The do's & don'ts of financial planning
There is so much advice out there listing differing priorities.
When it comes to getting on top of our finances, sometimes there is so much advice out there listing differing priorities that it’s hard to know where to start.
And when it comes to doing the right thing, so much of it depends on your age and individual circumstances. With that in mind, here are some of the crucial areas to focus on and common pitfalls to avoid, at every age.
FINANCIAL PLANNING IN YOUR 20s
Do - Consider starting a pension. Yes, retirement is almost inconceivable and you have plenty of other ideas on how to spend your earnings. But money you pay now will have decades to work for you and build up interest, far more so than money you put away in your 50s and beyond. You don’t need to put away a big chunk of your wages, but if you can afford it, consider contributing up to the tax relief limit — currently up to 15% of remuneration/net relevant earnings for Irish taxpayers under 30.
Don’t - Run up debt just because you can. When you get your first taste of a regular salary and access to a credit card, it is all too easy to start spending more than you earn. Yes, you want to enjoy your 20s and clock up those holidays and life experiences. But don’t enter your 30s saddled with debt just because you tried to live a Sex And The City lifestyle on a starting salary.
FINANCIAL PLANNING IN YOUR 30s
Do - Sort out health and life cover sooner rather than later. The Lifetime Community Rating means consumers are penalised if they are over 35 when they first take out health insurance, and the rates you pay for life insurance policies will also only increase as you get older. If you haven’t these sorted already, get them now. It is also worth considering taking out a specified serious illness policy. Statistics suggest that, of a group of people all aged 30, 56% of them will be diagnosed with a critical illness over the course of their lifetime, with an average claimant age of just 47. Having protection if the worst happens, takes at least one worry out of traumatic situations.
Don’t - Combine your finances without having a serious talk about how you intend to manage your money into the future. Too many couples avoid properly declaring their financial position to each other up until, and even after, they wed. If you’re planning a lifetime together, that has to include a money talk. You need to know how much each other earns and any existing debt that might also be coming to the table. One current account or two, how many credit cards and how will childcare be paid for? These are questions to be thrashed out before you are settled in domestic bliss, in order to avoid conflict or unpleasant shocks down the line
FINANCIAL PLANNING IN YOUR 40s
Do — Reassess your pension. Ideally you have been paying into one for more than a decade by the time you reach your forties, but chances are you’ve given it little thought. Building it up is the most important thing in your earlier years, but now is the time to take control. Gather all your information and go for a full financial review. Your bank will be happy to arrange one or you can go to an independent adviser such as the Money Doctor John Lowe at www.independentfinancialadvice.ie. Decide what level of income you want in retirement and start funding as much of it as you can afford.
Don’t — Move home or undertake major renovations without being sure that the change is necessary. With the family home often at its busiest at this time, many couples decide to either move or significantly extend their home. If you genuinely need to, then of course do. But sometimes upgrades are undertaken just because the money is there and the mortgage has been significantly shrunk. Imagine if, instead of paying to change, you turbo-charged your mortgage repayments and cleared it ahead of schedule. The interest savings and extra funds available down the line might be far more valuable than an attic conversion that gets little use as kids leave home.
FINANCIAL PLANNING IN YOUR 50s
Do — Review your health cover. According to insurance expert Dermot Goods of www.totalhealthcover.ie, if you have renewed your health insurance for more than two years without shopping around, you are paying more than you need to. Now is the time to take a good look at your policy and see if the level of cover is enough to meet your needs. With increased medical care likely as you age it makes sense to look for a plan that will include refunds on your routine medical costs with no excess to pay first. Remember, you are free to switch to any provider in the market and your new insurer must accept the time you spent with your previous insurer and cannot apply new waiting periods for existing benefits. Don’t feel bound by loyalty, do your research and get the best deal for your money.
Don’t — Put yourself in debt for your children’s sake more than you absolutely have to. It is only natural for parents to want to give young adult offspring every support possible. But at this stage you need to prioritise financing for your own future. If you have the income to fund a good pension and still help your children with house deposits, weddings and extended education, then brilliant. Lucky them.
But if you can’t afford it comfortably, don’t do it. You may think that your children will care for you in your old age, and they may feel the same. But when the time comes, if they have conflicting obligations due to their own families, they may not be able to help.
FINANCIAL PLANNING IN YOUR 60s AND BEYOND
Do —As you prepare for retirement, make sure you know exactly what you are entitled to in terms of state pensions. This can be quite a complex area depending on how much you worked during your life, so it is well worth sitting down with an adviser a few years before you retire to work out where you will stand. Continue to mind your money once you retire.
Don’t — Rule out earning opportunities just because you hit the retirement age. Your expertise and experience doesn’t cease to exist the day you turn 65. For many of us, working provides a sense of purpose, structure to the week and may have a social aspect.
Hopefully you no longer need to earn, but if you find something you enjoy, it will help top up your pension funds as well as the other benefits.
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