Moneymakeover Financial Review - What to do with Bonus and is my plan solid"ish"

[islander222]

Personal details

Your age: 46
Your spouse's age: 45

Number and age of children: 3 Kids


Income and expenditure
Annual gross income from employment or profession: 130k (110k base + Bonus)
Annual gross income of spouse/partner: 34k

Monthly take-home pay: 7400 (after pension payments) + 420 Child Allowance

Type of employment - e.g. Employee or self-employed.
Employer type: Both Private

In general are you: Saving I cannot honestly say "we" are savers... I'm in a family of spenders for sure and honestly I'm okay with a balanced lifestyle as life is short which we've got plenty of recent experience with - I do acknowledge we "should" be saving more with my income

Summary of Assets and Liabilities
Family home value: ~400k
Mortgage on family home: 220K
Net equity: ~180k

Cash: 6k Emergency Fund (In PTSB @2% AER)
Defined Contribution pension fund: 167k Current Company + 76k in previous company pension (Private Transfer Bond)
Company shares : Total of 70k (before tax) RSUs that vest 1/3 over 3 years
Buy to Let Property value: n/a
Buy to let Mortgage: n/a

Family home mortgage information
Lender: PTSB
Interest rate: 3.25% Fixed for another couple of years
Type of interest rate: tracker, variable, fixed. Fixed
If fixed, what is the term remaining of the fixed rate? 2 years

Remaining term: 14 years
Monthly repayment: 1575

Other borrowings – car loans/personal loans etc
This is our downfall. I have a clear objective never to have bad debt again and have been agressively paying it off and aim to have it cleared in 18 months. We completed some works on the house a few years back and also added a new car to the household mid last year.
Current Balance 38k with Avant @6.9%
Payments: 756/month
Overpayments: Minimum 500 but up to 900/month extra every month
I will also use next years bonus payment and any vesting RSUs next year to pay down early.

Do you pay off your full credit card balance each month? Yes

Pension information

Value of pension fund: 243K (Current Company Pension is invested in Irish Life Passive Equity Fund)
Company Match: 7%
My Contribution: 5%
AVC 1: 10% Salaray
AVC 2: 50% of bonus (total)
Last year my contribution: 14K (excluding companys 7% ~ 8k total)
This year I'm on target for 28k contribution
My other half has minimum MyFund payment and a previous public sector pension (about 15 years pre 2012)

Buy to let properties: n/a

Other savings and investments: I also have 10K sitting in PTSB from this years bonuewaiting on me to decide what to with it

Other information which might be relevant

1) Life Assurance with work: 12 times salary
2) Long term disability with Work also - 2/3 of salary
3) My Wife has private income protection (67/month) for 21k cover
4) Life and specified illness for us both: 157/month... 280k death and 113k serious illness cover

What specific question do you have or what issues are of concern to you?
1) Main Question this time: I think the best thing to do with the 10K now is pay against the 38k loan. However, I would like to get others opinions. Could I put 14k of the loan + Emergency fund into last years pension? Wouldn't I get 5600 back (40%)? I could put that back into Emergency fund and pay down 2k of loan and continue overpayment?
2) Emergency fund is deprioritized for now as I believe I'm well covered in case of emergency with company benefits and other polices. If I'm let go I would expect to get @100K gross. So plan is to retain at 6k and maybe grow to 10k over the next couple of years. Is that mindset okay? I reckon I'm safe enough in my multinational IT sector job but we all know that can change anytime. But I'm open to different opinions on this if I'm way off.
3) My medium term plans as I said I to clear the bad debt and stay out of it for evermore (I'm about a year behind on this based on my previous thread in 2021). Fund my pension to the max from this year onwards (i.e. the full 28.5k). Keep a healthier emergency fund but also live life now...Directionly we are ratio'd at 50/30/20 (Needs/Wants/Savings) right now but I want that to move to 50/25/25 when I pay down the loan (I count that as descretionary right now because we went above and beyond what is considered needs) and eventually 45/25/30...
4) On the ratio of 50/30/20 - that excludes my employers pension contribution but I do include my own. Is that the right thing to do? Should I include my employers contributions as income and as part of the savings pot?
5) Long term plans 1 - I want to fund my pension to the max... not so much for early retirement but maybe if I wanted to in another 10 years I could find another job that I like doing rather than my current one which I need to do (I don't hate it but I don't enjoy it either).
And finally if you got this far, thanks for reading! For the last 2 years I've saved or payed down debt with 50% of bonus's and every wage increase has gone 100% towards funding my pension and I plan to continue that... and then with the loan payment of 750 I'll have a choice to make on where to put it - hopefully the government will have got the finger out to make savings better - or as per my previous post/plan - I put it towards mortgage overpayment. So I guess I'm looking for a little validation on the plan overall...

