27 - Optimizing My Finances For The Future

[Younginvestor93]

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!)

 

[24601]

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.

 

[Sarenco]

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.

 

[Younginvestor93]

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?

 

[_OkGo_]

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.

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

 

[NoRegretsCoyote]

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.

 

[RedOnion]

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).

 

[Younginvestor93]

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.

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. This is a good idea, thanks I will implement a budget.
• 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. I don't think my income is low and my job is secure plus I love what I do. I would do it for 25k a year every day of the week.
• 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. I have researched but I will note that there are always additional costs.
• 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. I know I will max the pension no problem every year until I am 60. I want to optimize it so I don't leak thousands every year on expenses because I did not get the best deal.
• Forget entirely about investing for at least 5-10 years. As soon as I get the house sorted, my pension maxed, then I will focus on investing my after tax income to build my wealth further.
• 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. I think this may be a good idea, paying rent to my parents as banks like to see this also for a mortgage to prove I can handle repayments.

 

[NoRegretsCoyote]

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.

 

[_OkGo_]

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 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

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?