'Financial Resolutions' for the New Year

Discussion in 'Other financial issues' started by gnf_ireland, Dec 31, 2016.

  1. SBarrett

    SBarrett Frequent Poster

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    Interest rates are usually lower than inflation, so you will usually be losing the real value of your money by having it on deposit.


    Steven
    www.bluewaterfp.ie
     
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  2. SBarrett

    SBarrett Frequent Poster

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    Ha! Ha! Just read your post after my comment :D

    I have found over the last few decades that interest rates were usually lower than inflation. I've absolutely no scientific data to back it up mind, just an observation.


    Steven
    www.bluewaterfp.ie
     
  3. Gordon Gekko

    Gordon Gekko Frequent Poster

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    It is central bank and government policy to keep interest rates behind inflation in order to deal with the stock of debt in the world.
     
  4. elcato

    elcato Moderator

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    Price of a pint is usually a good indicator. *Back then the price of a pint went from about 50p in 1979 to 80p by 1981 and was over a pound by 1982.

    *Disclaimer: I was drunk most of the 80s.
     
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  5. Sarenco

    Sarenco Frequent Poster

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    According to the latest Barclays Gilt Equity Study (linked below), cash produced an annualised real return in the UK of 0.8% over the last 116 years.

    In this context, "cash" refers to short-term Government obligations and a retail investor can normally get a materially better rate then that by simply depositing their cash in the most competitive (Government guaranteed) savings product.

    There have certainly been periods of time (sometimes lengthy periods of time) where cash deposits produced a negative real return (such the stagflationary 1970s) but over the long-term the real return on cash has been positive.

    http://hungrydummy.com/media/pdf/EquityGiltStudy2016.pdf
     
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  6. LeannD

    LeannD Registered User

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    I've contacted KBC this week in relation to overpayments and received a form (Flexible repayments instruction) to fill. The form gives you 3 options and the first (Option A) mentions that "funds will be available for redraw at a later date subject to KBC Homeloans Terms and Conditions.")
    I was going to search this forum for what redrawing this money means for the mortgage (do I use to repay the outstanding balance at the end?) but now I'm confused! Does this facility (redrawing) no longer exists and I got incorrect form/information from KBC?
     
  7. gnf_ireland

    gnf_ireland Frequent Poster

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    When was your mortgage with KBC set up? Does your Homeloan T&C's refer to the facility to redraw any over payments made?

    During my lengthy discussions with KBC on this (Note: this case was in their internal complaints process for around 6 months before resolution), the facility to redraw overpayments was removed from all mortgages issued after September 2013. It was included in the T&C's up to that (I understand) and was removed then.

    The Flexible Repayment Instruction is generic and covers mortgages issued when the facility existing and after it was removed.

    In general (ie to my knowledge) no other bank in Ireland allows you to redraw overpayments. Overpayments means exactly that and once paid they come off the principle of the mortgage. Therefore you pay less interest and you can either reduce your repayment amount OR your term.

    If it still exists, what it would mean is the term of the loan would stay as before the redraw and the capital would increase. This would mean the repayments each month would rise as a result of the redraw
     
  8. gnf_ireland

    gnf_ireland Frequent Poster

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    As above, it depends on when you drew down the mortgage as to whether it exists or not.

    You can always 'play dumb' and fill in the form, see what is returned in the confirmation letter to you (this is where I got confirmation I could redraw the funds. KBC stated this was a mistake!). After a few months you could always request a small redraw (whether you need it or not) and if they don't let you, then you will know the score very quickly. You can always dispute it in the complaints process or whatever at that stage.

    If you are planning to overpay, you should do so on the assumption you CANNOT redraw and if you end up with that facility it is an added bonus !
     
  9. gnf_ireland

    gnf_ireland Frequent Poster

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    @Gordon Gekko @SBarrett @Sarenco @Brendan Burgess
    Tagging you gentlemen as you are the ones who have responded the most to it...
    Going back to the original theme of the thread, the general consensus is that you should keep 3 months odd of living expenses in an emergency fund. Ignoring the redraw discussion directly above, I assume this emergency fund would effectively be a demand deposit account, rather that any other type? Would you agree with this statement? While you may get a nominal interest from it, it is effectively 0%
     
  10. LeannD

    LeannD Registered User

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    Thanks @gnf_ireland
    I'll double check my T&C's but I'm already guessing you are right in saying this is probably a generic form.
    My mortgage was set up Dec 2015, very recently then...

