How are we doing and where are we going?

Discussion in 'Money makeover' started by DiddleyBo, Oct 27, 2017.

  1. DiddleyBo

    DiddleyBo Registered User

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    Money Makeover
    Details:

    Age: 50
    Spouse’s/Partner's age: 53

    Annual gross income from employment or profession: €98,000
    Annual gross income of spouse: €49,000
    Monthly take-home pay: € 7,650

    Monthly expenses: circa €5k

    • Groceries etc 1,100

    • Mortgage 1 1,436

    • Mortgage 2 860

    • Gas and Electricity 150

    • Property Tax 54

    • School Fees x 2 (over 9 months) 1,000

    • Car Insurance x 2 95

    • Diesel 120

    • Holiday Fund 250

    • Phone, 3 mobiles, TV, Broadband 140

      Type of employment: Both in private sector

      In general are you:
      (a) spending more than you earn, or BREAKING EVEN. We’re breaking even
      (b) saving? We have a small savings pot– see below

      Breaking even

      Rough estimate of value of home: €600k
      Amount outstanding on your mortgage: €217,000 (8 years left on it) rate is 3.37% which I haggled with EBS to get. It is split in 2 as one was the house purchase, the other the extension. One is €90k, the other €127k

      Other borrowings – car loans/personal loans etc.: None, all paid off – see below.


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

      Savings and investments: About €7,600 in equities; Ryanair shares which have done v well over the years. Got badly burnt on AIB and Anglo shares in 2008. Plus we have about €16,000 in cash savings

      Do you have a pension scheme? Yes, both in DC schemes. 11% employer and 5% personal for me. Can’t stretch to making AVCs yet. Current total value is €445,000. Partner pays 5% and employer matches with 5%. Pension fund amounts to circa €90,000 (note: includes 10 years preserved benefits in a bank DB scheme).


    Do you own any investment or other property? A share in holiday home. 3 years left on 20 year mortgage. €160 per month mortgage cost. We don’t rent it out, too much like hassle.

    Ages of children: 18, 13

    Life insurance: We both have policies that pays 4 x Salary on death. Both also have serious illness cover in place. Life cover for mortgages also in place.

    Questions

    We’re in Dublin and probably overstretched with the house we bought back in 2005 but are v happy where we live. We’ve pared every utility and other financial products and health insurance back to the bone. We shop sensibly and other than wine at home at the weekend and the few pints here and there don’t lead an extravagant lifestyle. We both need cars which are always bought second hand 3 – 4 years old which we keep for 2 – 3 years and then trade in . . . rinse and repeat.

    We received a net inheritance of €50k last year which allowed us pay off debt, make some home improvements, fund a family holiday and pay lump sums for school fees for the boys to ease the monthly repayments

    I will soon be receiving an inheritance as parents now deceased. Not sure how much as probate only underway since June and family home is now on the market. Fair Deal x 2 and other taxes will be due. If lucky, it will be circa €100,000 net.

    Plan is to try and pay off one of the mortgages with that lump sum to free up some cash-flow for a) general living and b) some savings/AVCs.

    Interested in views on how we are doing generally and what is the wisest way/best principles for managing the inheritance when it arrives. Eldest will hopefully go to college next year so that will need to be funded, though given the school fees we are currently paying we expect to be paying less.

    Also both working full-time but would love to retire early, say 62 or 63 if work, health and the fates allow it. Neither will be eligible for state pension until age 68.
     
  2. so-crates

    so-crates Frequent Poster

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    Overall you are doing well. You may have overstretched on the property a decade ago but you do not seem to have suffered any long term stress from that. Your mortgages are manageable. However, your savings are a probably little low and your pension pots are probably underfunded especially for an early retirement. You have a generous employer contribution on your pension so your best bet is to increase contributions there.

    I assume you are assuming that your 18 year old is planning on college in Dublin and living at home if you think you will see a reduction in his €1000pm education cost.
     
  3. RedOnion

    RedOnion Frequent Poster

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    It's not a massive amount of savings, but you should switch lender for your mortgage.
    AIB would only be 2.75% currently on <50% LTV.
    Even if you don't want to switch, you should fix one of the mortgages with EBS at 3.15%. leave the other variable if you hope to pay it off with inheritance.

    You'll have mortgage fully cleared by 60, children should be both out of college. It'd be worth focusing on your pensions a bit more if you want early retirement to get a reality, so look at that with a view to increasing contribution significantly once lump sum paid off Mortgage.
     
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  4. DiddleyBo

    DiddleyBo Registered User

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    Thanks so-crates.

