# 27 - Optimizing My Finances For The Future



## Younginvestor93 (27 Jan 2021)

Age: 27
Spouse’s/Partner's age: Single

Annual gross income from employment or profession: 38000

Monthly take-home pay:

Type of employment: Self Employed- Contractor

In general are you:
(a) spending more than you earn, or
(b) saving?
Saving more than I spend

Rough estimate of value of home: Currently, living at home, looking to buy within 1-2 years.
Amount outstanding on your mortgage:
What interest rate are you paying?

Other borrowings – car loans/personal loans etc: None

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card?

Savings and investments: 200000 in deposit accounts for deposit on a house. 13000 in global equity ETFs

Do you have a pension scheme? Yes, 6000 euro worth of PRSA with Irish Life. 1 or 1.25% management charge. 95% allocation I think.

Do you own any investment or other property? No

Ages of children: None

Life insurance: None


*What specific question do you have or what issues are of concern to you?*

1) I need to move my PRSA pension to a better alternative so it grows faster with lower charges.
2) I need to set up a personal pension with the lowest charges on the market and with good aggressive funds so I can grow my pension as much as possible and make max contributions to it every year.
3) I need to figure out how to best buy a house, whether to draw down a mortgage from the bank or to get help from parents who would be able to assist.
4) After all this is done, I can start looking at how to invest my after tax money after the pension is maxed and I have no loans, for example mortgage is paid off.

I have a asked a few questions on these issues in various threads the last few days but I was advised a this forum would be the best to get a complete review based on my personal circumstances.

Thanks in advance to anyone who can help.


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## Brendan Burgess (27 Jan 2021)

Younginvestor93 said:


> Spouse’s/Partner's age: Single
> 
> Annual gross income from employment or profession:
> Annual gross income of spouse: 38000



I think you have it sussed very well. You have all the benefits of being single while still getting the benefit of €38k from a spouse.


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## Younginvestor93 (27 Jan 2021)

Brendan Burgess said:


> I think you have it sussed very well. You have all the benefits of being single while still getting the benefit of €38k from a spouse.


Typo, edited, my bad!


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## Blackrock1 (27 Jan 2021)

To be honest if i was you id focus on increasing your earnings and ideally get yourself a non contractor role somewhere with decent employer pension contributions, that would be the most straightforward way of increasing your wealth.


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## _OkGo_ (27 Jan 2021)

Younginvestor93 said:


> I am in 20% tax bracket and probably will be for a long time,





Younginvestor93 said:


> Annual gross income from employment or profession: 38000


Have you very recently gotten a pay increase? 


If your parents are willing and able to assist you, then take advantage of your inheritance now & be mortgage free before you are 30. Very few people can say that. You will have the next 30 years to fund your retirement both in and outside of your pension
Identify the type, location and cost of house that you need. Don't spend more than you actually need to on the property
At your age, you should focus more on increasing your earnings so that all of your pension contributions are at the higher rate of tax relief instead of solely focusing on which pension product to use. If you can upskill through training or education, it will be money wisely invested.
When you finally move out & if you are still single, you should really consider using the rent-a-room scheme. You can earn up to €14k tax free by doing this. It would be equivalent to getting €28k in taxable salary. A much bigger impact on your wealth than deciding where to invest your extra cash
Don't forget that living alone and running a home costs money. There will be expenses (bills, utilities, insurance, furnishing etc) that you have probably never paid for or at least only paid your share of. Very different when it is only you paying all the bills so your grand plans for investing may not be as easily achieved. 

As for your pension options, you should clarify your exact status as it will change the approach you should or can take




__





						Pensions Where to Start
					

Hi Folks,  I need to get started on a Pension here in Ireland I know dropped the ball here a bit; but looking for advice on companies options etc. I spent a large number of years in Australia and only returned 3 years ago and the whole pension scheme here seems a bit confusing or else I just...



					www.askaboutmoney.com


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## Protocol (27 Jan 2021)

In my opinion, increasing your gross income is important.

Average earnings for FT workers are 48k approx.

38k at age 27 is okay, but you say your max will be 35-40k?

I would not like to be in a sector where max earnings are 40k, unless you absolutely love it.

Rather than investing in a pension, can you invest in your own human capital, so as yo boost earnings at age 40, to say 60k?


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## Younginvestor93 (27 Jan 2021)

_OkGo_ said:


> As for your pension options, you should clarify your exact status as it will change the approach you should or can take
> 
> 
> 
> ...



Firstly, thank you.

Regarding pension.
Self-Employed. No company. I work as a contractor. Single. 27. My contributions would be at 38k salary 15% of the so 5,700 per year. As the allocation that I can contribute increases. I will happily pay that in every year and max out contributions. If there's any other details I need to clarify let me know?


