Case study Money Makeover: Pimp My Money!

M

masterboy123

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Personal details

Age:34
Spouse’s/Partner's age:32

Number and age of children: 1 child and 1 year old.

Income and expenditure

Monthly take-home pay =

Take home pay €4400

Children’s allowance €140

Total income per month = €4540

Predicted monthly income after 4 years = €8500

Spouse = Homemaker.

Type of employment: e.g. Civil Servant, self-employed = HSE, pensionable pay.

In general are you:
(a) spending more than you earn, or
(b) saving?

Saving

Summary of Assets and Liabilities
Family home worth €300k with €110k remaining on the mortgage.

Cash of €110k in the current account.

Crypto €5k

Stocks €1k

Family home mortgage information
AIB 2.1% fixed green rate. 18 years remaining.
Monthly repayments = €600.

Other borrowings – car loans/personal loans etc
Do you pay off your full credit card balance each month? Yes.

No loans.

Always bought the car with full cash.

Buy to let properties
Not applicable.

Other savings and investments:

Do you have a pension scheme? HSE employed and paying the usual pension.

Other information which might be relevant

Health insurance with VHI. Paying €100 a month.

What specific question do you have or what issues are of concern to you?

1. Where do I invest the cash we have? I am looking for investments with almost zero risk and where I can access the money within 24 hours if needed.

2. I like to keep €100k cash handy for emergencies, rainy days, etc. Is this amount appropriate?

3. We pay a lumpsum of €10k every year towards the house mortgage (after ensuring the break fee is zero). Should we pay more now towards the mortgage?

Thank you all!
 
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Will the €100k not do this for you? Why would you need more than €100 at 24 hours notice?

If you want zero risk, you certainly don't want your money pimped!!

If you want zero risk, pay off your mortgage and put the mortgage payments in state savings (although inflation will eat into the value of your money).

Can't say whether you should put money into a pension as we don't know your role in the HSE. If you are a doctor and will become a consultant, your pension is almost certainly going to be over €2m, so AVC's are pointless.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
For any sort of emergency and peace of mind, I would like the cash to be available fairly instantly. This is just a personal preference. Do I need to change this mindset?

By state savings, do you mean getting Prize Bonds or locking the savings for 5/10 years?

Yes, I am a doctor and will become a consultant in a few years.

Many thanks,
 
masterboy123 said:
For any sort of emergency and peace of mind, I would like the cash to be available fairly instantly. This is just a personal preference. Do I need to change this mindset?
Click to expand...
In my opinion, yes.
You don't need all of your money on demand.
In your situation you really should be considering putting at least some money into direct or indirect equity investments over a medium to long term e.g. 5-10+ years.

As mentioned above, paying off debts and investing in your pension if applicable should generally be the first priorities.
 
If your pref is to keep the funds fairly accessible there arw good deposit rate at the moment esp with raisin.ie

2.5% is decent with instant access.

Alternatively you could gamble on some shares.
 
Are you planning to move house in the near future? Then maybe keep the 110K for a deposit. Otherwise pay off the mortgage or invest it. By keeping it in cash you are loosing value. All investment has some risk but you should consider moving to medium or low risk investments. Are you really zero risk or would you consider putting €50K into a medium risk investment and keeping another €50K in cash? Maybe your wife is less risk averse than you so give her €50 K to invest herself? Just throwing out ideas for you to consider.

Most people think having 6 months salary in cash is a good rule of thumb but with a reliable job like yours it may not be necessary to have that much. What kind of emergency needs €100K cash? If there is a catastrophe in your life you can cash in your investments in a few weeks, which should be an acceptable time line.

If you are low risk then maybe consider looking at an income protection plan and life assurance for yourself. And is €100 a month healthcare for both of you? Seems low overall.

I think you should also think about short term, medium term and long term financial goals for the whole family, and save accordingly. Maybe divide your life into 5 year chunks and plan broad strokes spending over those times.

Next 5 years. - Replace car, get p/e solar.
Next 10 years - private school for the kids, replace second car.
Next 15 years - university for kids
It might help you divide your money into mental pots for each strand.




​

 
it is fine to have emergency money. I wasn't sure whether you wanted €100k emergency money plus investment money with access within 24 hours.

You have to assess whether you actually need that much though. You are not going to be out of work due to redundancy. Being out of work due to long term illness is more likely, so you need to protect your income in that sense.

You also need to look at whether you are going to move house in the future, especially when you become a consultant.

