Money Makeover: Where to next

[ReadyBrek]

Hello all, hoping I can get your thoughts on my situation.

I'll answer the standard questions and outline my goals and further thoughts/questions.

Age: 38
Spouse’s/Partner's age: 41

Annual gross income from employment or profession: 99k (incl annual bonus)
Annual gross income of spouse: 65k

Monthly take-home pay €4,100

Type of employment: Private Sector

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

Rough estimate of value of home: €350k
Amount outstanding on your mortgage: €260k (replayments are €1,200 but I've overpaying by 10%)
What interest rate are you paying? 3% fixed until March 2021 with BOI

Other borrowings – car loans/personal loans etc: None

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

Savings and investments:
I am maxing out a share purchase scheme @ €12,700 per annum. Shares mature every 3 years so I have the output of that to that to save/invest each year
Current value of shares in the Scheme is €45k but are locked in for the moment
€7k in matured shares
Currently €3k in savings (emergencies etc) which I am adding to monthly @ €200pm. This could be higher but i do have the shares on hand if i really needed them, and happy for this pot to increase at the current rate
Saving €300pm for house improvements (recent build and some works ongoing to complete final touches)
I save €350 per month for all car costs (tax, insurance,maintenance and the balance towards the next car when needed)

Do you have a pension scheme?
Yes - Integrated DB Scheme. 5 years service, normal retirement age is 65 (my contribution is 6% of salary)
Also AVC (invested in global equities), currently €50k and contributing a very small amount monthly (1%)


Do you own any investment or other property? No

Ages of children: 3 between 5 and 8

Life insurance: Mortgage protection to the value of the house. Also death in benefit 4 x Salary.

What specific question do you have or what issues are of concern to you?
Aside from the above savings I recking I can save another €500pm on top (€6k per year). If I add that to my annual share scheme it will come out at close to €20k savings per year that I need to decide what I am doing with. Once the house is done that could be up to €24k. Any salary increases would be available to save as well if i maintain outgoings.

I am concerned that I have my pension, employement, shares all in one company. I'm leaning towards utilising the share scheme and then cashing out at the end of the 3 years each time, rather than holding onto the shares. I was all set to liquidate any shares and put them into a global passive ETF along with a monthly regular EFT purchase, until I understood the tax complications, deemed disposal etc. Really gutted that it works this way in Ireland. I still haven't ruled this out but of course its not so attractive with compounding affected, high tax, plus the awkwardness of filing the tax return. I would be quite disciplined to stay the course if i was to put a portion of my savings into an ETF for the long term and not touch it.

Goals:

1) Be in a position to retire in 2040, aged 58. Maybe I won't, but i'd like to be able to. I'm not all that keen on my job, pays well ok - not going to change jobs for the forseeable future. I could change careers now but I would take a considerable pay cut. Maybe I'd stay until retirement but I'd like to have the option of retiring early. Live a modest life, time for family etc. My wife will also retire around that time.

2) I also have college to consider for the juniors and I want to be in a position to help out there (live close to a college so I don't envisage all 3 would have college acommodation costs, quite happy for them to part fund if needed, not keen on them getting it all handed to them)

I do like the idea of clearing my mortage early - more for the idea of not being in any debt.

Considerations: Max out my AVC? Clear the mortgage? Bump up the emergency fund, invest in ETF's? Just not sure which is best to match my goals.

Thanks a lot

 

[Brendan Burgess]

A lot of really sensible stuff there which most people don't realise.

Currently €3k in savings (emergencies etc) which I am adding to monthly @ €200pm. This could be higher but i do have the shares on hand if i really needed them, and happy for this pot to increase at the current rate

Correct. If you have shares which you are free to sell, you do not need an emergency fund. A lot of people don't understand this.

I am concerned that I have my pension, employement, shares all in one company.

Correct again. It is a bad idea to have shares in the company which employs you. It is the opposite of diversification. So as soon as you are free to sell shares tax efficiently, you should do so.

But to be clear. If you are buying the shares at a discount, it is right to buy them. But just sell them as soon as you can.

Not sure about the pension though. It should be separate from the company. But that does not impact the decision to sell your shares when you can.

 

[Brendan Burgess]

€7k in matured shares
Currently €3k in savings (emergencies etc) which I am adding to monthly @ €200pm. This could be higher but i do have the shares on hand if i really needed them, and happy for this pot to increase at the current rate
Saving €300pm for house improvements (recent build and some works ongoing to complete final touches)
I save €350 per month for all car costs (tax, insurance,maintenance and the balance towards the next car when needed)

This is the bit I am a little bit concerned about.

A lot of people have different pots for their money. One for savings. One for home improvements and another for car costs and another for education.

You should have one pot for everything. If it costs you €1,000 to do a job on your house now, do it. Don't delay because there is only €200 in that pot, while there is €3k in the emergency pot unspent.

Likewise, don't be tempted to set up a separate savings pot for your children's education. Pay down your mortgage with any excess savings - that is the best long-term, lowest risk, tax-free return you can get.

 

[Brendan Burgess]

Yes - Integrated DB Scheme. 5 years service, normal retirement age is 65 (my contribution is 6% of salary)

You need to check this out. What is the funding of the scheme like? Is there a deficit?

You mention only one scheme - does your spouse have a pension scheme? Or are you both in the same company?

Brendan

 

[Brendan Burgess]

What interest rate are you paying? 3% fixed until March 2021 with BOI

Get a quote for breaking out of that rate.

I am sure it would make sense to set your savings off against your mortgage, even if there is an early repayment penalty.

So, as your shares become available every year, just pay them off the mortgage.

Brendan

 

[Brendan Burgess]

You definitely should not be investing in ETFs.

Either pay down your mortgage or contribute to AVCs.

Maybe have an emergency fund in ETFs of €10k. But after that pay down your mortgage or contribute to your pension.

Brendan

 

[dino]

I worked in a multinational company years ago with a similar share purchase scheme using quarterly bonus payments that you could match an amount, keep for 3 years and cash in with a tax incentive. It was a great way to save money. I used it to clear a loan when I went back to college.
One of my colleagues had a strict plan to cash in shares once they mature every 3 years and pay off his mortgage. I met him a few years ago and he is under 50 with a nice house and no mortgage. Could be a great way to blitz your mortgage.

 

[ReadyBrek]

Thanks, Brendan (and Dino as well)

To come back on some comments and questions you had:

Shares: Yes the shares are purchased from a bonus/salary before tax is deducted. So even if they just hold their own over the 3 years. They would want to take a serious drop to not make money on it, you're up 40% straight away. Fantastic saving vehicle.

Pensions: The Mrs has a DB pension, government. Omitted that point by mistake. Yes I checked the pension and the assets are completely independent of the company. I'll check on the health and if there is a deficit.

Savings: Point taken about the "pots". No point in hiving it off here and there or holding back in one section where another needs it. I did that as a tool to stay disciplined and not overspend in one area. I may still keep the car one though. I have a certain way of looking at cars, While I termed it a "saving" I see cars as a continual expense which I have calculated what I should pay X monthly for it. So I see it more like an annual cost I pay into monthly. Historically (before i was organised) I had do a monthly DD to pay for insurance, and of course paying extra for that grinds my gears, hence the car ringfenced pot was born.

Very motivated to go hell for leather at the mortgage. You can't beat tracking a downward graph on an excel and knocking it out in ~10 years (which is do-able) rather than 26 more years. I'd feel a great sense of freedom if that was off my back.

I really appreciate the thoughts shared. Any further comments I'll be glad to hear them but with what has been shared I am certainly getting a bit more clarity on what I'll do now.