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## Coldwarrior (27 Jan 2021)

Younginvestor93 said:


> Firstly, thank you.
> 
> Regarding pension.
> Self-Employed. No company. I work as a contractor. Single. 27. My contributions would be at 38k salary 15% of the so 5,700 per year. As the allocation that I can contribute increases. I will happily pay that in every year and max out contributions. If there's any other details I need to clarify let me know?


Might not be worth maxing your pension contributions at minute, looks like your only receiving 40% tax relief on 2700, with the remaining 3000 only getting 20% relief. Until your salary is higher and you can avail of 40% on all your pension contributions I'd divert the money (3000) to extra savings for you property purchase. 

What price of property have you in mind?


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## PebbleBeach2020 (27 Jan 2021)

You have 200k in savings. Theres your house. I'm presuming that was inherited and not saved. Or is it a typo should be 20000?


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## Younginvestor93 (27 Jan 2021)

Coldwarrior said:


> Might not be worth maxing your pension contributions at minute, looks like your only receiving 40% tax relief on 2700, with the remaining 3000 only getting 20% relief. Until your salary is higher and you can avail of 40% on all your pension contributions I'd divert the money (3000) to extra savings for you property purchase.
> 
> What price of property have you in mind?


I don't know for sure yet, probably in the region of 400k at least to get I think, maybe less if I find something I like cheaper.


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## Younginvestor93 (27 Jan 2021)

PebbleBeach2020 said:


> You have 200k in savings. Theres your house. I'm presuming that was inherited and not saved. Or is it a typo should be 20000?


No, it's 200k and saved it. I've been good at saving and I've been working since a young age.


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## Sarenco (27 Jan 2021)

Younginvestor93 said:


> No, it's 200k and saved it. I've been good at saving and I've been working since a young age.


You are 27 and managed to save €200k on an income of €38k?  Really?!


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## Younginvestor93 (27 Jan 2021)

Sarenco said:


> You are 27 and managed to save €200k on an income of €38k?  Really?!


Actually it is probably a little under, I rounded because it will be in that region when I look to buy next year or so but by the end of the year it should be at that figure or over. I realise that may be unusual, I understand many at my age struggle to get a house deposit together. I guess I got some small gifts from family over the years and saved well.

If you have any advice other than questioning my figures, I'd be keen to hear. Thanks


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## 24601 (27 Jan 2021)

Younginvestor93 said:


> No, it's 200k and saved it. I've been good at saving and I've been working since a young age.



That's astonishing. You should post a thread on how to save so much money so quickly. Even if you started working at 15 that's over 16k per annum saved. Were you earning 38k as a teenager or have you had no material expenses?


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## Younginvestor93 (27 Jan 2021)

24601 said:


> That's astonishing. You should post a thread on how to save so much money so quickly. Even if you started working at 15 that's over 16k per annum saved. Were you earning 38k as a teenager or have you had no material expenses?


Earning since a young age but almost no expenses which is probably why. I was only made aware that I was in an unusual position for my age. I didn't think much of it tbh.


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## PebbleBeach2020 (28 Jan 2021)

I've never heard of someone at 27 has 180-190k saved and is only earning 38k wages now. What wear you earning 5 years ago? 

That's a thread in itself as suggested already.


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## RedOnion (28 Jan 2021)

Thread: how to save 200k by age 27 on below average salary.

Live at home with parents, and never put your hand in your pocket. For anything.
Groceries. Utilities. First car. Insurance. Mobile phones. Health expenses...

I've seen people like this really struggling with basic skills when they move out.


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## NoRegretsCoyote (28 Jan 2021)

I know people who had saved €100k by 32.

But that was living at home with parents, working in professional jobs in Dublin (on maybe €50k by 30). Little foreign travel and no car ownership.


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## Cricketer (28 Jan 2021)

RedOnion said:


> Thread: how to save 200k by age 27 on below average salary.


Maybe there is a large extended family who were particularly generous at Confirmation?


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## Sarenco (28 Jan 2021)

Younginvestor93 said:


> I don't know for sure yet, probably in the region of 400k at least to get I think


You will struggle to raise a mortgage of more than €133k on your current income so €400k seems an unrealistic budget (unless you are expecting further financial assistance from your family).

I still think you should forget about pensions for the time being.  Concentrate on boosting your income and buying your first home.

And brace yourself for a large increase in your expenses.  I remember being shocked at the price of things like washing powder when I first moved out of home!


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## Younginvestor93 (28 Jan 2021)

Sarenco said:


> You will struggle to raise a mortgage of more than €133k on your current income so €400k seems an unrealistic budget (unless you are expecting further financial assistance from your family).
> 
> I still think you should forget about pensions for the time being.  Concentrate on boosting your income and buying your first home.
> 
> And brace yourself for a large increase in your expenses.  I remember being shocked at the price of things like washing powder when I first moved out of home!


