Improving Financial Position

[tcab23]

Personal details
Age: 40
Spouse’s/Partner's age: 39
Number and age of children: 3 children – 15, 10 Years, 5 Years

Income and expenditure
Annual gross income from employment or profession: €120,000 (pay rise expected 1H 2023)
Annual gross income of spouse: approx €75,000 ...take over bi-weekly 1900euros.

Monthly take-home pay about: approx €9700 (between both of us), can be more with OT

Type of employment: e.g. Civil Servant, self-employed: Private Company, Wife Civil Servant

In general are you:
(a) spending more than you earn, or Live occasionally on small overdraft. we like to eat out, spend time away in hotels. We are spenders for sure.
(b) saving? ability to save but we do it for short term needs (renovation work for the most part). have separate regular credit union savings for our 3 kids which over the years have accumulated approx 14k (not a lot but slow and steady and in place since first child was 2. the idea with that is so each child when there 18 years old will have some cash to perhaps help with college, first car etc. And they might learn the value of having regular savings.


Summary of Assets and Liabilities
Family home worth €550K with an €240K mortgage
Pension fund: €200K myself, wife has work pension also



Family home mortgage information
Lender: BOI
Interest rate 2.45%

Value: €550K
Mortgage: €240K

Have switched 3 times in the last 7 years and each time reduced term. 30 year mortgage in 2016, 17 years left today due to reduced term with each switch. currently overpaying by 300 a month

Other borrowings – car loans/personal loans etc N/A
Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card? minus 500euros (topping it up for holiday in June)

Car loan: €335 per month (PCP due to end next month. 9300k final payment)
Just recently paid off 2 other loans (wife's car, home improvement loan in 2017-2022)
Child Care: n/a


Buy to let properties

Not applicable

Other savings and investments:

Do you have a pension scheme? Yes, I contribute 5%, company contributes 6%. I also have 400 AVC per month.
Savings = 10k (thinking of using that to pay car loan next month, we would then both own our cars without any outstanding loan)
Do you own any investment or other property? No but we have a barn on our property which is a successful airbnb rental..generates approx 20k per year gross. we have a loan on that which has 2.5 years remaining @ 380 per month.
Other information which might be relevant
Life insurance: Yes, dual ;policy covering outstanding mortgage
Health Insurance..company scheme
Company Stocks worth approx 5k




What specific question do you have or what issues are of concern to you?
I'm worried that we do not have enough savings at our age. We have the ability to save but over the past few years we save for works needed to our house and other short term needs. I am thinking of using our current savings 10k and paying off the final car loan next month. I am more interested in paying into AVC and overpaying mortgage versus having a savings account. I do not know if this is the best way forward for us. I'd like to be mortgage free (like most) as early as possible. With some hard work we think we could get there in our early 50's. We are also considering an extension on our home. We could afford the additional monthly payments using the airbnb income. That may not last forever with the new enforcements coming for STRs. We are in discussions with an architect for drawing up plans but do not think we could start that work until we have all existing loans paid. Planning permission lasts 5 years so we would have time and with the current costs of materials and Labour it may be best to wait; at the same time things could get more costly in the next few years

 

[DublinHead54]

Don't be hard on yourself you are saving already by overpaying mortgage and avc's, it just takes time to see the fruits of that labour. You are 40 with a 17 year mortgage and overpaying, so I assume that you will clear that already by Early 50s without changing much?

 

[PGF2016]

Spend a little less. Save an emergency fund. Once done then max out your AVCs and pay down mortgage more aggressively. Don't over think it.

 

[ThisisMax]

I dont want to sound critical so I will word this carefully.......But the guts of 10K a month income and you still have to use an overdraft??
No childcare bill.
Car loan despite the two very big salaries?
Limited savings?
You want to do an extension?
You have a credit card?
None of the above makes sense.

For context I earn less than 40K, my wife earns less and I'm still better off than you are on those salaries - you are wasting a ton of money.
You really need to get rid of car loan, up the savings, get rid of the credit card.
Start a college fund ASAP.
Dont take my post as critical of you please but I think you are really bleeding a lot of your income away.

 

[tcab23]

I dont want to sound critical so I will word this carefully.......But the guts of 10K a month income and you still have to use an overdraft??
No childcare bill.
Car loan despite the two very big salaries?
Limited savings?
You want to do an extension?
You have a credit card?
None of the above makes sense.

