Saving up to replace the car, saving for your retirement, saving for the costs of your children’s 3rd level education, saving for a rainy day – it can sometimes feel like there’s an endless list of demands on your spare cash.
When everything is important, and when financial uncertainty is the order of the day thanks to Covid-19, how do you decide what to prioritise?
Choosing your priorities carefully
Everyone’s financial situation is different, but there are some common issues that we all need to address. If you are able to save some money every week or month, even if it is only a small amount, here are three top priorities to bear in mind.
1.Building up your ‘rainy day’ fund
When it comes to your personal finances, it’s a good idea to expect the unexpected – particularly in the ‘new normal’ that we’re experiencing right now. Emergency demands on your money - the car that suddenly has to be replaced, an unexpected break in your employment, the boiler that breaks down - can hit hard.
Aim to build up a ‘rainy day’ fund equivalent to the cost of 3 months’ expenses. For example, if your essential personal and household expenses amount to €3,000 a month, then you are looking to save €9,000.
You might need to allow some time to build up this amount. For example, saving €250 a month into your rainy day fund for 36 months will hit your €9,000 target. The best way to do this is to make it automatic.
Set up a direct debit to pay the money into a deposit account or a regular saving account as soon as you get paid. You can find more about Bank of Ireland saving accounts here.
2.Repaying debts
If you have outstanding high interest loans or credit card balances, you may want to make it a priority to pay them off. But if you have more than one debt, which one should you repay first?
Some experts suggest that you should pay off the smallest debts first as it is good to get results quickly and it might give you the momentum you need to clear other debts.
Others suggest that you should pay off the debts with the highest interest rate first. However, if these are your largest debts, then it may take some time and there’s a danger that you might lose motivation somewhere along the way. Perhaps a mix of both approaches might work best for you?
3.Saving for retirement
When you retire, you may be hoping to enjoy a similar standard of living to the one you enjoy today. However, unless you put a pension plan in place, your income could drop by over 70%.
For most adults in their 50s and in full-time employment, the contributory State pension is €12,912* a year (or €248.30 a week), but the average salary in Ireland is much larger at €41,695**. That’s a potential drop in income of €33,735 a year from the day you retire, assuming you are on the average salary.
You need to start saving for your retirement when you still have time on your side to help reduce this drop in income - and the impact it may have on your lifestyle.
One of our financial planning managers can talk to you to discuss what income you might need when you retire and help you put a plan in place based on:
- your age
- your expected retirement date
- the lifestyle you want when you retire
- what you can realistically afford to save.
*Source: Annual State Pension Contributory 2020, www.welfare.ie
** Source: CSO, Average annual earnings in Q1 2020, Earning and Labour Costs July 2020.
Disclaimer
Life assurance and pensions products are provided by New Ireland Assurance Company plc., trading as Bank of Ireland Life. New Ireland Assurance Company plc., trading as Bank of Ireland Life is regulated by the Central Bank of Ireland.
Advice on Bank of Ireland Life products is provided by Bank of Ireland, trading as Bank of Ireland Insurance & Investments. Bank of Ireland trading as Bank of Ireland Insurance & Investments is regulated by the Central Bank of Ireland.
Bank of Ireland is a tied agent of New Ireland Assurance Company plc trading as Bank of Ireland Life for life assurance and pensions business.
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