An onslaught of festive publicity, combined with the pressure we put on ourselves to recreate the “perfect” Christmas portrayed by social media influencers or Hollywood directors, can have us throwing our caution to the wind hit and spend the money at this time of year.
But even if your best financial plans go as awry as your Christmas diet, you can make a commitment to get financially fit in the new year. If you’re already out of debt and have a big savings goal — whether it’s buying your first home, becoming financially independent, or enjoying a comfortable retirement — there are ways to save around $10,000 over the next year. These expert tips are aimed at a couple with two children with a gross income of 50,000 euros or more and will help you to achieve this savings goal.
1 Create a budget
Open your online bank account and analyze all your income, benefits and expenses over an average period of 30 days. There are many free financial planning apps and spreadsheets online to help you with this task and show you which expenses you can cut back to add to your savings. You can share the results with a regulated financial advisor if you need an accurate savings plan.
“To set your roadmap, you need to know where you are now,” says Nick Charalambous, chief executive officer of Alpha Wealth, which also offers a budgeting tool on its website.
2 Save 10 percent of your income
Irish people have picked up quite a saving habit during the pandemic, with households saving 19 percent of their income in the third quarter, according to a Central Statistics Office report earlier this month.
The rising cost of living is making it harder to save these days, but Charalambous says you can “rebuild your finances” by first saving 10 percent of the value of your gross income each month before paying for any of your other expenses. By automating your savings, you reduce the risk of using those funds to cover your day-to-day expenses.
“The problem is that too many of us spend on promised expenses like mortgages and paying off debt etc. first, leaving very little for the things we want in the future,” says Charalambous. “If you don’t put 10 percent of your income towards your savings — whether it’s for a pension or a medium-term investment — you’re never going to find that money at the end of the month because you’re going to spend it.”
3 Change your mortgage
Average savings: €120 per month/€1,440 per year
Your mortgage is probably your biggest monthly expense, so it’s important to reduce the cost of it by either switching to a new lender or getting a new deal from your existing lender. While lenders have passed on the European Central Bank’s rate hikes to customers, it’s not too late to get a cheaper rate, says Trevor Grant, chairman of the Association of Irish Mortgages Advisors.
“With interest rates likely to continue to rise and potentially remain volatile for the foreseeable future, mortgage switching is likely to become even more widespread as people look for ways to rein in their monthly expenses,” he says.
Charalambous recommends fixing your mortgage for five years to avoid a high yield environment when your current fixed rate expires in the next 12-36 months.
“We know that changing banks is stressful for people, but you could just call your own bank,” he says. “If you have a BER certificate of at least B3 for your house, you can switch to a green mortgage. If you currently have an interest rate of 2.95 percent and have a $250,000 mortgage with a remaining term of 25 years, you could get a green mortgage rate of 2.1 percent and save $120 a month.”
4 Switch your mortgage protection
Average savings: €25 per month/ €300 per year.
When you buy a home, your lender will insist that you have life insurance that will pay off the mortgage if you die before the loan is fully repaid, but many homeowners don’t realize that you are only required to have the most basic coverage . In fact, research has found that some banks don’t even tell homebuyers that they can purchase mortgage protection directly from an insurer or through a broker.
“If you got mortgage protection from the bank that issued your mortgage, you’re probably paying twice what you should be paying,” says Ralph Benson, co-founder and head of financial advice at online pension and investment advisor Moneycube.ie.
If you’ve always been a non-smoker and don’t have a medical condition, you shouldn’t be paying more than €25 a month for mortgage protection, says Charalambous.
Make sure you’re not paying for fixed-term coverage because as your mortgage debt decreases over time, the amount covered by your policy should decrease as well.
5 Get a new energy provider
Average savings: €32 per month/ €383 per year.
Energy costs have dealt some of the biggest hits to our pockets with 61 separate price increase announcements from electricity and gas utilities over the past 18 months. But you can still save money by switching providers, says Switcher.ie’s Eoin Clarke. And there are two other government electricity loans of €200 in January and March.
“The energy suppliers are not offering new customers the big discounts of up to 40 percent on the standard tariff that they offered three years ago,” he says. “But you can still get a 10 per cent discount if you switch and that makes a big difference because our estimated annual bills are so much higher now.
“Anyone who has not switched in the last 12 months has switched to the standard tariff of their provider. Households must therefore become active and negotiate a tariff with their current provider or switch providers.”
6 Get cheaper home insurance
Average savings: €20 per month/ €240 per year.
The cost of home insurance may have increased over the last year, but you can easily switch and save an average of €20 a month. Charalambous says you shouldn’t pay more than €30 a month for home insurance.
Make sure you don’t under- or over-insure your home. You should only insure your home for the cost of rebuilding it in the event of an accident. While construction inflation has pushed up remodeling and repair costs, don’t blindly renew your policy when it comes up.
The central bank has warned that if you renew with the same insurer every year, you could end up paying a third more than active switchers.
7 Look for auto insurance
Average savings: €25 per month/€300 per year.
You may think you’re doing a good job when looking for car insurance, but an independent broker or regulated financial advisor will ensure you’re getting the best deal. Remember to compare all insurance quotes on a comparable basis: some insurers offer breakdown cover as an optional extra, while others may offer it with the policy.
8 Cut your streaming subscriptions
Average savings: €14.50 per month / €174 per year.
Not only are streaming services getting more expensive, automatic billing systems are making it difficult to keep track of costs.
During your 30-day spend analysis, look at what you spend on subscriptions and cancel any subscriptions that you don’t use consistently. For example, Apple TV+ costs €6.99 per month or €83.88 per year, while Disney+ costs €8.99 per month or €89.90 per year (it offers 12 months for the price of 10). Instead, use free services like All4, Channel 4’s on-demand streaming service.
9 Move loans to a cheaper interest rate
Average savings: €50 per month / €600 per year.
Look at the cost of a loan you are servicing, and Ask the lender for a lower interest rate or switch to a new lender. You can use the cost comparison tool on the Competition and Consumer Protection Commission website to compare interest rates and monthly payments.
10 change health insurance
Average savings: €166 per month / €2,000 per year.
subscriptionut half of the Irish with private healthh-Insurers have the wrong plan and could save up to €1,000 per adult per year by switching, according to leading industry analyst Dermot Goode.
Older people often have outdated, substandard health plans and overpay by up to 40 percent, he says. Instead, opt for an enterprise plan, which usually offers the best value for money. You can also save money by giving up coverage for a private room and instead staying in a small ward and putting the kids on a cheaper plan within the same policy. In fact, starting next month, Laya Healthcare has an offer that means if you pay for one child, the others get free coverage.
11 Put your savings into a pension
Instead of just leaving the combined $5,437 you’ve saved by cutting expenses in the bank where inflation erodes their value, redirect your savings into monthly pension contributions so they can benefit from compound interest. Since your marginal income tax rate is 40 percent on income of €50,000, you will also receive 40 percent of your pension contribution back from the tax office in the form of an income tax reduction.
If you’ve stuck to the savings plan, you’ve also saved 10 percent of your gross income, or $5,000 for a flat-rate pension contribution, and you’ll save another $2,000 by taking a 40 percent tax break.
https://www.independent.ie/business/personal-finance/take-the-big-2023-savings-challenge-42225112.html Take on the big savings challenge of 2023