A happy new – or at least, a happier – year to all of us
Personal finance columnist Jill Kerby looks at some financial new year's resolutions we could consider making...
‘Happy new year!’. Or… how about, ‘happier new year!’
No point in starting out with overblown expectations for 2021, given that it may be some time before the combined positive effects of this latest lockdown and the rollout of the Covid-19 vaccination take effect.
So all the better then to take these quiet times to consider adopting at least a couple of happier new year resolutions this week. As with most previous columns – coincidentally, this is year 21 for me – I’m not diverging much from the tried and tested ways that will get your personal finances under control and to grow long-term wealth, but to also get yourself on the road to financial independence.
However, I’m going to start this short list with a reminder that while reducing your debt and living within your means is a resolution everyone should permanently adopt, hoarding your money – at zero return from the bank or credit union – isn’t the right thing to do either.
If the last year has taught us anything, it should be that money is just a tool, not an ends to a mean. A financial adviser I know was contacted by a man who won a substantial Lotto win in October: “He was thrilled, of course, and a lot of bills were going to be settled and his financial future was secure. But he admitted that all this lovely new money couldn’t buy him or his loved ones out of the pandemic. Or ensure their safety.”
Resolve to be a better spender in 2021. Assuming the Irish and EU vaccination schedule is rolled out steadily and successfully, the consensus view of economists is that a huge consumer boom will be under way by mid to late summer.
Super high demand, especially for travel – which will be dogged by a shortage of flights in 2021 – is sure to result in higher prices, so be clear about your priorities. Do you really want a beach holiday in Spain or to be reunited with your grandchildren in Australia?
If you have extra savings use them to pay off expensive debt, to beef up a tax efficient pension fund and to set up a ‘rainy day’ fund. It’s going to be an expensive few years ahead for every tax-payer and user of state services. Concentrate on getting your own budget sorted – shop around for utilities, car and home insurance - before Revenue starts coming after more of your earnings and savings.
Prioritise private health insurance. The HSE budget has gone nuclear, and so have the treatment waiting lists. You should be able to buy a pretty good adult plan from all of the three insurers (VHI, Laya Healthcare and Irish Life Health) for under €1,500 a year, says Dermot Goode of totalhealthcover.ie.
It would include comparatively quick access to private outpatient and hospital admissions. Such a policy should include payments towards outpatient costs including GP visits and consultations, (usually 50%) and semi-private and possibly private accommodation in the 19 private hospitals and clinics.
If you are very lucky, you might get a private room in a public hospital, though if you end up in a public ED and admit you have private insurance, they will charge your insurer €813 a night, even if you end up on a trolley in a corridor. In an effort to keep premiums down, don’t sign such a form unless you are put into a private room.
If you are a parent and have dependent children, buy inexpensive, term life insurance. Write a will and name guardians.
This year, resolve to join your company pension fund if there is one, and if not, take out the lowest cost, most diversified PRSA (a personal retirement savings account) or private pension contract you can find. The sooner you start saving, the greater the chance that your modest, annual, tax deductible contributions (say a constant 10% of gross income from your early 20s) along with your employer’s contribution (if you have one) and the magic of compound interest will ensure a comfortable retirement without much effort or anxiety.
Resolve to always use and pay for the services of a professional, impartial, fee-paid financial adviser or planner before you make any expensive financial decisions in 2021, including buying a home. If you pay for the adviser’s time and expertise, you are less likely to get caught by high fees and management charges and their trail commissions.
At the very least, use price comparison websites like bonkers.ie (banking, insurance, utilities), ccpc.ie (the government consumer website), hia.ie (the Health Insurance Authority for private health plans), sfpi.ie (for a financial planner).
Build an ark, a financial ark for your loved ones. Many of you may have unwittingly already started one during the great lockdown. We’ll look again at the blueprints shortly.
• Letters to jill@jillkerby.ie