    I also want to make a lump sum payment into the mortgage account, but whether this will go towards reducing the term or the scheduled monthly repayments is still unclear to me...
     
  11. gnf_ireland

    gnf_ireland Frequent Poster

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    Mine was May 2015 so probably the same T&C's. KBC claimed I was not entitled to the redraw option but they have agreed to allow me redraw a level of the over payments in the past. Any over payments since they informed me of the error are not allowed to be redrawn.

    I think it does relate to the size of the lump sum payment. However, my experience with KBC on this is the term stays the same and you get a letter stating your new repayment amount post the lump sum being made. I make lump sum payments via internet banking directly into their 'holding account'. I can transfer 5k per transaction and up to 15k per day using this option.
    The smallest lump sum payment I think I have made in the past is 1k.

    My advice is always keep the term the same. I am overpaying via a flexible payment instruction at the moment and my mortgage amount reduces by about around 50 cents each month.
     
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  12. Gordon Gekko

    Gordon Gekko Frequent Poster

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    Yes, demand account in my view.
     
  13. SBarrett

    SBarrett Frequent Poster

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    You have to look at your own circumstances when assessing how much you need in an emergency fund. If the purpose of the fund is to provide income if you are out of work, then how likely are you to be out of work for? Are you in an employable position? IT Consultants can get a job in a day at the moment, so they don't need large amounts of cash for those purposes. Others may take months to get a new hire.

    Then you have other things that may be needed in an emergency. How old is your car? The older, the more chance of something going wrong and you're getting a large bill from your mechanic. There's lot of things.

    But yes, leave it in cash that you can access quickly.


    Steven
    www.bluewaterfp.ie
     
  14. gnf_ireland

    gnf_ireland Frequent Poster

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    Absolutely agree. That said if I broke my leg in the morning, I could still work but would cost me a lot more !! Understand completely re everything else. My wife is conservative enough to make sure the emergency fund is sufficient :)
     
  15. gnf_ireland

    gnf_ireland Frequent Poster

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    Hi all
    Just to give a general update on this a year on !

    So in the end we decided not to go for a financial planner in 2017, and instead considered all the advice we were given here.

    My wife got the opportunity to go from 4 days a week to 2.5 days a week just as my eldest started primary school. We decided that would be a great idea from a work/life balance point of view and would easy the transition into school for both of the girls. This obviously saw a drop in income, but also a drop in childcare costs (although we kept the childminder for 3 afternoons a week for continuity reasons).

    The big change we done was to liquidate a number of deposits/investments - kept a rainy day fund of 6 months and paid a good chunk off the mortgage bringing it down to the negligible level. We would have paid it off only for the redraw option on it. We have since fixed it for 10 years with KBC at 2.95%, as it allows us a line of credit with them for 10 years at that rate. The mortgage repayments are now pretty small all things considered.

    We decided to upgrade the two cars, and also done some work around the house that we wanted to do, so don't expect any more major capital expenditure for a few years.

    We also decided to max my wife's pension at 25% + company contribution, and I upped my contribution to just over 22.5% overall. This will hopefully pay dividends in the future. We backdated this for 2016 also.

    As an IT consultant I also changed the way I was being paid from an umbrella company structure to a limited company, allowing me to take a base salary from the company, and deal with any extra funds differently. I also set up death in service and income protection cover.

    Our savings are obviously much smaller as a result (some would call it decimated), but our disposable income remains consistent. Our cash reserves are no where near what they used to be, but are adequate for our needs.

    I should not have mentioned this line, as I did manage to fracture something in my foot at the start of this year. Outside the medical bill and extra taxi's going to work for the first two weeks, thankfully it was not majorly impacting on us financially at least. Not being able to drive was very impacting, even if I don't do a huge amount of it.


    It will be interesting to see what the next few years being, but without doubt 2017 was a milestone one financially for us... Thanks to all for the advice on here