Making Cents with Liam Croke: Five exercises to boost your financial health

Liam Croke

Reporter:

Liam Croke

Making Cents with Liam Croke: Five exercises to boost your financial health

Getting a better rate for your savings is one exercise you should take on

I’ve put together five tasks, I would like you to consider doing this month. They are financial housekeeping tasks to keep you on track in 2019. If you completed just one, you’d be doing great.

1. Review your home insurance cover

It doesn’t matter whether your policy is up for renewal or not, take out your policy schedule and see how much your home is insured for. Many people are insured for the incorrect amount.

Their mistake is largely down to insuring their property for its market value i.e. what they estimate they would receive if they sold the property, rather than for its re-instatement value i.e. the amount required to rebuild the exact same property, if it was destroyed.

To find out what your house should be insured for, log onto the SCS’s website (www.scs.ie) to see their excellent house rebuilding guide, with a calculator that will tell you exactly what your house should be covered for.

If you are over insured, have an insurance broker compare quotes from various providers, or do it yourself by using an online comparison website.

If a lower premium is available, ask your existing provider to match it; if they don’t, tell them you’ll move your policy from them. More often than not, they will match that lower premium.

Also, if you bought any valuable item over the Christmas period, then you may need to have it specified separately on your insurance policy. Speak with your insurance provider and ask them what needs to be done to get this in place and how much it costs.

2. Get a better rate for your savings

I met someone last week who had €32,500 sitting in an account earning 0.25%. When you factor in DIRT tax and inflation, her real rate of return was -0.5375% so it was costing her money to leave it on deposit.

It’s pretty shocking that €32,500 is depreciating by €172 each year and when you factor in the opportunity lost in investing in accounts that yield circa 3% per year, the amount becomes bigger.

If she invested in accounts returning 3% per year she would earn €975 each year on a balance of €32,500. So, by doing nothing, she is leaving around €1,147 behind her each year ie the difference between 3% and -0.5375%. Multiplied over time, the difference is big ie €5,735 over just five years. By doing nothing, it’s costing her about €100 each month, so if you are in a similar situation get more proactive.

3. Save, rather than spend every fiver you have this month

This February, I want you to try to not spend a €5 note this month.

Instead, put it into a glass jar or an envelope. Every time you have a fiver in your wallet or purse, or you get it in change from buying something, you can’t spend it. Put in into the jar and at the end of the month see how much you have saved – you might be surprised.

One woman, wrote to me telling me how she did this, and over a 12 months period, had saved €235.

4. Set up a savings account for your children’s future education

Even though it might be 15 or 16 years before they start college, the earlier you start the better.

I was carrying out a financial review for a client recently and one of his goals was to help his four-year-old daughter with the cost of going to college, if that is what she decided to do in 14 years’ time.

The amount he would need to save now, I calculated, was about €146 per month. But if he was to delay saving until she was 10, the amount rises to €337.

If you don’t then day to day income, existing savings or borrowings will have to fill the gap.

5. Review your life assurance policies

Get out your policy document and get someone to review it for you. You may have the wrong type of policy, you may not even need the policy you have, but unless you investigate it yourself, or get someone to, you will never know.

A Leader reader emailed me his mortgage protection policy to review last year. He was paying €78.56pm, but when I compared the type of policy and level of cover in place, and stripped away all the commission paid to third parties, all he needed to pay was €34.17.

The €44 he saved each month, was diverted to his mortgage as an overpayment, and the impact of doing that was taking one year 11 months off the term of his mortgage, saving €5,734 in interest payments in the process.

It takes 5 minutes to complete a new proposal form, and in this instance the total saving of €11,061 for completing a new proposal was an excellent investment; he was saving €2,212 for every minute it took him to complete the form. If you can get a better return anywhere else than this, let me know.

Liam Croke is MD of Harmonics Financial Ltd,

based in Plassey. He can be contacted at liam@harmonics.ie or www.harmonics.ie