# Financial Planning advice for growing family



## pumba (14 Jan 2019)

Age: 37
Spouse’s/Partner's age: 42

Annual gross income from employment or profession: 135,000
Annual gross income of spouse: 55,000

Monthly take-home pay 8,600

Type of employment: one civil servant, one self-employed

In general are you:
saving

Rough estimate of value of home – 500,000
Amount outstanding on your mortgage: 308000 
What interest rate are you paying? 3.3% variable

Other borrowings – car loans/personal loans etc - nil

Do you pay off your full credit card balance each month? Yes

Savings and investments: 12,000

Do you have a pension scheme? Yes

Do you own any investment or other property? No

Ages of children: 7, 5, 1 (another due this year)

Life insurance: Term life linked to mortgage instead of mortgage protection.


Question: Would like to tidy up finances to try and be able to afford to put the children through college should they wish to go to college. Our current plan is to try and have the mortgage paid off in the next 13 years and then as a result free up cash to put the children through college. I think we need to switch our mortgage but am not sure whether to switch to AIB 2.95% variable which would allow us to overpay or KBC 5 year fixed at 2.65 % in view of the possibility that variable rates may start to rise in the next year. Generally looking for some advice on any changes I could make to improve our finances to plan for the future.


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## dublin67 (14 Jan 2019)

I've just remortgaged with KBC and you can split it between fixed and variable - I did 50:50.  I intend on overpaying my variable and this element will probably be gone when the fixed rate portion expires in five years.  I shall then pay down the fixed portion.


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## Coldwarrior (14 Jan 2019)

pumba said:


> I think we need to switch our mortgage but am not sure whether to switch to AIB 2.95% variable which would allow us to overpay or KBC 5 year fixed at 2.65 % in view of the possibility that variable rates may start to rise in the next year.



Also look at Ulster Bank's fixed rates, they are very competitive and they allow you to overpay up to 10% of the total balance each year on a fixed rate.


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## Laughahalla (15 Jan 2019)

Congratulations, at your current income and the fact you have zero consumer debt you are well on the way to retiring very comfortably. (as long as you stay away from consumer debt or any impulsive spending)

At this stage i would be bumping up to make sure you had an emergency fund of at least 3 months expenses .
Then I would be putting a minium of 15% of houshold income into a pension, saving into a college fund for each of your children ( something that pays interest or gives a return e.g. solid mutual fund ) and then put everything you can spare into paying off your house as quick as possible.

After the house is paid off continue to invest in something that will at least give you the same return as the S&P 500.

You expect to pay off the mortgage in 13 years, I'd push it a bit more and go for 10 while you are earning a good salary.

Does your employer (assuming employed ) have you covered in case of death in service?  Might be an idea to take out term insurance that doesn't just cover the house if your employer doesn't have you covered.

With regards a fixed rate mortgage - Most generally allow you to over pay up to 10% without penalty.


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## Steven Barrett (15 Jan 2019)

First thing I thought of was "where's the life cover"? The bank are protected on death, what about the family? And with lots of young kids, life cover is a must. Public service pays a lump sum of 1 times salary plus the Widows pension. 

Income protection will also be required to provide some sort of income. 

How much are in pensions? What is the employer contribution? Are you maximising the employer contribution (sometimes it is tiered)? 

Are you saving on a regular basis? Automate your savings so it becomes another bill that is paid each month. Money for kids college should be going into an investment fund to get the use of capital markets. 

To start off, write down everything you want to do over the next few years. 
Then work out what you have to do to achieve them, what overpayments are required, how much monthly savings, what average return etc. 
Put plans in place.
Update the plan on a regular basis to ensure you are staying on track, or make adjustments (priorities and goals will change). 


Steven
www.bluewaterfp.ie


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## Firefly (15 Jan 2019)

pumba said:


> Annual gross income from employment or profession: 135,000
> Annual gross income of spouse: 55,000
> 
> Monthly take-home pay 8,600



I would have expected the take home to be higher? That's an effective rate of 44% you have there...

Edit - how much are you putting into a pension?


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## Purple (17 Jan 2019)

Firefly said:


> I would have expected the take home to be higher? That's an effective rate of 44% you have there...
> 
> Edit - how much are you putting into a pension?


The marginal tax rate is over 50%, higher if you are a State employee (pension levy). It sounds about right to me.


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## pumba (17 Jan 2019)

Thanks for all the replies just to add a bit more detail:
I have personal pension and maximise contributions yearly.
My OH will get public service pension and contributions are deducted at source and was paying AVCs for years but on reviewing the long term tax gain from paying AVCs decided to stop them 2 years ago and plough money into mortgage now instead.
My OH is covered in case of death in service but I'm not. We both have income protection. Before when we looked at life insurance separate to the mortgage term life the fact my OH smokes drove up the premiums. Sadly this hasn't changed but nobody's perfect everyone has their vice however from some of the comments I think I should be looking for life insurance myself to protect the kids in the case of my death.