    Yes the hope is that third level will be here in Dublin which will make the costs that bit more manageable. We pay €500 pm for each of the kids for 9 months so we'd hope to save on a bit of that. I had thought we were doing reasonably well on the pension front but I hope to be able to make AVCs once we've paid down one of the mortgage loans. I will have to convince my partner to do likewise.

    Thanks also RedOnion. I thought I was doing well with the rate I got from EBS and I wasn't aware AIB were offering a more competitive rate.That's good advice. I might look at fixing, I got mildly burned in the late '90s with a fixed rate when rates dropped but I can see the merit. Plan would probably be to do this when the inheritance comes through so I can work out what's best to do. If I'm lucky with the price we get for the family home the inheritance will allow me clear the bigger of the two mortgages. If I'm not, I may clear the smaller one.

    The decision I may have to make is should I clear the big mortgage and leave little left over or clear the smaller mortgage and have maybe €30k to put into savings. Clearing the bigger one will free up circa €1.450pm, the smaller one around €845pm. I'd welcome views on that
     
  5. RedOnion

    RedOnion Frequent Poster

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    Personally I'd pay off the smaller Mortgage first. Psychologically, since you already see them as 2 mortgages, you're down to 1 Mortgage immediately.

    Now, choices for the remainder.
    1. You don't need any more savings unless you've planned expenditure in the next year or 2. Between current savings, shares, and assuming you've credit cards, you've already got access to 25k in an emergency.
    2. Pay a lump sum off the other Mortgage. If I did this I'd look to reduce the term and keep repayments constant, so you'll be debt free sooner.
    3. At you age, I'd be making a serious contribution to your pension. For a net cost of 20k you'd be putting about 38k into a pension. Back date it to last year to get the tax back immediately, and then start making regular AVC contributions from the money you're saving on reduced Mortgage payments. If you don't, there's a risk that your extra money each month will just get spent.
     
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  6. DiddleyBo

    DiddleyBo Registered User

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    Thanks RedOnion. Your last sentence hits the nail entirely on the head for me. I really want to get our decision making around this right. It is probably going to be the biggest amount we will ever get in a lump sum in our lives. My fear is that the extra money we end up with will just end up being spent and we will have nothing really to show for it. A further lump sum on the other mortgage might be worth doing too. I hadn't thought of that.

    Re: pensions, yes we are now at an age where we can get a decent amount of tax relief in AVCs and that is definitely worth doing too. Backdating to last year makes sense.

    Any other thoughts out there?
     
  7. DiddleyBo

    DiddleyBo Registered User

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    Last edited: Mar 1, 2018
    Thought to provide an update on this snowy day. The inheritance came through a little quicker than expected and so far I’ve done the following:

    1. Paid off the smaller of the mortgages, €88k. This will free up €850 per month. Saved abut €15k in interest or thereabouts too as a result by my calculations. The psychological affect of this on us has been very positive. Makes us feel we’re getting there now. Less weight on our shoulders. Cancelled the life assurance for it too which is a further saving of €26 per month.

    2. Have decided on a strict three month grace period during which a) we’ll live a little easier with that additional monthly cash flow and b) make firm decisions on the rest. This won’t drift but I think we have to live a little too.

    3. Based on previous suggestions, I spoke to EBS about reducing my rate from 3.37% to something better. I made the better LTV argument. The best they would offer was the 3.15% fixed rate. However, it would only save us €12 per month. Going to hold off for 3 months (as per above) and if we decide to pay something off the main mortgage we will do that and then fix as we couldn’t if we fixed now.We will then either overpay monthly or put a lump against the debt (or possibly both) and try pay it down two years earlier which would leave us debt free by our mid-50s. Amounts to be determined, I’m still running the numbers and weighing up the implications.

    4.I spoke to AIB about their 2.75% rate and switching. They ran the calculations and maintaining the 8 year mortgage term the saving would be only €34 per month. I was disappointed with that but the low rate and short term means mathematically the rate reduction does not have as significant an effect on the monthly repayments. It would apparently if the term was longer. So, we need to weigh up if it is worth doing so or staying with EBS. Even with the €2k they are currently offering switchers.

    5. Paid off the holiday home mortgage which frees up €150 per month. Again, psychologically a great feeling.

    6. Cleared the VISA bill (€1,300) which was all legitimate stuff but the credit cards are now put out of sight. Cash economy from here on in.

    7, Will give each of the 2 kids €1k each as their “cut”. To do as they wish and also get something as a reminder of their grandparents. Nothing good in giving teenagers more that’s that, well for now anyway.

