Maybe you started in your first job this year, or maybe you’re a little bit older but haven’t given your finances the due care they deserve. Either way, here are some tips to drag your finances into better shape.
1. Pay yourself first
A good financial habit is to start as you mean to go on, and this means setting up a direct debit for a savings account. This approach means that instead of “saving” whatever is left over in your account each month, you set up a direct debit so it goes directly out before you get to see it. Effectively, you pay yourself before any money goes out to pay the gas bill, or for nights out etc.
Typically, it is recommended that you keep somewhere between three and six months of your regular outgoings in savings on deposit so it’s easy to access in case of emergency etc, and regular savings are a way of helping you achieve this goal.
You can start from as little as €10 a month, up to €1,000 a month, and remember, it’s easy to change the amount you want to save each month.
So what are the options?
Well, at the moment, the best regular savings accounts are as follows: AIB/EBS, offering 1 per cent interest, and State Savings, 0.98 per cent (over six years with added benefit of being tax-free).
It is tempting to use Revolut’s Vaults when saving, but if you’re saving anything significant you’re earning nothing on it. A better option perhaps is Bunq, which pays one of the best rates – 1.56 per cent on savings of up to €100,000.
Remember, if you do set up a regular savings account, the “lump-sum” part typically falls to next to nothing – 0.1 per cent in the case of AIB for example – after a year, so you should try to keep it moving.
Best rates on lump sums are currently about 1.5 per cent with PTSB/State Savings (the latter tax-free), but might inch upwards over the coming year. You could also consider locking your money away with an international bank, through an online vehicle such as Raisin.com. Through this, you can earn up to 3.43 per cent with a host of European banks, such as J&T Banka in the Czech Republic.
Typically, your money will be covered by local deposit protection schemes, but this is worth checking out, while tax issues might also apply.
2. Don’t rely only on deposits – but be wary of crypto
Cash, as the saying goes, is king, so you can’t beat having three to six months’ wages on hand for emergencies as they spring up. And, if you’re saving for a particular goal, such as a house deposit, opting for a savings account is often the safest option.
However, banks have been very slow to increase saving rates and, at about 1 per cent, you’re not going to earn much on your money with these rates – even before you consider the eroding power of inflation. That means you should also consider other options, such as investing.
One way to get started is the “averaging in” approach. You can do this by investing each month, which helps smooth the ups and downs of share prices – you should have a longer term in mind when investing. It’s possible with insurance companies such as Irish Life and Zurich Life to invest about €100 each month in a range of funds tracking indices such as the S&P 500. Fees are not that cheap, however, at between 1 per cent and 1.5 per cent.
Also, the life insurance levy of 1 per cent applies, and check the small print also – sometimes early encashment charges can apply.
Another option is an exchange traded fund (ETF), which you can buy from an online broker such as Degiro. Fees can be as low as 0.1 per cent a year for a similar product. This means savings of €90-€140 a year on an investment of €10,000.
So what’s not to love?
Well, ETFs may be a cost-efficient way of investing but tax rules are complicated in Ireland, which makes them trickier. With insurance companies such as Irish Life, tax is done for you by the company; with ETFs, you have to file tax returns yourself.
Buying individual shares is another option but you might need to develop some investing experience and knowledge and avoid putting all your eggs in the one basket, as it were.
Crypto is another channel seen by many as an investment option but you need to be clear about what this is; most financial advisers consider it a form of gambling, so don’t allocate what you can’t afford to lose.
Yes, bitcoin is up about 95 per cent over the last five years – but it has also dropped by 32 per cent in the last year, so is particularly volatile, as are other coins such as dogecoin (-41.3 per cent over the same period) and litecoin (-18.4 per cent).
Renowned investor Warren Buffett recently described bitcoin as a “gambling token” and said investing in it is like “playing the roulette wheel”. Instead, he said, he would put money in assets that “do something”, such as farmland or apartments.
3. Pay attention to your taxes
No one likes leaving money behind and yet every year thousands of taxpayers neglect to chase money they are owed back from the taxman.
Don’t let it be you. It has never been easier to claim back tax – check out Revenue’s MyAccount service – and you can now do it whenever you incur an expense. You don’t have to wait until the end of the year.
So what can you claim back?
The big one, introduced last year, is the rent credit, which is worth up to €500 a year for single people and up to €1,000 a year for married couples and civil partners, every year up to and including 2025. Recent figures show that almost seven in 10 renters have yet to claim it. If you are one of those, get on to Revenue’s MyAccount facility.
You can also claim 20 per cent back on medical expenses (and some dental ones) not covered by private health insurance, should you have such cover.
If you do own a home, renting out one or more rooms can be a big tax-free earner as you can earn up to €14,000 a year, and pay no tax on it.
Single person child carer credit is worth €1,650 a year, and it’s also possible to earn a further €4,000 at the 20 per cent tax rate.
A home carer credit (worth €1,700 from this year) can also be claimed if you have a spouse who doesn’t work and is caring for children.
Remote working is another potential tax credit, but it’s cumbersome to apply for – you have to get together all your gas and electricity bills, and work out how many days you spent working at home – and you’re unlikely to get more than €100 back a year, and more likely less than €50.
4. Don’t overspend – and deal with your debt
There are so many ways of paying for things these days that it can often feel like you’re not even paying. Take Klarna, which allows you to pay for your Asos €50 skirt over three separate payments, or Revolut’s Pay Later function, which aims for something similar.
Of course, the danger is that, with payment so easy, it’s also easy to overspend and end up in debt. Outstanding debt can severely impact your future financial goals such as getting a mortgage etc. And paying off debt is a lot harder than building it up.
Consider a debt of €2,000 on a credit card at 20 per cent where you are repaying just 2 per cent (€40) a month. With such a low repayment, this will take a staggering nine years to repay, and will cost you an additional €2,336 in interest.
If you have outstanding expensive debt, it may be time to take action. Firstly, you’ll need to stop spending and secondly, you want to cut interest costs. Here are three options.
1: Bump up your monthly repayments – if you increased repayments to €100 a month in the above credit card example, the interest you will pay your card provider will shrink to just €453.
2: Consider taking out a personal loan to repay more expensive debt. Credit unions and banks offers rates of about 8-9 per cent. This shrinks the cost of the loan to just €262 over three years.
3: Switch to a cheaper credit card provider – An Post Money for example, offers 0 per cent on balance transfers for 12 months, while at Avant Money it’s zero per cent for nine months.
