Case study Money Makeover: Pimp My Money!

[masterboy123]

But having this cash hanging around has a large opportunity cost.

At your income and mortgage level you will get car finance without trouble if you need it.

The total cost of car credit is in the range of €3k-8k, depending on the car. I would rather keep the cash lying than pay for the car finance .

But yea, I am gonna start paying the mortgage now. The lender won't be happy

 

[Tickle]

The total cost of car credit is in the range of €3k-8k, depending on the car. I would rather keep the cash lying than pay for the car finance .

Penny wise and pound foolish. You'd be losing more than 8k in terms of buying power by keeping the cash lying idle.

Your 80k car today is only going to be more expensive to buy a year from now. You could buy it today on finance and you'd be no worse off based off your figures.

 

[RonnieShinbal88]

In your shoes I would have serious illness cover as well. There is a state of the world where you are unable to work and your family's lifestyle would not nearly be as high as it will be in the state of the world where you are able to work.

If they have made 520 PRSI contributions (unlikely at their age but not impossible) then they are eligible to make voluntary PRSI contributions at a rate of 6.6% of final year salary. This might be worth it to build up a state pension contributory entitlement. Long term you will want to think about having some kind of private pension in place for them. If they do return to work (even part time) you should look at maxing pension contributions immediately or if in public service making AVCs.

Voluntary PRSI payments may make no sense here as she would have an exemption anyway for the years of being a full time homemaker until child is 12:

Homemaker's Scheme

If you care full-time for children, or for an ill or disabled person, the Homemaker’s Scheme makes it easier for you to qualify for a State Pension (Contributory).

www.citizensinformation.ie

It's worth getting advice on that.

 

[cremeegg]

Inflation has nothing to do with the risk-free rate of return.

Inflation reduces the real value of all assets. Specifically calling out the impact of inflation on cash is pointless.

Inflation does not act in the same way on all assets.

The value of purely financial assets is reduced directly by inflation. Cash, money on deposit, government bonds (other than the few which are inflation linked).

The value of real assets, as opposed to financial assets is not affected by inflation. A 50 acre farm is still a 50 acre farm.

Equities lie somewhere in-between. A retailer would hope that inflation would pass through without effecting its business.

Of course an inflationary environment is bad for business generally, but that is a different matter.

 

[Sarenco]

The value of real assets, as opposed to financial assets is not affected by inflation.

Seriously?!

By what mysterious financial alchemy is the value of real assets exempted from inflation?

Yes, the value of real estate, less maintenance costs, has generally grown in line with inflation, over (very) long time periods. So has cash (short term government debt/bank deposits).

But to say that the value of any asset is not affected by inflation is, frankly, bonkers.

 

[smndly]

Can't say whether you should put money into a pension as we don't know your role in the HSE. If you are a doctor and will become a consultant, your pension is almost certainly going to be over €2m, so AVC's are pointless.

I'm in a similar position to OP and know very little about pensions. I just have the standard HSE public sector pension. Does it make sense to look at commencing a PRSA then or will the €2m limit come into play there again? Is it best to just contribute to the public pension and no need to look at additional PRSAs or AVCs?

 

[Steven Barrett]

I'm in a similar position to OP and know very little about pensions. I just have the standard HSE public sector pension. Does it make sense to look at commencing a PRSA then or will the €2m limit come into play there again? Is it best to just contribute to the public pension and no need to look at additional PRSAs or AVCs?

Depends on what you are looking to do. If you intend to become a consultant, the chances are you will be overfunded if you stay to retirement. Calculations have to be run before you make any decision.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

 

[masterboy123]

I'm in a similar position to OP and know very little about pensions. I just have the standard HSE public sector pension. Does it make sense to look at commencing a PRSA then or will the €2m limit come into play there again? Is it best to just contribute to the public pension and no need to look at additional PRSAs or AVCs?

What are you working as?

 

[moneymakeover]

Inflation has nothing to do with the risk-free rate of return.

Inflation reduces the real value of all assets. Specifically calling out the impact of inflation on cash is pointless.

My understanding was always:

Some assets like property and gold are a hedge against inflation

cash and things like cars will depreciate due to inflation