@SBarrett thanks for all suggestions in terms of automating savings do you mean direct debit into a regular saver account? We do save regularly but it's not automated which I agree would guarantee more consistency. You mentioned putting savings into an investment fund, do you mean along the lines of the funds that the personal pension is going to? I'm not really familiar with investment funds and need to broaden my knowledge first before putting money into one.

@Laughahalla thanks for advice just wondering what's S&P 500?

@dublin67 great idea about splitting the mortgage between fixed and variable KBC are probably my preference alright as they have a good variable rate and good fixed options. Was it difficult to arrange the split?


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## Steven Barrett (18 Jan 2019)

pumba said:


> My OH is covered in case of death in service but I'm not. We both have income protection. Before when we looked at life insurance separate to the mortgage term life the fact my OH smokes drove up the premiums. Sadly this hasn't changed but nobody's perfect everyone has their vice however from some of the comments I think I should be looking for life insurance myself to protect the kids in the case of my death.



The biggest financial loss to the family if one of you dies is the loss of your income, you earn over twice what your wife earns. Plus, she's in the public service, if she dies, you get a lump sum of 1 - 1.5 times salary (probably 1 times salary) plus a Widower's pension. She'll get nothing outside of the Widow's pension. With the 4th kid on the way, you'll need it. €750,000 in cover for you will cost €70 a month. 




pumba said:


> @SBarrett thanks for all suggestions in terms of automating savings do you mean direct debit into a regular saver account? We do save regularly but it's not automated which I agree would guarantee more consistency. You mentioned putting savings into an investment fund, do you mean along the lines of the funds that the personal pension is going to? I'm not really familiar with investment funds and need to broaden my knowledge first before putting money into one.



 You can put it into a monthly saver deposit account or one with an insurance company or both. 

Yes, the ones with an insurance company offer all the same funds that are available for your pension. 

Have the savings on standing order and pay them like a bill. The funds will grow over the years without your noticing it. If you intend for your kids to go to university, you will then have the funds built up over the years to pay for their fees without having to dip into cashflow. 


Steven
www.bluewaterfp.ie


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## Laughahalla (18 Jan 2019)

@Laughahalla thanks for advice just wondering what's S&P 500?

S&P 500 is an index of shares in the USA. It makes on average adjusted for inflation about 7% per year. You should be aiming to get at least this on your money from a fund.

If your house was paid off and you paid the equaivalent of your mortgage into a fund that paid ~7% per year compounded over 20 years would make for a very comfortable retirement. Just make sure that the fund you buy has a track record or performing well. There is some poor performing funds out there. (Seek advice from a qualified financial planner as you will want to make sure you don't have a tax liability or paying too much charges)

getting out of debt as early as possible is the key in my opinion.


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## RedOnion (19 Jan 2019)

pumba said:


> Was it difficult to arrange the split?


That'll be the easiest part of switching.
Just remember KBC allow you to overpayment 10% of the fixed mortgage before checking if a break fee applies.

Personally, I don't think you should be looking at Investments at the moment. The best risk free after tax return that you can achieve is by paying your mortgage early. But it does need to be set up to happen automatically.
It'll cost you about 2,400 per month to pay over 13 years. After which you have 2,400 free cashflow per month to fund college.
On your income, you should be able to do it quicker and start to build up a fund. The key is not to become complacent because of your high income.


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## Bronte (20 Jan 2019)

That’s great life cover  Steven for 70 euro a month. The OP really ought to sit down with a financial advisor like you to get proper financial advise.


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## Firefly (25 Jan 2019)

Purple said:


> The marginal tax rate is over 50%, higher if you are a State employee (pension levy). It sounds about right to me.



I ran the numbers into Deloitte's income tax calculator, admittedly using with the defaults (with no pension contributions), and it's calculating a take home of 9,754 per month.

On a combined salary of 190k, the total tax take is 73k - how progressive is that!


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## Purple (25 Jan 2019)

Firefly said:


> I ran the numbers into Deloitte's income tax calculator, admittedly using with the defaults (with no pension contributions), and it's calculating a take home of 9,754 per month.
> 
> On a combined salary of 190k, the total tax take is 73k - how progressive is that!


Run it again for a single person with no dependents. It will make you cry.
They pay €86k in taxes.


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## NoRegretsCoyote (25 Jan 2019)

Serious illness is statistically far more likely than death for someone of your age. Financially as ruinous for the other partner too.

I would priorities serious illness cover.


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## Firefly (28 Jan 2019)

Purple said:


> Run it again for a single person with no dependents. It will make you cry.
> They pay €86k in taxes.


Yeah, it's nuts. But, hey, it's progressive!


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## michaelm (28 Jan 2019)

NoRegretsCoyote said:


> I would priorities serious illness cover.


I suspect it could easily happen that one was unable to work but not be covered by their serious illness policy.  I wouldn't touch it.

I reckon a better option is a cash safety net and income protection, and a dual non-indexed convertible term life policy.


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