For context I earn less than 40K, my wife earns less and I'm still better off than you are on those salaries - you are wasting a ton of money.
You really need to get rid of car loan, up the savings, get rid of the credit card.
Start a college fund ASAP.
Dont take my post as critical of you please but I think you are really bleeding a lot of your income away.

I don't think you're critical. I tend to agree on most. That was the reason for my post. I sensed we could be doing better. I didn't mention more details on other outgoings (food, utilitys, tv (120 a month with sky), broadband, home insurance (our policy is 1000 euros as we have the barn to cover) We are bleeding cash I feel and its one of the reasons I pay into AVC and overpay mortgage. It gives me a sense that we are doing something correct. We spend a lot of cash on the house. There's always a job to get done. This last few weeks for example we had new windows.

 

[ThisisMax]

I agree with you. You earn great salaries and could really be making money work for you as opposed to being on a treadmill to working harder & more.
I have chronic pain so I cant work a lot so everything I earn is used and I keep a spreadsheet by month, quarter, year etc. You could be in a great place in 5 years if you saved, covered college so no loans and reduced spend. To me reading your post you are a prime candidate for a real deep dive into where your cash is going. I would not overpay a mortgage or do AVC's until I had all loans cleared. Others will be along to offer better advice soon I'm sure.

 

[PGF2016]

I dont want to sound critical so I will word this carefully.......But the guts of 10K a month income and you still have to use an overdraft??
No childcare bill.
Car loan despite the two very big salaries?
Limited savings?
You want to do an extension?
You have a credit card?
None of the above makes sense.

For context I earn less than 40K, my wife earns less and I'm still better off than you are on those salaries - you are wasting a ton of money.
You really need to get rid of car loan, up the savings, get rid of the credit card.
Start a college fund ASAP.
Dont take my post as critical of you please but I think you are really bleeding a lot of your income away.

The OP seems to living a good life. Hard to say they are wasting their money.

Could obviously tighten things up but is in a reasonable position overall. No reason why they couldn't pay off the mortgage much more aggressively and save a bit more though.

 

[_OkGo_]

You are not in a bad position at all and I think the main thing causing you trouble is the way you are compartmentalizing your spending, e.g. this is for university, this is for car, this is for mortgage etc

I'd like to be mortgage free (like most) as early as possible. With some hard work we think we could get there in our early 50's. We are also considering an extension on our home. We could afford the additional monthly payments using the airbnb income

This paragraph is a bit of a contradiction. If you extend, you probably aren't going to do a lot for less than €150k so in effect your mortgage will increase to ~€400k, if not more. You are not going to clear that in your early 50's based on your current spending pattern. That's not to say that the extension is not the right thing to do but you just need to forget about clearing the mortgage so early.

Your biggest problem right now is cash flow, you have lots of short term debt so you need to break that habit. I would start by:
- pay the lumpsum on the car, ending the PCP will free up €335/m
- stop overpaying the mortgage (€300/m)
- redirect both of the above to clear the barn loan.
- With the barn loan cleared, you will then have ~€1k of cash to put to use for AVC's or mortgage or university costs. You should probably build up a cash reserve before restarting the mortgage overpayments.
- do not buy new cars, you can't afford to do it with university coming and a potential extension
- if you choose to extend, I would strongly suggest trying to increase the mortgage term again. It was a mistake to shorten it in the first place but that's done now.

And like others have said, you need to do a deep dive of your spending habits. You could definitely save a lot by cutting unnecessary spending without impacting your lifestyle at all.

 

[jim]

I would suggest you document out your spwnding and see if theres anywhere to reduce spwnding without material effect on lifestyle.

Id pay off car loan asap and get rid of credit card.

I think youre ok re college fund as you have about 14k building slowly. Will it be enough? Might want to divert a bit more here.

The fact you are overpaying mort and doing avc is half the battle and shows that you actually are doing some thing right.

If you can increase your avc and pay down more on mortg then youll be doing very well.

So i would:
1. Look at spending and opportunities to reduce.
Pay off carloan and cred card.
2. Look at possibky increasing the (rainy day/college etc) 14k fund.
3. Review all insurances and bills for opportunities to reduce.
4. Where possible either increase avc or mortg overpayment or both. By doing this youre accelerating your wealth growth.

