Money Makeover: managing savings effectively & anything else that could be done better

[Billbuck]

Background:
Family living in Dublin.
Both my partner and I are 40, both work.
Two children, one recently started primary school, one with 3 years left in creche.
House with manageable mortgage in Dublin.
Regular overpayment of mortgage, aim to clear before 2030.
I want to make the most of my relatively modest savings so they are not destroyed by inflation, but keep enough rainy day money.
I am not very financially literate and time poor so individual stocks, shares & other options that require a bit of time and maintenance are unlikely to suit my life currently.

Age: 40
Spouse Age: 40

Children:
2, one in primary school senior infants, one with 3 years left in creche.

Annual gross income from employment: 100,000
Bonus: 20,000 per year

Spouse gross income from employment: 39,500
Spouse Bonus: 300-500 per year

Pension:
Me: 5% + 15% AVC (20% was maximum allowed for tax relief before recent birthday)
Employer: 9%

Partner: They contribute, but unsure of percentage.

Mortgage:
170k left, roughly 1100pm.
14 years remaining, locked at 2.44%
Overpayment of 10% each year


Savings:
45,000

Aim to save min of 1k per month, works out most of the time.

 

[RedOnion]

Both my partner and I are 40, both work

Are you married, and if you are, are you jointly assessed for tax?

Edit: I see from previous post the answer is Yes to both.

In my view, keep it simple.

Both maximise your pension contributions.

Your wife can get higher rate relief by juggling bands between you both.
Invest pensions in diversified global equities.

Overpay mortgage as much as you like. There will be no break fee at the moment as interbank rates have increased since you fixed.

Then reassess where you are.

 

[Billbuck]

Thanks Redonion, good to see im not doing too bad by one persons assessment.


Only one reply in over a week, have i formatted the post poorly or done something that makes my post less likely to get responses?

 

[noelÓm]

You are doing very well.

Both my partner and I are 40, both work.

Get married if you aren't already. The state provides valuable inheritance tax relief to married couples. Being married will also avoid potential issues claiming survivor's benefits or a widow's pension. You don't need a big wedding party if that's not your scene. €200 and some paperwork will do.

Mortgage:
170k left

Your mortgage is already quite low and you are only 40, so my guess is that you haven't overextended yourself with a very expensive property. Are renovations or a new house on the cards? That would impact your decision-making about how much cash to hold and whether to overpay the mortgage or lock up savings in a pension. I'll work on the assumption that you are happy with what you have.

Partner: They contribute, but unsure of percentage.

Find out what your partner and their employer are contributing to their pension. Consider raising their contribution to the relevant tax relief limit.

Overpayment of 10% each year

Once your partner is maxing out her pension contribution tax relief, then make overpayments with any spare monthly cash. You are likely able to overpay by more than 10% with a small or no penalty. Your lender will be able to quote you a "break fee" for any proposed overpayment.

Savings:
45,000

As you mention bonuses, I am guessing that you are both private sector workers? And you have kids. So, you do need a decent emergency cash reserve. I think €45,000 is about right, but others might differ. You could consider putting some of this cash pile into an interest-bearing overnight demand deposit account or equivalent, like Trade Republic / Lightyear / etc. You'll find discussion on this site of the options. If you held €25,000 in the best yielding overnight account at present, you would earn (25,000*0.0275*0.67)=€460 interest a year. That would soften the inflation blow a little, while retaining easy access in case of emergencies.

Annual gross income from employment: 100,000
Bonus: 20,000 per year

Spouse gross income from employment: 39,500
Spouse Bonus: 300-500 per year

Do you have life insurance? If not, take out some and help your partner provide for your children in the event of your death.

You might also consider taking out income protection insurance for yourself. If you were unable to work due to illness, then your standard of living would drop quite a lot. Your finances are already pretty good, so you could manage okay solely on your partner's income. But it would be a big hit to your standard of living.

Regular overpayment of mortgage, aim to clear before 2030.

Aim to save min of 1k per month, works out most of the time.

These are rule-of-thumb financial goals. You are amassing a lot of wealth. What is it for? And when, if ever, do you plan to spend it? Early retirement? Providing handsomely for your children? Whatever you do, make sure your savings behaviour aligns with your life goals.

 

[Clamball]

It looks like you are in a very solid financial position currently. Aiming to have the mortgage paid off by the time the oldest is 15ish will allow you to divert the monthly mortgage to university payments especially if they end up moving out of home for university.

Your current savings seem to be sufficient for any emergency so now you should consider what life goals you are saving for. This is of course personal to you and your family so maybe you want to take a long haul holiday each year, stay in a high end destination etc, Maybe you want to buy a holiday home in Spain or a mobile home in Galway and invest your saving there. Maybe you are a rugby mad family and want to take the family to all the international events. Maybe the youngest is a gymnastic prodigy and you want to aim for the 2040 olympics. There are so many possibilities but there maybe something that is a life goal for you and:/or the family that might require a €10-€20K spend per annum and you seem well fixed to do this.