Thanks!

 

[Sarenco]

I would regard carrying debt @6.9% as an emergency that needs to be addressed ASAP.

If that means curtailing your lifestyle for a while, so be it.

Once (but not before) that is dealt with, you should certainly start increasing your tax-relieved pension contributions - your pension is very light for your age.

Anything left over after maxing your pension contributions, throw it at your mortgage.

You are obviously at an expensive stage of life but I think you know that you are behind where you should be given your household income.

Time to get serious about your finances…

 

[Premos]

Emergency fund is deprioritized for now as I believe I'm well covered in case of emergency with company benefits and other polices. If I'm let go I would expect to get @100K gross. So plan is to retain at 6k and maybe grow to 10k over the next couple of years.

I find your emergency find very small for a family of 5. From experience, safe enough can quickly become unsafe. But unemployment is not the only reason you might need an emergency fund.
If you only keep a minimum of cash, you will probably have to borrow again for the next car.

You have 3 children. Considering the value of your house, are you close to a town or would they need accommodation if they choose to go to university? Depending on their age, that could have to be consider?

 

[islander222]

I would regard carrying debt @6.9% as an emergency that needs to be addressed ASAP.

Got it - so focus on elimitating that. tbh it was my initial plan to do that but I held off to be sure.

You have 3 children. Considering the value of your house, are you close to a town or would they need accommodation if they choose to go to university? Depending on their age, that could have to be consider?

Kids will have options on different colleges with the ability to stay at home.

Time to get serious about your finances…

I have been trying - challenge is a household that is definitely not and I need to be stronger in that regard. I'm trying to get the balance but clearly not enough. But I'm hoping all going well (and I know it may not as anything can change at any time) the plan is in place to make that better - I absolutely want the debt gone in less than 18 months so I'll curtail the AVCs and pour it all into the debt.

 

[arbitron]

I have a clear objective never to have bad debt again

My medium term plans as I said I to clear the bad debt and stay out of it for evermore

What do you mean by bad debt? It usually refers to debts that a business writes off as not recoverable, but do you mean maybe mean it's a high interest debt or just one you want to get rid of?

 

[arbitron]

In 2021, you had:

Rough estimate of value of home: €260000
Amount outstanding on your mortgage: €174K
What interest rate are you paying? Split 154k @ 1.8% (mortgage move ECB+1.8%) & 20k @ 3.9%

And now:

Summary of Assets and Liabilities
Family home value: ~400k
Mortgage on family home: 220K
Net equity: ~180k

Is this the same house? The mortgage went up by almost €50k, was that for the renovations?

I started the college fund with Zurich (Child savings plus) which is 150/month.

Some suggestions
...
2. Cancel the college savings plan. (The objective is your overall position not how much you have in which pot.)

Did you stop the college savings plan?

Based on your previous post, your children are about 7, 10, and 16 now? That's important as there are different costs at different stages - primary school is probably the least expensive.

I agreed with @Premos that your emergency fund is small. You have €7,820 net income a month which is very good and you should really be able to afford to build up your fund. What is your credit card limit?

 

[islander222]

What do you mean by bad debt?

Yes, the consumer/lifestyle debt that I do ackowledge is the cycle we haven't broken free from and needs to be resolved. Thats a big part of the problem.

Did you stop the college savings plan?

Yes I did, but not straight away. It is now part of the 500/month overpayment on the consumer debt.

Is this the same house? The mortgage went up by almost €50k, was that for the renovations?

It is, we added a bedroom and extra living space. House was valued at 330k before we did the work. Similar or worse houses in the area are going for 400k to 450k at the moment.

So... regarding the emergency fund and loan... I plan to double the over payments to 1k per month immediately but should I keep some of the 10K to bring it up to say a healthier 10k and move 6k to the loan?

 

[Persia]

Yes, the consumer/lifestyle debt that I do ackowledge is the cycle we haven't broken free from and needs to be resolved. Thats a big part of the problem.

Important to bring your wife along with you on this and get agreement and alignment on belt tightening, if not it will be like 2 people rowing in opposite directions.