 

[tcab23]

You are not in a bad position at all and I think the main thing causing you trouble is the way you are compartmentalizing your spending, e.g. this is for university, this is for car, this is for mortgage etc


This paragraph is a bit of a contradiction. If you extend, you probably aren't going to do a lot for less than €150k so in effect your mortgage will increase to ~€400k, if not more. You are not going to clear that in your early 50's based on your current spending pattern. That's not to say that the extension is not the right thing to do but you just need to forget about clearing the mortgage so early.

Your biggest problem right now is cash flow, you have lots of short term debt so you need to break that habit. I would start by:
- pay the lumpsum on the car, ending the PCP will free up €335/m
- stop overpaying the mortgage (€300/m)
- redirect both of the above to clear the barn loan.
- With the barn loan cleared, you will then have ~€1k of cash to put to use for AVC's or mortgage or university costs. You should probably build up a cash reserve before restarting the mortgage overpayments.
- do not buy new cars, you can't afford to do it with university coming and a potential extension
- if you choose to extend, I would strongly suggest trying to increase the mortgage term again. It was a mistake to shorten it in the first place but that's done now.

And like others have said, you need to do a deep dive of your spending habits. You could definitely save a lot by cutting unnecessary spending without impacting your lifestyle at all.

Thank you. I agree with most of this solid advice. Some is interesting though. You say stop overpaying mortgage and reducing term is not the best option. I would have thought the opposite. Also for the extension the intent is to have any existing loans (barn loan) paid off and use that extra cash along with car loan 335, existing 300 mortgage overpayment, airbnb income and potential pay rise to cover the costs without increasing the term. The monthly repayments will increase but I think we would have enough to pay new higher mortgage with same term. it would be the only loan we would have at that stage. I do not want to increase term. We will never take a loan for a car again in our lifetime. We are past that mindset.

 

[ThisisMax]

I see your logic re extension and not increasing costs. If you finish the car loan, pay off barn loan you have more available cash per month. I bet though you could also realise significant savings on day to day expenses if you looked at where the spend is happening. This might also generate even better savings without impacting your standard of living too much at all. It makes no sense to prioritorise mortgage if you are payig a barn & car loan, simmilarly the AVC - you are only 40 so have lots of time to catch up on this. If you did a good savings plan for college it would be good. Your 15 year old is in college in 4 years, Your 10 year old in 8 years, your five year old in 13 years so in all the last college payment you will be paying (just for a four year degree) is in 2036. You will be paying college fees from 2027 to 2036. Thats c €15k per kid per year if living away or €7k per kid at home.. Id be focussing on getting this really sorted quickly. €400 a month would make a dent in it.

 

[DublinHead54]

- if you choose to extend, I would strongly suggest trying to increase the mortgage term again. It was a mistake to shorten it in the first place but that's done now.

Thank you. I agree with most of this solid advice. Some is interesting though. You say stop overpaying mortgage and reducing term is not the best option. I would have thought the opposite. Also for the extension the intent is to have any existing loans (barn loan) paid off and use that extra cash along with car loan 335, existing 300 mortgage overpayment, airbnb income and potential pay rise to cover the costs without increasing the term. The monthly repayments will increase but I think we would have enough to pay new higher mortgage with same term. it would be the only loan we would have at that stage. I do not want to increase term. We will never take a loan for a car again in our lifetime. We are past that mindset.

I've just got a mortgage top up from BOI and they treated it as a new mortgage, so you'd be able to have a longer term on the loan for the extension vs the actual mortgage.

There is greater flexibility in borrowing for longer and overpaying vs fixed higher payments on a shorter term

 

[tcab23]

I would suggest you document out your spwnding and see if theres anywhere to reduce spwnding without material effect on lifestyle.

Id pay off car loan asap and get rid of credit card.

I think youre ok re college fund as you have about 14k building slowly. Will it be enough? Might want to divert a bit more here.

The fact you are overpaying mort and doing avc is half the battle and shows that you actually are doing some thing right.

If you can increase your avc and pay down more on mortg then youll be doing very well.

So i would:
1. Look at spending and opportunities to reduce.
Pay off carloan and cred card.
2. Look at possibky increasing the (rainy day/college etc) 14k fund.
3. Review all insurances and bills for opportunities to reduce.
4. Where possible either increase avc or mortg overpayment or both. By doing this youre accelerating your wealth growth.

