you spend, you can factor in your future cost of living. Understanding where you are headed, from a cost point of view, can be addressed then by how many assets do you need such as property, savings, pensions, State pensions and any future inheritance, sale of a business, etc.”

Take charge of your pension

David Sommerville, First Choice Financial Services

"The one thing I would urge people to do in 2021 is take responsibility for their pensions by simplifying and consolidating them under one roof. The key pension questions everyone should be able to answer straight away are: one – where is my pension; two – what is it invested in; and three – how much is it worth?

“Consolidation will give you an answer to all three. It will lead to better investment choices, which in turn should lead to better pension pots.

“While you may change jobs several times, it makes much more sense to keep just one pension provider. It is very possible to have different types of pensions under the one roof. This particularly applies to people who have left pensions abroad in places like the UK.

“2021 is the year to take charge; leave it and you leave yourself open to some nasty surprises down the line.

“Inaction is not a plan, remember only you are responsible for your pension and no one else.”

Get planning . . . and get saving

Simon Shirley, Simon Shirley Advisers

"One thing to do over Christmas would be to create a long-term financial plan with simple steps. First, decide how much cash you can set aside each month for long-term financial planning – [for example] create a budget. Then, decide how to split the cash each month, typically in three or four ways as follows:

A: Start or increase pension contribution – a 1 per cent increase in pension contribution for someone with a €40,000 salary would cost €20 per month, net of 40 per cent tax relief.

B: Set up a regular savings plan to build up short-term savings – online savings accounts are available for as little as €10 per month.

C: Make a mortgage overpayment by standing order each month – a mortgage overpayment of €75 per month on a €250,000 mortgage with a 2.5 per cent interest rate for a term of 30 years, for example, would result in an interest saving of more than €11,500 and reduce the mortgage term by three years.

D: Set up a long-term investment savings plan, typically suitable for a minimum period of seven years, for long-term saving, education funding, etc – plans that start at €75 per month are available.”

Spend less than you earn

Jane McAleese, Wealth Alliance

"It is only when you know your lifestyle cost that you can start to plan your finances; without knowing this number you can't possibly know what you need your money to work for you.

“Go through bank statements, credit card statements, look at monthly and annual expenses. Caution with regards to 2020 expenses, as they are likely to be an outlier especially in context of leisure expenses.

“If you have no money at the end of the month but your expenses suggest you should, it will likely mean that you aren’t tracking discretionary spends.

“You want to spend less than you earn. When you have more money coming in than going out, you can start planning priorities with your surplus. In terms of priorities, first you use your money to protect your lifestyle. This might mean protecting your income. Then put in strategies to ensure you can maintain your lifestyle now and into the future and finally you want to put strategies in place to improve your lifestyle.

“If you are living beyond your means, you need to either earn more, if possible, spend less or have your assets, if any, working better for you. For some people it may be a combination of all three options. Regular small adjustments can have an enormous impact on long-term financial planning.

“When you have a good handle on your current expenses, you can start to think about future expenses like school costs, college costs and consider ad hoc expenses that may happen every few years, for example, home renovations or car replacements.”

Review your mortgage

Joey Sheahan, MyMortgages

“The single most important thing for most people to do is to review their mortgage. It’s the biggest expense most people will have in their lifetime and can be easily done as part of a wider financial ‘health-check’.

“You should always ask yourself why you should stick with a lender that isn’t giving you the best value.

“For example, a borrower with a €300,000 loan on a house worth €500,000 with 28 years remaining could reduce their monthly repayments from €1,435 – 3.7 per cent variable rate – to €1,159 on a three-, five- or seven-year fixed rate of 1.95 per cent, which saves €276 month, €3,300 annually or €92,000 over 28 years.

“To get started, simply contact your existing lender to confirm your rate of interest, balance outstanding and term remaining on the mortgage. If you are on a fixed rate, ask your lender what fee, if any, they charge for breaking the mortgage contract.

“Also ask them to review your interest rate and enquire about variable and fixed-rate options for an existing customer. You can do the rest of the legwork or go to a mortgage broker for a market comparison.

“It costs nothing to explore your options and the decision to move or stay is always yours to make.”