New college grad, no idea what to do with money long term.

B

bogmandem

New Member
Messages
1
Personal details

Age: 22

Income and expenditure
Annual gross income from employment or profession: ~$150k


Type of employment: Self employed / contracting for a US company

In general I'm saving. I have about 1k per month in fixed costs.
Leaves me with about 10k.

Summary of Assets and Liabilities
20k in savings

Other borrowings – car loans/personal loans etc
None

Other savings and investments:

Do you have a pension scheme? Nope

Do you own any investment or other property? Nope

Other information which might be relevant

Life insurance: Nope


What specific question do you have or what issues are of concern to you?
I graduated from uni this year. Working as a contractor in tech with annual contract value of ~$150k.
However I've no idea what to do with my money and would like some guidance.

I don't have an accountant; although I realise I should go sort that out soon.
I don't want to buy a house.
Beyond that I'm guessing that I should start putting money in to investments, assume a 7% return, and then put 10/15k a year for retirement.
I have the inclination to get a financial advisor; but then also wonder if that's just a waste.

What should I do regarding tax, operating under a business, investing? Any and all guidance would be welcome.
 
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At that salary rate I would 100% buy somewhere to live. I can't imagine putting up with all the hardships of renting if you are able to get the deposit together to buy somewhere. You can still have lots of fun given that the cost of owning is lower than renting.
 
bogmandem said:
I don't want to buy a house.
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Perfectly understandable that you would not want to buy a house as it would tie you down at too young an age.

However, a person's first financial priority is to buy a house. So you should put yourself in a position to be able to buy a house, if and when, you are ready to do so.

Don't invest in anything inflexible e.g. a 5 year bond.
Don't start a pension scheme yet - you have plenty of time.

With a long investment horizon, you should invest in the stock market.

  • It has the best long term returns.
    It is easily accessible if you need the cash
    You can easily handle the risk of a fall in the values

Investing in the stockmarket has another big advantage. It is a great education. You will see how the stockmarket goes up and down and you will find out if you are emotionally able to handle such volatility.

Brendan
 
bogmandem said:
I don't have an accountant; although I realise I should go sort that out soon.
Click to expand...

Whatever about an accountant, do you realise that you should have paid the preliminary tax for 2023 in November?

Did you pay this?

If not, get onto an accountant immediately and pay the tax due to avoid interest and penalties.

Brendan
 
Brendan Burgess said:
Don't start a pension scheme yet - you have plenty of time.
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I advise the opposite.

You have an investment horizon of 50+ years and you should stuff your pension with equities today and avail of the tax relief on contributions and capital gains.

You are looking at a likely inflation-adjusted increase of 5x-8x by drawdown. It could even facilitate a very early retirement.

ETFs on the other hand don’t give you income tax relief on contributions and gains are subject to exit tax.

For a house I wouldn’t worry until you are ready. You will easily accumulate a deposit and get a mortgage on your income.
 
Brendan Burgess said:
Whatever about an accountant, do you realise that you should have paid the preliminary tax for 2023 in November?

Did you pay this?

If not, get onto an accountant immediately and pay the tax due to avoid interest and penalties.
Click to expand...
Hi Brendan

He only graduated from uni this year. Preliminary Tax is not payable in the first year of self-employment.

And penalties don't apply to non-payment of Preliminary Tax. Just interest.


bogmandem said:
Annual gross income from employment or profession: ~$150k
Type of employment: Self employed / contracting for a US company
I graduated from uni this year. Working as a contractor in tech with annual contract value of ~$150k.
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@bogmandem I'm just wondering - are you based in Ireland?

Few companies in Ireland will take on a self-employed contactor at your level of earnings.
 
Are you contracting as a Ltd Company Dorector or as a Sole Trader? Either way, please get an accountant as your top priority. You do not have 10k a month to play with. Nearly half of that is likely to be due in tax.
 
Dr Strangelove said:
I advise the opposite.

You have an investment horizon of 50+ years and you should stuff your pension with equities today and avail of the tax relief on contributions and capital gains.