Thanks Jim. I have considered topping up the AVC as I have more room there (not sure how much I am allowed to pay into AVC but pretty sure I have runway to play with) My concern with pension and AVC is I have seen an 8% decline in its worth over the last year. I assume this is across the board and in the long term this will not be an issue.

I've just got a mortgage top up from BOI and they treated it as a new mortgage, so you'd be able to have a longer term on the loan for the extension vs the actual mortgage.

There is greater flexibility in borrowing for longer and overpaying vs fixed higher payments on a shorter term

Yes agree on flexibility for sure.

 

[Kilkenny06]

Going on the information provided, I'd be concerned that you will see a big drop in living standards at retirement age. Although you both have pensions, they're not going to produce anything like 10k a month of net income given you are around 20 years out with some chunky expenditure planned between now and then. I think your concerns are justified, even more so if one or both of you wants (or needs) to retire early.

I would max the AVCs immediately, start a budget to re-establish control over where your money goes (I like YNAB), and make sure your spouse is on board with any changes.

 

[PGF2016]

I have considered topping up the AVC as I have more room there (not sure how much I am allowed to pay into AVC but pretty sure I have runway to play with)

You can contribute up to 25% of salary at 40 years of age: https://www.revenue.ie/en/jobs-and-pensions/pensions/tax-relief-for-pension-contributions.aspx

My concern with pension and AVC is I have seen an 8% decline in its worth over the last year.

Perfectly normal. Nothing unusual about this. Check back in 20 years.

 

[_OkGo_]

You say stop overpaying mortgage and reducing term is not the best option. I would have thought the opposite

So there are 2 parts to this. Firstly, you have a short term cash flow problem so it makes no sense paying €300 off your mortgage at 2.45% mortgage when you have a much more expensive loan for the barn. You are also about to deplete your savings to pay the PCP lumpsum so your immediate priority for the next 12 months is to build up savings and clear the barn loan

Secondly, in the bigger scheme of things, having a longer term gives flexibility. The only number that really matters is the outstanding balance. As an example, if you decided that you could afford to pay €2k/m on a mortgage, it is much better to be contractually obligated to pay €1500 with an overpayment of €500. You can achieve this with a longer term and it gives the flexibility that if you needed to fall back to minimum payments for whatever reason that you can.

You should do as @DublinHead54 has done and take out the extension top up for as long as possible. Also bear in mind that the rate for the topup will be much higher so if you do get back to regular overpayments, they should be directed at the more expensive top up mortgage.

Also for the extension the intent is to have any existing loans (barn loan) paid off and use that extra cash along with car loan 335, existing 300 mortgage overpayment, airbnb income and potential pay rise to cover the costs without increasing the term. The monthly repayments will increase but I think we would have enough to pay new higher mortgage with same term. it would be the only loan we would have at that stage

I would be a little concerned about this approach. The extension could eat up all of the increased cash flow and you still haven't considered the cost of third level education. You should be able to comfortably pay third level from your income without needing a big savings pot or a loan. You know that you are very likely to face about 12 consecutive years of third level costs with the age gap between your kids so it should make planning easier.

 

[TRS30]

Don't want to derail that thread however when people talk about the cost of third level education, are they mainly taking about accommodation costs? I though 'fees' where capped at circa 3K. Maybe I have it totally wrong!

 

[ClubMan]

Don't want to derail that thread however when people talk about the cost of third level education, are they mainly taking about accommodation costs? I though 'fees' where capped at circa 3K. Maybe I have it totally wrong!

€2k as of budget 2023.

 

[azerty]

Not 2K for 2023 with that income.
The reduction for the current year was for everybody, it is mean tested from September 2023.

 

[tcab23]

Going on the information provided, I'd be concerned that you will see a big drop in living standards at retirement age. Although you both have pensions, they're not going to produce anything like 10k a month of net income given you are around 20 years out with some chunky expenditure planned between now and then. I think your concerns are justified, even more so if one or both of you wants (or needs) to retire early.

I would max the AVCs immediately, start a budget to re-establish control over where your money goes (I like YNAB), and make sure your spouse is on board with any changes.

Id be hopeful by retirement time we would have enough to live a decent standard of life given our mortgage would be paid off, savings built up, our kids will have fled the nest, we will have 2 work pensions and 2 state pensions, a rental income from a barn, potential inheritance from 2 sets of parents.