Everything is getting more and more expensive – food, energy, even second-hand cars… These elevated inflation rates are due to a culmination of factors including supply chain disruption and labour shortages due to Covid 19, the impact of the war in Ukraine, and increases in energy costs.
Now, more than ever it’s important to ensure your savings are not being eroded by rising prices.
So, what can you do to help make your money go further and your savings inflation proof?
Manage Your Expenses
Time to take stock of your spending habits. Know where you stand with regard to your finances, what’s coming in and what’s going out. Budgeting isn’t about limiting yourself, It’s about making the things that excite you possible or help you manage through a time of rising costs. What are you spending your money on and where can you save that little bit extra if you need to?
Where to Start
Track your spending for one month then see where, if at all, you can make some savings. Maybe instead of meeting your friends every Saturday in the café for breakfast you meet up for a walk instead and go to the café once a month. Put what you’ve saved into your emergency fund, towards paying a bill, or the kids school trip later in the year, etc…
Invest in the Long Term
While the markets have taken a hit (best time to buy in) over the last while it is still worthwhile looking at investing… but invest wisely! With inflation currently running at 7% + and possibly increasing over the next few months your savings are effectively losing value…. For example 500 litres of home heating oil cost an average of €648 at the end of April 2022, but increased to €702 as of July 15th 2022 – (oilprices.ie). Having money on deposit or a low interest savings account is not working for you, it’s not beating inflation, and not beating inflation means that the real value of your money is falling year on year. Improve your spending power by considering other investment alternatives… diversification is key!
Where to Start
Keep enough cash in a savings account for any foreseeable or unforeseeable costs. Build up your emergency fund so that you have enough to see you through for 3 to 6 months. Any cash you have in excess of your emergency fund and/or a 5-year savings plan needs to be working for you through long-term investments. You need to find out what investment options available to you and how your money can work for you. Talk to us at O’Leary Financial Planning about your options.
Invest in Your Retirement
Do not give up on your retirement plan!!! If you have some money in the bank and are wondering how you can make it work for you… consider increasing your pension contributions. One of the key benefits of contributing to your pension – tax relief. You get 20 – 40 percent (whichever is your higher rate of income tax) relief on your contributions as well as relief on the investment gains and the cash lump sum you can take when you retire. Your income and gains within the fund are free of income tax, CGT or fund exit tax.
Where to Start
Investing in a pension over the long term and contributing to it regularly is by far the most tax efficient way to build up your retirement pot and a decent income when you retire. What will you need to manage in retirement… Pension Calculator
Pay Off Existing Debt
Any extra money you have should go towards paying off your bad debts – credit cards, personal loans, etc. After your main expenses, mortgage, utility bills, pension, paying down your debts should be one of your priorities. Many credit cards carry between 13.80% and 26.60% APR… you’re not going to beat this with any investment, so you might as well get these paid off first.
Where to Start
Rather than paying off the minimum amount each month pay as much as you can so that you reduce your dept quicker. Pay off your most expensive debt first. Depending on the number of loans/debts you have make sure you’re paying the minimum on all.
Are You About to Retire?… Check Your Fund
If you’re nearing retirement or about to retire in the next year or 2 review your retirement plans now. If your financial situation has changed to you might need to reassess your plans… consider working a bit longer… talk to your Financial Planner now so that you know what potential income you can hope to have with you retire, and if there is a shortfall what can be done to address it
Where to Start
- Get statements of your projected retirement values from all your pension providers and talk to your financial adviser
- Consider how do you wish to draw down your pension and get it working best for the lifestyle you want – take out a lump sum? invest some of it? get an income for life?
- Contact the department of social protection about your contributory pension entitlements 3 months before your 66th birthday. Also find our now what your entitlements – free travel; home heating allowance, etc
It looks like we might be in for heightened inflation for a while yet, so while we should hope for the best, we should prepare for the worst.