You are looking at a likely inflation-adjusted increase of 5x-8x by drawdown. It could even facilitate a very early retirement.

ETFs on the other hand don’t give you income tax relief on contributions and gains are subject to exit tax.

For a house I wouldn’t worry until you are ready. You will easily accumulate a deposit and get a mortgage on your income.
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I would agree with a pension. The OP wouldn't notice €500 per month and it would build very nicely from there at his age.
 
If true earnings are 50% what is reported I would still advise the same priorities:

1) pension
2) cash or state savings
3) house
4) ETFs
 
T McGibney said:
Read back. I made no reference to his daily rate. I mentioned his level of earnings only to distinguish him from someone that may be doing casual or occasional contract work like a plumber or handyman typically gets hired ad-hoc for.
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Got you. This is why I asked about sole trader or via Ltd Company (as Proprietary Director)

The term self-employed is commonly used for both arrangements.
 
Dr Strangelove said:
You have an investment horizon of 50+ years and you should stuff your pension with equities today and avail of the tax relief on contributions and capital gains.

You are looking at a likely inflation-adjusted increase of 5x-8x by drawdown. It could even facilitate a very early retirement.

ETFs on the other hand don’t give you income tax relief on contributions and gains are subject to exit tax.
Click to expand...

These are the standard arguments used by the industry and I disagree with them.

Buying a house is the best way of saving by a long shot.

Investing in a pension is next.

I am not suggesting "you should invest directly and not in a pension"

I am saying that your priority is flexibility and to buy a house.

When that is sorted start a pension. You will have plenty of time and at that level of earnings, you will hit the ceiling for tax free contributions long before you retire.


Brendan
 
Brendan Burgess said:
Buying a house is the best way of saving by a long shot.
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Debatable, but certainly the best way to house yourself if you can get a mortgage and are relatively settled.

Brendan Burgess said:
These are the standard arguments used by the industry and I disagree with them.
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I’m no lover of the pensions industry but it doesn’t invalidate the argument! I just don’t think it’s possible to beat tax-relieved equities over decades if that is your horizon.

Brendan Burgess said:
You will have plenty of time
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Compound growth suggests the opposite. Heavy contributions now means the OP could dial it back in his 30s if his lifestyle changes or he wants to switch gears career wise.
 
Dr Strangelove said:
Compound growth suggests the opposite.
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No, no, no, no, no!

You might well argue that it's better to spend €500 a month on a pension than on getting drunk. And that the €500 will compound.

Compound growth applies to directly held equities as well as property.

Brendan
 
Dr Strangelove said:
Debatable, but certainly the best way to house yourself if you can get a mortgage and are relatively settled.


I’m no lover of the pensions industry but it doesn’t invalidate the argument! I just don’t think it’s possible to beat tax-relieved equities over decades if that is your horizon.


Compound growth suggests the opposite. Heavy contributions now means the OP could dial it back in his 30s if his lifestyle changes or he wants to switch gears career wise.
Click to expand...
Agree, and it opens up the potential to retire or semi retire or start a hobby business at 50.
 
T McGibney said:
Preliminary Tax is not payable in the first year of self-employment.

And penalties don't apply to non-payment of Preliminary Tax. Just interest.
Click to expand...

Great.

Thanks Tommy. I forget the basics.

So what happens in year 2?

Does he pay the tax for 2023 and the Preliminary Tax for 2024 at the same time?

Brendan
 
Brendan Burgess said:
Whatever about an accountant, do you realise that you should have paid the preliminary tax for 2023 in November?

Did you pay this?

If not, get onto an accountant immediately and pay the tax due to avoid interest and penalties.

Brendan
Click to expand...
According to revenue
"
Do I have to pay preliminary tax in my first year?
In the first year you are in the self-assessment system, you can choose either: preliminary tax of 100% of the previous year's liability. Generally, you will not have to pay preliminary tax with this choice. This is because, in your first year your previous year's liability would normally be 'nil'
"


Secondly, what harm starting a small pension contribution? Start as you mean to continue.
 
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