Thank you Sarenco for your constructive feedback. I will keep saving as much as I can for the house and get help from family and maybe also a small mortgage if I need it depending on the house price.

I will try to boost my income also. I still need to sort out my pension, have you any suggestions based on my details given in the original post?

I wonder whether a personal pension is better than a PRSA, some on this forum suggest there are cheaper charges but I can't seem to get access to anything better than Davy PRSA at 0.75 management charge. Perhaps I am looking in the wrong places? I am not very aware of the Irish market in this respect.

To be honest, I'm afraid of locking myself into PRSA, and then I will never be able to get the Personal Pension benefits if they are cheaper because I know I can never transfer my PRSA pension total into a Personal Pension.

I know I am lucky having to not worry about expenses like rent which considerably affects ones ability to save. I will make a note of expenses potentially being a lot higher when I am an eventual homeowner. (Hopefully!)


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## 24601 (28 Jan 2021)

Sarenco said:


> You will struggle to raise a mortgage of more than €133k on your current income so €400k seems an unrealistic budget (unless you are expecting further financial assistance from your family).
> 
> I still think you should forget about pensions for the time being.  Concentrate on boosting your income and buying your first home.
> 
> And brace yourself for a large increase in your expenses.  I remember being shocked at the price of things like washing powder when I first moved out of home!



I think the OP's comfort with his/her low income may be rooted in the fact that he/she has had no outgoings. If you have no accommodation or food costs etc., and have modest  entertainment outgoings, then 38k p/a will seem like an awful lot more money than it is. The OP is obviously in a good position in terms of the money available for a deposit but this disguises the income issue.

You might be able to buy a house but you will be severely limited by the LTI/LTV requirements so unless you plan on staying on the parents books for another long period of time to build on your 200k (which is probably a bad idea for a number of reasons), or meet someone, then you'll need to revisit your expectations on price. I would agree with the sentiment that a change of career should be a focus. At your current income you will have to allocate all of your wealth towards your deposit based on your price point, and with very little experience of managing money in the "real world" it'll be very challenging to maintain a household for one on that sort of income without hardship. Also, a mortgage of 133k would seem unlikely given the fact that you are a contractor. I don't think it's really worth the hassle of being self-employed for that kind of money so I would definitely explore job opportunities in your industry or look at investing some of your 200k in completing a masters that would get you into a more lucrative field. 

I would echo forgetting about a pension for the time being.


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## Sarenco (28 Jan 2021)

Younginvestor93 said:


> I still need to sort out my pension


Well, again, I think you should forget about pensions until (1) you have bought your first home; and (2) you have a higher income (so you can get tax relief on contributions @40%).

However, if you are determined to start a pension straight away then you should contact a good broker (some are regular contributors to this forum) who can talk you through the various charging structures.

Bear in mind that pension contracts with the lowest AMCs will invariably have lower allocation rates and/or fixed policy admin fees.


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## Younginvestor93 (28 Jan 2021)

Sarenco said:


> Well, again, I think you should forget about pensions until (1) you have bought your first home; and (2) you have a higher income (so you can get tax relief on contributions @40%).
> 
> However, if you are determined to start a pension straight away then you should contact a good broker (some are regular contributors to this forum) who can talk you through the various charging structures.
> 
> Bear in mind that pension contracts with the lowest AMCs will invariably have lower allocation rates and/or fixed policy admin fees.


Is that because any money I have now is better spent on lowering the potential amount I will need from the banks on a mortgage rather than in my pension?

If instead of 12k in the pension over the next 2 years for example I had an extra 12k cash, I could then get a lower mortgage?


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## _OkGo_ (28 Jan 2021)

RedOnion said:


> Live at home with parents, and never put your hand in your pocket. For anything.
> Groceries. Utilities. First car. Insurance. Mobile phones. Health expenses...
> 
> I've seen people like this really struggling with basic skills when they move out.





Sarenco said:


> I still think you should forget about pensions for the time being. Concentrate on boosting your income and buying your first home.
> 
> And brace yourself for a large increase in your expenses



I couldn't agree more with the above comments. While it is great for the OP to have wealthy parents, you have not really saved €200k. You may have earned a lot of it by working (and credit to you for that) but your family has completely subsidized your lifestyle. Do you even know how much they spend on you? Are you buying clothes, eating out, paying for subscriptions, holidaying at their expense?