    8. Have stuck the balance into a one week AIB demand savings account which we have at a pathetic interest rate. I know it’s not the smartest but are going to hold it there for this 3 month period - see point 2 above. About €54,000 is in there now. One week demand period keeps it away from temptation.

    9. Plan is to focus on short, medium and long term financial plans.
    Short term may be to salt €20k away in a rainy day fund
    Medium term may be to invest €20k in equities
    Long term may be to start making AVCs as previously advised

    10. I’m going to change my car and probably put €6k towards that. I’ve a lot of mileage on mine and it is 6 years old. Would trade up to a three year old (so someone else is taking the main depreciation hit) and go with a UK import through a reliable guy I know who specialises in that market.

    11. We will probably put 5k towards a family holiday at some point. You have to live too and the kids won’t want to go away with us for too much longer.

    So, that’s the reality of what we’ve done and Mrs DiddleyBo and I will have a few discussions in the weeks ahead and plan. The extra €1k a month we have gives us options now. Though again a lot depends on our work, our health and what the future brings.

    Current thinking is to put 1/3 of this monthly surplus we now have into overpaying the mortgage, 1/3 into AVCs and 1/3 into living a little. There seems to be something logical in my mind to doing it like that.

    Would welcome all inputs and observations on this and the logic of what we’re doing and planning to do. Thanks a mill.

    DiddleyBo
     
    Last edited: Mar 1, 2018
  8. RedOnion

    RedOnion Frequent Poster

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    Great to see you're feeling the psychological effects of repaying the mortgage already.

    Just remember that's 34 euro every month, for 8 years (if rates stay the same). That's over 3 grand! The 2k from AIB will be more than enough to cover the cost of switching.

    I'm actually thinking of getting rid of my credit card completely. I haven't used it since August as a test without problems - even managed to rent a car without one.
    Just bear in mind that if you cancel it in March, you'll pay stamp duty for the last year, but if you keep it past the end of March you'll have to pay for next year as well!

    That's a lovely idea. And with that money, hopefully the Tattoo will be tasteful.... ;)


    Overall, I do think you're at the age you need to take the pensions a bit more seriously, especially if you want to retire in your early 60's. I'd sit down and start working out how much you want to have, and what you need to get there, rather than looking at how much you want to put away each month. There'll be a big difference between the 2, so you can start having discussions around that and thinking longer term about how you can achieve your goals.
     
  9. goingforgold

    goingforgold Frequent Poster

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    I think we need to be clear and realistic here - you are v well off. You have a net worth of ~ 1million euro (inc. Pension) and are still relatively young. Now that you're in such an enviable position your focus now should be paying down remaining mortgage as soon as possible and maximising your AVC's. What is holiday home worth? Do you use it often? Maybe you could sell and pay down remaining mortgage on PPR even sooner?

    Apart from that, I'd live a little like you suggested...doesn't need to be anything too mad but you are in a position where you are comfortable and can enjoy life...life is short afterall!
     
  10. PGF2016

    PGF2016 Frequent Poster

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    I had no credit card until I started using one that gives cash back. Once you’re disciplined and never pay interest it can be worthwhile having one.
     
  11. DiddleyBo

    DiddleyBo Registered User

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    Thanks again all. Always interesting to get others’ viewpoints. Some very useful observations. BTW RedOnion I too hope the tattoo(s) will be tasteful too.

    Will enjoy the three month grace period and use the time come up with a plan. Will post again once we’ve an outline of what we intend to do.

    Cheers.
     
  12. DiddleyBo

    DiddleyBo Registered User

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    Thought to post up what we’re considering doing with the additional circa €1k per month we now have as a result of the inheritence received. We’ve been enjoying the grace period this last while.

    What works in our heads is to have three directions for putting the cash to work. The likely plan is to put approximately one third towards our pensions, one third to the mortgage and one third to live a bit easier on.

    1. Pension - We’ll probably stick €400 gross a month into AVCs which with the tax relief should cost around half that in net salary. Will review as we go along.
    2. Mortgage - putting €333 a month into the building society account to go towards overpaying the mortgage. Every three months that means we overpay by €1k which will obviously get us toward being mortgage free sooner.
    3. General living - Using the rest to enjoy life a little more.

    Students of maths will note the AVC isn’t exactly one third (net with the tax relief) but we want to get comfortable doing this and may bump the amount up so it gets closer to €333 net a month.

