This is the time of year when we all pledge New Year resolutions, like going to the gym and drinking more water, in the hope that these small changes will form new habits that will improve our future.
But one way to make a meaningful change, not only to your life now but for your future, is to be savvy around your personal finances. The problem is that people tend to only focus on their personal finances once a year when they have to file their annual tax return or even less frequently when there is a major life event, such as a birth, marriage, death, moving house, new job and so on.
Maeve Corr, Head of Private Clients says that approaching your finances doesn’t need to be daunting and suggests we make small changes more frequently. “The best way to develop a sustainable good habit around improving your personal finances is to take it in bite size pieces,” she advises.
Here are 9 tips for 2019 to ensure personal financial success:
- Pension – do you have one? Currently only 40% of private sector workers in Ireland have some form of a pension. With increased life expectancy and a decline in traditional public sector jobs offering traditional final salary schemes it means the burden of funding your own pension is increasing. Pensions remain one of the most tax-efficient ways to provide for your future with tax reliefs currently available at the 40% rate. So review what you have and start making contributions – the earlier you start the less impact there will be on your take home pay while you build your pension pot.
- Social welfare entitlement/tax reliefs– often we don’t appreciate that we may be entitled to social welfare assistance or tax credits. There are benefits like the Home Carers Tax Credit, Domiciliary Carers Allowance that you might be eligible for. Also check that you have an accurate record of your PRSI contributions. If you have taxable income each year of €5,000 and above, whether through part time work or things like rental income, you will be making contribution. If you have taken time out of the workforce, ensure that you have sufficient earned or credited contributions to qualify for the State pension. Also if you are claiming child benefit, unless you have completed a verification of education (enabling you to claim benefits till aged 18), these benefits cease when your child turns 16, so plan ahead.
- Medical expenses – In January we are often under pressure with cashflow. Check you have claimed all your outstanding medical expenses, both from revenue and your insurer. Revenue let you claim back expenses paid over the last four years. In addition are you paying for nursing home care? While relief on most medical expenses is only allowed at 20%, nursing home expenditure is allowable at 40%. This can be coded into your tax credits – hence you don’t have to wait until the end of the year to see your benefit.
- Review your mortgage and your debt – have a look at what rate you pay on your mortgage. Some banks will offer reduced mortgage rates where a property is below a certain loan to value ratio. If you’ve had a mortgage for some time, check your rate as there may be a better rate available in the market. If you have other short-term debt – such as credit cards – and are considering paying off your mortgage, it may be better to pay off this debt first which typically attracts a much higher rate of interest.
- Rental properties – The mortgage interest relief on any loan used to pay for a rental property has been restored to 100% since 1 January 2019. It’s important that your property is registered with the Private Residential Tenancies Board (PRTB) to benefit from this. In addition, make a schedule of the maintenance and additional expenses needed to manage the property so you are prepared for them.
- Rent a Room Relief – with the pressure on the rental market at an all-time high, there is considerable demand for accommodation. Consider if could you rent a room – you can earn up to €14,000 tax free. This can not only suit first time buyers looking to pay their mortgages, it can also work for empty nesters who would like to supplement their income. It is worth noting however that renting through short-term sites such as Airbnb doesn’t qualify for Rent a Room Relief.
- Gifting– consider setting up standing orders to children or grandchildren to utilise their annual small gift allowance. You may receive a gift up to €3,000 tax free in a year, from any individual. For example, two grandparents could build up a fund for grandchildren of €60,000 over ten years. Make sure the funds are in the recipient’s name though to qualify for the relief.
- Foreign exchange – if you have foreign assets denominated in another currency, check the rates before you transfer back into euro. There are a number of institutions that offer very competitive fees for foreign exchange transactions. If you travel overseas a lot or have property or shares in a non-euro location, shop around before you make significant foreign exchange transfers.
- Investment review – Over time we build assets, but often don’t focus on what the goal is. You should undertake a review to consider what your goals and objectives are and build a strategy and portfolio to meet those needs. Consideration of your objectives, whether it is to build a retirement pot, or saving to pay for your children’s education, will impact the type of assets you should target. It is important to understand the risk of your assets and if you are overweight in one type of asset versus another.