In terms of your partner, can they improve their earnings to more than €40K pa, it seems very modest for a 40 year old. Maybe they work part time, but increasing their salary and investing in their pension would help alleviate your high stress role in providing the bulk of the income for the family. Can you sustain this high intensity role for the next 25 years to retirement or is there further potential for less stressful more work/life balance roles going forward.

And getting married, which only costs a few hundred euro is a big financial safety net for your family.

 

[GSheehy]

I want to make the most of my relatively modest savings so they are not destroyed by inflation, but keep enough rainy day money.
I am not very financially literate and time poor so individual stocks, shares & other options that require a bit of time and maintenance are unlikely to suit my life currently.

When you set up the AVC, did you engage an advisor or did you execute the transaction yourself? Either way you should have an understanding of costs/charges?

Do you understand how the collective investment fund/s that you're invested in work?

Just trying to get an understanding of what would suit your time/knowledge quandry and someone else might be able to point you in the right direction, for future reference.

 

[NoRegretsCoyote]

Mortgage:
170k left, roughly 1100pm.
14 years remaining, locked at 2.44%
Overpayment of 10% each year

I think you have a great interest rate that is unlikely to be on the market again over the term. With inflation at 5% an interest rate of half that means free money basically. There will be ups and downs but the return on diversified equities via pension fund is almost certainly likely to be better than 2.44%.

In your shoes I would stuff the pension instead of overpaying mortgage and go to the maximum 25% allowed for by your age. I know there is psychological comfort in being mortgage free but there is much better value in putting spare funds into pension right now.

Save for this point there is very good advice further up the thread.

 

[Billbuck]

Thank you all for the replies! To provide some additional information based on the excellent questions:

• we are married and joint assessed as of this year.
  We done our tax return for the past 4 years as my partner was on maternity leave, so that gave a few euro back to us.
  
  
• I will find out what percentage partner is contributing to pension.
  
  
• We are both private sector employees, both in companies who have not overhired. makes for more work and stress, but a bit more job security. I dont doubt that we are both expendable, but both companies have shown restraint recently & back in 2007/08 when others were handing out redundancies.
  
  
• My partner likes their job and likely wont leave, despite the relatively low salary. They are working on earning more through promotion, and if they achieve this it still wont be much more than a few thousand euro per year.
  
  
• we have life assurance, I forgot to include it as my partner handles that.
  
  
• I believe there is some income protection provided by my work, but I will look into it and may investigate if i need more protection.
  
  
• Trade republic is a good idea. I considered setting up an account, but with the questions i read regarding their guarantee should anything go wrong, i never followed up on it.
  
  
• We are happy with our house. Its not in D6W, but its a new build in a reasonably nice area & has appreciated by about 40% in the 5 years we have lived there, based on sale price of mostly identical neighbors houses.
  
  We locked in the interest rate as I assumed we wont see the super low rates of the last few years within the lifetime of my mortgage.
  
  
• Pension contributions are managed by my employer, who covers fees.

What am i saving for?

• Helping the kids get started.
  I would like to be able to give the kids a bit of a head start, perhaps some of the deposit for their first house, without limiting funds for retirement.
• will need a new car in the next 3-4 years, current is 9 years old and starting to feel it. But will try to hold onto it as long as possible.
• rainy day - medical expenses, house repairs.
• We dont do expensive holidays, we are relatively modest in our wants and needs, staying within the country, mostly visiting family. As the kids become easier to manage, when the youngest turns 3 or 4, we will start taking holidays outside the country again, give the kids some experiences.
• Secondary school & university. We are still unsure if we will send the kids to private secondary school, but want the option.

A big goal is to ensure I'm maximizing my money. This seems to indicate investments, but as I am time poor, stocks & shares are not an option right now.

 

[misemoi]

Will your kids be able to live at home in college (imagine 4 adults with room for study space, home at various stages of the day eg so would wfh work if they are in the space you would work etc) or would you be planning for them to move out ie rental outlay?

Are you basically faced with a long term choice of rent for your kids * years of college or all squeeze into a house that is too small for needs or invest in a larger home that you could all enjoy more over the years?

For your partner, with kids that young I would understand unwillingness to change work and the current routine. But this may change over the years as they get older and things get easier so def worth looking at this as a potential medium term change. Eg if they currently work outside of the home could they seek a role with some home working which might be very useful in the school going years with plenty of evening activities etc. Things change over the years with kids and needs so this is something worth reassessing....plenty of people step back a bit or increase work hours as kids ages change.

 

[RedOnion]

Pension contributions are managed by my employer, who covers fees.

You still need to find out exactly what the pension is invested in. Lots of schemes offer a choice of investments, but people end up in a default 'middle of the road' option they day tgey start, and never review it. You've 25 years to retirement, being invested in something that returns 7% vs 5% per annum will make a massive difference to your wealth on retirement.

 

[noelÓm]

A big goal is to ensure I'm maximizing my money. This seems to indicate investments, but as I am time poor, stocks & shares are not an option right now.

I don't follow your logic. There are two ways of investing in the stock market. One is to spend a whole lot of time and effort researching companies and trying to time your trades. This is a terrible idea for most people, including you. The other way is to buy a passive index fund that tracks the market at the lowest possible cost. This is not time intensive.