I still think you are asking all of the wrong questions. If you take out a mortgage of €100k and continue to contribute 15% of your salary, you will have very little leftover at the end of each month when you are living on your own

Your priorities are all wrong & you need to refocus

Create a budget of what your lifestyle currently costs. You need to know this before you buy a house or even consider how much of a mortgage you can afford. If your lifestyle costs more than you earn then you will not survive on your own
You are self employed with low income. You are exposed to more risks than most if you lose your job. You don't see these risks now because you live at home with no expenses. You need to consider income protection and retaining an emergency fund for this scenario. As others have mentioned, I don't think your income justifies the risks of self employment for you so you should really consider finding a permanent job if can, preferably with employer pension contributions
You need to genuinely research property prices and the associated costs of buying, furnishing and decorating a home. You can't just randomly pluck €400k as your figure.
Forget about pensions until you understand your expenses and you are comfortable living on your own. You are debating what 0.1-0.2% fees will do to your pension when you lack a basic grasp of your own expenditure
Forget entirely about investing for at least 5-10 years
And finally, try paying your own way for a year before moving out. Pay rent, pay for bills, pay for groceries, pay for everything. If your parents are going to gift you money to buy a home anyway then at least you will have some sense of what your lifestyle costs


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## NoRegretsCoyote (28 Jan 2021)

_OkGo_ said:


> You are self employed with low income.




It's not a low income. OP has a gross of €38k at 27. Median annual earnings for 25-29 year olds are €31k. I wouldn't call OP's income "high" either, as self employment has a premium due to greater risk of unemployment. 

For the rest, I fully agree.


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## RedOnion (28 Jan 2021)

NoRegretsCoyote said:


> It's not a low income. OP has a gross of €38k at 27. Median annual earnings for 25-29 year olds are €31k.


For a self employed person with aspirations to spend up to 400k on a home in the next year or 2, it's a low income. 

The OP has said their income won't increase, so they'll quickly become a low earner relative to the median for their age. (Their salary has also changed between different threads).


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## Younginvestor93 (28 Jan 2021)

_OkGo_ said:


> While it is great for the OP to have wealthy parents, you have not really saved €200k.
> *My parents are not wealthy. I have managed to save from a young age by not wasting money on unnecessary expenses.*
> You may have earned a lot of it by working (and credit to you for that) but your family has completely subsidized your lifestyle. Do you even know how much they spend on you? Are you buying clothes, eating out, paying for subscriptions, holidaying at their expense?
> *I am lucky to never have paid rent but I pay everything else.*
> ...


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## NoRegretsCoyote (28 Jan 2021)

RedOnion said:


> The OP has said their income won't increase, so they'll quickly become a low earner relative to the median for their age. (Their salary has also changed between different threads).



I don't take everything at face value. I look at statistics though because there is a high-income bias on AAM, and that can affect the advice that's given.

I've had two abrupt increases in income and both have come as a surprise. People (on average) earn a lot more at 47 than 27.


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## _OkGo_ (28 Jan 2021)

NoRegretsCoyote said:


> It's not a low income. OP has a gross of €38k at 27. Median annual earnings for 25-29 year olds are €31k. I wouldn't call OP's income "high" either, as self employment has a premium due to greater risk of unemployment.





RedOnion said:


> For a self employed person with aspirations to spend up to 400k on a home in the next year or 2, it's a low income.



As @RedOnion said, relatively speaking, it is a very low income for self employed single person trying to buy a home for €400k. In general terms, it's not a bad income for a 27 year old. An average couple on ~€80k would seriously struggle to buy or afford a €400k property


NoRegretsCoyote said:


> I look at statistics though because there is a high-income bias on AAM, and that can affect the advice that's given.


I do agree with this though and have said as much in the past

I'm starting to think that @Younginvestor93 does not exist and is stringing us along  The numbers and facts have moved around quiet a bit between threads. Anyway my parting thoughts on it is:

Your job is not secure compared to permanent employment. You might not see an immediate risk but as a contractor, it is very easy to be let go without notice. You would not be entitled to any redundancy so there is a real risk there and you need to protect your income either by insurance or an emergency fund. The lack of security is why a mortgage is so much more difficult to get for the self employed
I'm glad you love what you do but I wouldn't do it for €25k, that would make things a lot harder 
You might not see your parents as wealthy but if they can afford to support you rent free until 27 and give you €100-200k to purchase your own PPR, then they must be in a good financial situation. If this is not the case, you should not be accepting the gift or targeting a €400k house
If I take your saving history and your frugal lifestyle as genuine, then a €400k home is a huge unnecessary expense. It is not very frugal or a good use of your or your parents money to live in a €400k property on your own.
But as others have suggested, I am very skeptical about the €200k + €13k (Degiro) savings at 27. Even if you have worked from a young age and earned a modest income in your early 20's, IMO, there is no way you have saved that amount without significant gifts along the way. I would be interested to see how that actually happened if you care to enlighten us?


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