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Tips to get financially fit for 2022

Achieve financial wellbeing this year with a little expert advice

A whopping €965.80 is the average amount spent at Christmas by every adult living in Ireland, according to Deloitte’s 22 annual Christmas survey.

John Lowe of MoneyDoctors.ie says: "We are still tops in Europe for spending, with nearly €500 spent on presents, more than €288.30 spent on food and the balance of €177.90 spent on socialising.

“To make it worse, much of this spending is done using credit cards with only 50 per cent of cardholders paying the minimum balance. At that rate, it can take a whopping 20 years to clear the entire debt.”

Historically, Victorian author Charles Dickens got it right in David Copperfield where Mr Wilkins Micawber says “Annual income £20, expenditure £19.19s6p – result happiness. Annual income £20, expenditure £20.0s6p – result misery.”

And the clue here is not just the overspend, but the annualised overspend.

Dawn Bailey, head of financial wellbeing, group marketing, Bank of Ireland, advises a similar granular approach to improving finances.

“The first step in improving your financial wellbeing, including managing your debt, is to get a full picture of your finances. Sit down with an old-fashioned pen and paper, an excel spreadsheet or use a budget planner to list all of your incomings and outgoings.

“Not just the big things but everything from coffees, subscriptions to nights out, etc. It doesn’t have to be 100 per cent accurate but should be as close as possible.”

Bailey goes on to advise that this budget should be revised a few times a year with adjustments as necessary but argues for the 50/30/20 rule.

“This is where 50 per cent of all income goes to funding your needs [bills, food, fuel, etc], 30 per cent towards your wants [new tech, nights out, new clothes] and 20 per cent towards your savings. However, do include any debt in that first 50 per cent as it’s the most expensive money you owe.”

Needs and commitments

John Alford, workplace financial planning lead, Irish Life, advocates a similar approach to managing finances. He argues that achieving financial wellbeing is all about being able to meet known financial needs and commitments, and, more importantly, being able to meet those needs/commitments if something unforeseen were to impact your finances. He advocates three clear ways to start the year right when managing finances.

“Increase your level of financial awareness and knowledge so that you know how much money you’re earning each month and where you’re spending that money.

“Then set financial goals; divide them into short, medium, and long-term objectives. These goals can range from getting out of your overdraft, to getting a deposit for a house together, to funding your children’s education costs and maybe even buying that yacht.”

Finally, Alford’s last tip in managing finances is to figure out how best to achieve those goals.

“It would be to reduce spending, increase saving, invest, start a pension, and/or avail of more financial protection. All of the above becomes a lot easier with the help of a financial planner. Sitting down with a professional, trustworthy and efficient financial planner is one of the best things you can do to help achieve financial wellbeing.”

Bailey also has some good tips on savings, such as paying yourself first.

“A lot of people look to save whatever is left at the end of the month. This doesn’t work out in many cases. Automate your savings and let a set amount go out on payday before you have a chance to change your mind. Remember it’s still your money. It’s just in a different account. If you are liable to keep dipping into it on a whim, maybe consider something you can access but maybe not immediately. Some accounts require a few days’ notice.”

Saving for a rainy day fund, and for future planned expenses is also important. Bailey suggests calling the fund for its purpose, “the new windows” fund, for example.

“That way you’ll be less likely to dip into that pot for a new phone or a last-minute night away,” she says.

Financial advice

Like Alford, she suggests seeking financial advice when looking at more complex investments which may contain some risk but also offer a higher return.

“In our research, we discovered that only 15 per cent of women feel confident enough to choose investments without an adviser compared with 27 per cent of men. Women are quite good at saving but taking that next step is often daunting. Getting advice may allow you to earn a greater return on funds,” says Bailey.

For people in a higher (40 per cent) income tax rate bracket, pensions are an excellent way to reduce tax and provide for the future, according to Alford.

“The tax efficiency of saving into a pension plan is very attractive,” he says.

“People sometimes say that the tax advantages of pension saving are negated by the fact that you pay income tax on pension income in retirement, but many people won’t pay any income tax in retirement even if receiving a private pension income and, for most people, the tax you’ll pay on your pension in retirement is far less than the tax saved on building up that pension in the first place during your working life,” says Alford.

Lowe emphasises that whether you are a government, business, a family or an individual, the philosophy is the same. If expenditure exceeds income, you have three choices – earn more, cut costs or simply prioritise. Doing nothing is not a healthy or helpful option. Or, as Mr Micawber said, 170 odd years ago: “Result – Misery.”