    It all seems to be a bit complicated and old-school with EBS doing the mortgage overpayment. They suggest i write a letter explaining the overpayment each time and have both our signatures on it. Anyway, its fine as the branch isn’t too far away so it is not a major inconvenience to go in every three months. Still looking at rates and the switching option. If we fix at the lower rate with EBS it means we wont be able to overpay. Other option is to fix down to 3.15% for a year, bag the savings and put the €4k that will build up against the mortgage when it expires. Need to decide on that.

    The “general living” element may be higher than many posters here would advise and we need to make sure it doesn’t become a new “target”. We’ll keep an eye on so things don’t get out of hand.

    So, thats the short term decisions almost made. I still plan on changing the car as well.

    When all of this closes out we will probably end up having circa €75k in our savings. Interest rates are obviously a pittance and inflation will erode that over time. That figure well covers what should be in any emergency fund. I’d be interested in thoughts as to what to do with it. I’m minded towards putting maybe €25-€30k into a number of shares. Ryanair have been good to us over the years. We also have a capital loss of circa €18k as a legacy of bank shares which tanked. It may give us an option to use that up as well as (hopefully) being a good medium to long term investment of the money. I’m less risk averse than my partner who is understandably cautious given the losses we incurred on bank shares 10 years ago. Putting it into AVCs is another option suggested earlier and the tax relief makes you nearly double your money from the outset. The downside is the money is inaccessable until I retire which is 10-15 years away.

    Again, all of this also depends on our health and what the fates deal us...
     
  13. DeeKie

    DeeKie Frequent Poster

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    What one is that?
     
  14. stantheman

    stantheman Registered User

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    AIB Visa Platinum gives a small percentage of cash back - around 0.5% from memory.
     
  15. RedOnion

    RedOnion Frequent Poster

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    Yes, their systems / processes don't seem fantastic. However, there is a form you can fill in to have an increase in monthly repayment until you ask them to stop. Ask what your options are - if you have to go to any trouble there's a chance you'll give up.
     
  16. PGF2016

    PGF2016 Frequent Poster

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    KBC cash reward card. 1% back from online or grocery purchases up to €10 per month or €120 per year.

    Since that post I watched a Youtube talk by Frank Abignale of the "Catch me if you can" film fame. He says you should always use credit cards. Using a debit card risks your own money.
     
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  17. DiddleyBo

    DiddleyBo Registered User

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    Brief update. Did the first overpayment on the mortgage today with the EBS. Woo-hooo. A €1k lump sum off the principle.

    Inquired about the fixed rate at 3.15% for one year. Would save a few €uro monthly but it appears i would lose my “discount rate” of 3.37% (which i haggled for big-time) at the end of the fixed term and go on to the standard variable rate. So might be worse off.
    Traps, traps, traps.

    Advice at the counter too was to reduce the term as opposed to reducing the monthly repayment. That runs counter to advice posted previously by Brendan and others so if its not too much trouble to ask....should you reduce the term or the monthly repayment?

    As i understamd it, mathematically there is precious little difference between either approach. The key advantage to reducing the monthly amount appears to be the flexibility it will give you if a financial shock occurs.

    Discuss . . . . .
     
  18. DeeKie

    DeeKie Frequent Poster

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    Reduce the term if you’re able to make the payments comfortably? I’d be interested in that too.
     
  19. RedOnion

    RedOnion Frequent Poster

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    Hi @DiddleyBo

    Great to hear things are progressing. No update on the tattoos though? ;)

    What's your current total mortgage balance? Am I right in saying it's 126k in a house worth 600k? With about 8 years left?

    Since your original post, UB have changed the criteria for their 4 year fixed rate. 2.6%, and you can overpay up to 10% of the balance each year. I know the monthly savings aren't huge because of the small balance, but you really should switch.
     
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  20. DiddleyBo

    DiddleyBo Registered User

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    Thanks DeeKie.

    No tattoos yet RedOnion. One has been scouting for but not taken the plunge yet. Hoping he chickens out !

    I checked the effect of a 2.6% rate and it would appear to save us around €70 per month. That’s on a loan of €119k (remaining now) and a house valued around €600k. 7 years 8 months left to go on it now. I like the flexibility re still being allowed to make overpayments. On top of the €333 per month we’re setting aside to overpay we’re also considering making a lump sum of circa €15-€20k too once we are clear on our final position. Do you know if they contribute toward the legal and other costs of changing, estimated around €1,300 - €1,500 or so? If they did there’s a strong argument to move to UB.

    In saying that does anyone have a sense of the direction EBSs rates are headed as knowing my luck the moment I’d moved theirs would reduce.

    Thanks for all the comments.