Pre-Children Tune Up

Leper said:
Annual income €303,000.00 and a home worth €1.100,000.00 along with investments and the OP is asking us mere mortals with incomes of <€50,000.00 and mortgaged homes valued @ <€300,000.00 to give him financial advice.
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He's more than welcome to whatever advice I can offer, and I'm sure many others here feel the same. I know for a fact that many high earners in the 200k and upwards bracket make far from optimal financial decisions. Perhaps it's because they are comfortable and don't have to; perhaps they are so busy with career that personal finances don't get the attention they should; perhaps commission-based financial advisers target them for sub-optimal investments with laser-like accuracy!!

Either way us "mere mortals" may have useful advice to offer - the OP is paying a compliment to this site by asking for it.

They won't pay it back. I, for one, don't want them to or expect them to. If you're at the stage where you're in a position to think about passing on some resources to the next generation, that's one way traffic! If you don't agree, don't pass it on just yet!
 
It was certainly interesting to see the number of RTE-related high earners who seemed to be very susceptible to poor financial advice or worse - Gay Byrne, Pat Kenny (who told us how 'every financial advisor in the country was advising him to pile into Irish financial stocks', whereas in fact, every professional financial advisor would have been advising him to diversify), Joe Duffy (claiming to have 'lost his pension').

There must be a market there for boring, basic financial advice that doesn't get overly influenced by the latest big thing (whether dot.com or Irish property or bitcoin).
 
my 2c

Best advice I ever got was "you think its hard earning money, try keeping it". There are very sophisticated industries out there whos business plan is to get the money off you. As from the poster above avoid all get rich quick schemes. I know lots of people who were doing great and pushed too far with debt for investments and crashed.

Lifestyle and "investments" can grow to consume any amount of income and capital it you let them.

My advice would be to decide what is there to spend and what to invest in long term assets monthly or annually. Be realistic on what you can invest don't be to aggressive, it won't work. You can change it over time. Define a budget and try to keep to it until you change it. Pay for memories, especially family ones, not depreciating things. Avoid lifestyle loans and debt, despite everyone offering them to you. Pay for things when you have the cash. Don't get in the habit of expensive cars on finance deals. Watch your monthly payments and subscriptions, they will consume your income before you get it.

Maximise pensions is always a good idea. The money comes out first and you wont miss it. With incomes at this level in this country tax is a big issue and will take a very large proportion. Shelter investments inside a pension for as long as you can.

In the longer term it will all be about sustainable income/withdrawals from pension/investments and being debt free. The 4% withdrawal rate idea is interesting and highlights the magnitude of the problem. e.g. To generate 200k+ p.a. long term which your currently enjoy, you would need 5M+ in savings . The pension fund will probably (hopefully) max out in contribution and total value terms. You will probably have outside pension investments e.g. property, shares etc. Investments vs paying down mortgage is well discussed in other forums. Always put money in investments initially with a very long term view so you don't have to chop and change e.g. uk investment trusts. Investments should be long term and "boring", ignore all the noise. Most changes outside a pension (where you have gains) will be taxed reducing your capital deployed. Probably avoid single companies, it's not worth the stress during volatility. In my opinion most people can do this themselves with an online broker and don't need much advice if they disciplined and just leave it there. However being disciplined is sometimes very hard. If you "over invest" you may find yourself cashing in to fund lifestyle.

Kids will consume huge money - private schools etc. paying for 1X or 2X on a holiday or restaurant is a lot different to 5X. Hopefully you can pay this from income. They are more expensive as they get older.

Its good advice for you both in the longer term to look in to how to generate an income for other half if they stop working to use up tax allowances before the 40% kicks in. I used a small commercial property in joint ownership, that's not for everyone. This also contributes to lifetime PRSI contributions leading to state contributory pension entitlement (under the current rules), but that another complicated subject.
 
If you dont mind, can you give a little more colour on this? My wife has taken redundancy and the kids are young so her going back to work is some way off. Right now she has no income, how does the commercial property in joint ownership address this and also how does the PRSI element work?
 
Blackrock1 said:
how does the commercial property in joint ownership address this
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If your spouse has more than €5k a year in rental income they pay €500 Class S PRSI or 4% of the rental income, whichever is greater. For this you get 52 PRSI contributions valid for state pension which is very good value.

It's not necessary though if she is caring for children under 12 where they get credited automatically.
 
Thanks, so in my wife's case she has worked for say 20 years and our youngest is 3. so she should have 29 years worth of contributions before we need to worry about that aspect?

The maximisation of the tax allowances / thresholds is still interesting though!
 
There is a theme on these forums where some high earners have huge lifestyle creep which has a massive compound impact on their longterm wealth - and then limits their ability to wind down or adapt their careers. Expense creep often seems to be down to a lack of focus or laziness with financial objectives and very basic planning.

Your head is clearly screwed on and this is likely not relevant to you, now anyway. The point about budgeting shouldn’t be underestimated, made by Investing101 above. Family awareness of a budget will stop silly unused subscriptions and other needless regular out goings and bad habits. It drives conscious decision making, which protects from many problems be it lifestyle creep or someone trying to milk you with absorbent fees. That’s all cash that goes into pensions or mortgages and gives you a compounding ROI.

Given your incomes avoiding mistakes and basic management should see you right.

That said, now that you have your home sorted, a rough family plan, and an idea of your income for the next few years, I would take professional wealth advice. Even a few small tips will make it worthwhile given the time you have for compounding.
 
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