 

[arbitron]

should I keep some of the 10K to bring it up to say a healthier 10k and move 6k to the loan?

So you actually have €16k available as an emergency fund between all cash and savings?

What is your total limit across all your credit cards? That makes a difference when calculating your emergency fund needs.

 

[ClubMan]

What is your total limit across all your credit cards?

Don't think that they should be depending on credit cards for emergencies as long as this debt is outstanding.

Other borrowings – car loans/personal loans etc
This is our downfall. I have a clear objective never to have bad debt again and have been agressively paying it off and aim to have it cleared in 18 months. We completed some works on the house a few years back and also added a new car to the household mid last year.
Current Balance 38k with Avant @6.9%

 

[arbitron]

Don't think that they should be depending on credit cards for emergencies as long as this debt is outstanding.

No-one should depend on credit cards for day-to-day spending. We are talking about emergency funds here. This is for events that are rare, serious, and unexpected.

Ideally an emergency fund will be in cash. But if someone has access to several thousands in credit at short notice then the need for a large cash emergency fund is reduced. That cash can then be used to pay off the loans instead.

I have €5,000 available on a credit card that I never use - it is set aside for a true emergency. That is €5,000 less that I need to keep in a bank account "just in case". If I have to spend it, I will have a few weeks to arrange ways to pay it off. Worst case scenario, I pay the minimum amount until I can sort it out. In 20 years, I have never needed to use it but it has kept that cash free for me to use elsewhere.

 

[ClubMan]

We are talking about emergency funds here.

Which shouldn't be racked up on a credit card when there are already significant unsecured debts outstanding. In my opinion.

 

[arbitron]

Which shouldn't be racked up on a credit card when there are already significant unsecured debts outstanding. In my opinion.

So, as an example:
€16k emergency fund = €11k cash and €5k available on credit card
Balance of loan = €33k

You would suggest:
€16k emergency fund = €16k cash
Balance of loan = €38k

This is the equivalent of borrowing €5k @ 6.9% to have the money sitting there as a back-up. Versus having a credit card in your pocket with zero balance, costing only the annual stamp duty.

An interesting approach.

 

[Blackrock1]

I think you have solid advice already so nothing really to add there but a qn , the death in service that pays out 12x your salary I don't think I've ever seen it that high before !

 

[Protocol]

3) My Wife has private income protection (67/month) for 21k cover
4) Life and specified illness for us both: 157/month... 280k death and 113k serious illness cover

At first glance, these two seem expensive?

I pay 67 pm for salary protection, but I get 40% tax relief on that, and it covers me for up to 75% of salary.


I always advise anybody with life cover to get a quote on www.labrokers.ie to compare rates.

 

[ArthurMcB]

your pension is very light for your age

On what basis do you say this?

With current fund of 243k at age 46, if OP makes max contribution going fwd they will have a pension fund of €1m around age 57, assuming a modest 5% growth rate.

Surely, that is good going?

 

[Sarenco]

Well, I think a pension pot of €243k is light for a 46-year old earning €130k per annum.

I think it should be closer to €400k at this stage.

But the OP’s real problem is the expensive consumer debt - that needs to be cleared ASAP.

 

[ArthurMcB]

Yeah I dont disagree with that. Light relative to current income perhaps. But not nessessarilly 'off track' as long as they max contributions going fwd so its a decent base at that age

 

[Sarenco]

Well, I don’t think the OP should increase their pension contributions beyond what is necessary to get the maximum employer match until the expensive consumer debt has been cleared.

At that stage, they absolutely should start making the maximum tax-relieved pension contributions - no doubt about it.

 

[Brendan Burgess]

Cash: 6k Emergency Fund (In PTSB @2% AER)

Company shares : Total of 70k (before tax) RSUs that vest 1/3 over 3 years

Current Balance 38k with Avant @6.9%

I also have 10K sitting in PTSB

I would regard carrying debt @6.9% as an emergency that needs to be addressed ASAP.

@Sarenco summarises it very well. You have €16k available but you could pay it off your Avant loan and save yourself 6.9% or €1,100 a year. ( A bit less because you are getting some interest)

You do not need an emergency fund. You have everything covered and you have a credit card if there is some unexpected expenditure.

You should not be borrowing at 6.9% to put money into a pension fund. So do not put any unmatched contributions into a pension until you have cleared this very expensive debt. You are 46. You have plenty of time to max your pension contributions later.