Understanding risk is another key area that you have to understand. Just like there is risk in investing in stocks and shares, there is risk in deposits i.e. inflation.

It is highly likely that your pension will be overfunded just from having a consultants HSE pension so paying money into AVC's is pointless.

I think you need to start with familiarising yourself about money (you don't have to become an expert) and how to grow it.



Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
masterboy123 said:
1. Where do I invest the cash we have? I am looking for investments with almost zero risk and where I can access the money within 24 hours if needed.
Click to expand...
An "investment" with almost zero risk and instant access is a bank deposit which, is, unfortunately not an investment. If you want to invest your capital is at risk and/or will not be accessible when you want it.

masterboy123 said:
Summary of Assets and Liabilities
Family home worth €300k with €110k remaining on the mortgage.

Cash of €110k in the current account.
Click to expand...
It seems far too prudent to keep your entire mortgage balance in cash earning zero and paying interest at the same time. I think a six-figure rainy day fund is excessive. I've never met an unemployed doctor You don't mention life or serious illness cover but it's worth considering if you don't have it.

Your house value at €300k sounds pretty low and with your career trajectory I'd expect you'll want to trade up. Again I've never met a consultant who didn't live in a house twice that value so in that regard it could make sense to keep cash to hand if you want to trade up soon, but if not then it's better to just pay down the mortgage.

An obvious point to look at here is your spouse's pension situation. Do they plan to stay out of the workforce for long?
 
1. I have mortgage protection plan.

2. I can upgrade a house in the next 5 years. As you may know HSE is not going to offer me a permanent consultant contract straight away. That means I might have to work in different cities (even now I am doing a 3 hours commute daily). But once I have a permanent job then definitely I will be looking for upgrading the house.

3. Spouse is a homemaker and worked only for a few years. It will be extremely difficult for both of us to work and mind our child, especially given the high intensity/demand of my job, doing night shifts, etc.
 
Thanks, I appreciate your thoughts
Please refer to my earlier post in relation to upgrading my house.

I am considering adding €50k towards my mortgage. That would bring down the monthly repayments to approx €280 a month
 
masterboy123 said:
1. I have mortgage protection plan.
Click to expand...
In your shoes I would have serious illness cover as well. There is a state of the world where you are unable to work and your family's lifestyle would not nearly be as high as it will be in the state of the world where you are able to work.
masterboy123 said:
3. Spouse is a homemaker and worked only for a few years. It will be extremely difficult for both of us to work and mind our child, especially given the high intensity/demand of my job, doing night shifts, etc.
Click to expand...
If they have made 520 PRSI contributions (unlikely at their age but not impossible) then they are eligible to make voluntary PRSI contributions at a rate of 6.6% of final year salary. This might be worth it to build up a state pension contributory entitlement. Long term you will want to think about having some kind of private pension in place for them. If they do return to work (even part time) you should look at maxing pension contributions immediately or if in public service making AVCs.
 
Thanks for the replies Masterboy. It is really interesting your quest for low/no risk investment. What do you think makes you risk averse? I would have thought that hospital doctors often balance risk vs reward when they treat patients and that if a patient is suddenly unwell you may incline to riskier interventions to save a life while at other times being very nuanced in taking a stepwise view of treatment and staying within protocols and guidelines. So in general I would think in your chosen career you are willing to take high stake risks from time to time. Which was why I asked if you were really a low/no risk kind of person.

The fact you did not mention an income continuance/ protection plan which is probably prudent for a sole high earner in a family I thought you were open to a bit more risk.

I really would recommend taking some independent financial advice on your investment options because they do make suggestions based on the risk level you are comfortable with.
There are a couple active on the forum here. You have the potential for having a significant amount of spare cash every month so the plan of what to do with it probably is going to be there for you for the next 30 years.

One of the reasons I suggested you give a tranche to your spouse is she may have a different risk profile to you and may use it to grow a retirement fund for herself if she does not plan to get back into the workforce. This may give her some independence if you were unable to earn or otherwise she was no longer reliant on you.
 
Hi Clamball,
Thank you for taking out the time and giving your feedback.

Firstly, I don't think we can apply many of our professional qualities/decisions to our personal lives. As a doctor, we make decisions in the best interest of patients while looking at the risk vs benefit profile. But at the same time, we can not compare human lives with money, and our patient's life is priceless!
I don't think of costs when ordering a CT/MRI if it's clinically indicated. And I don't risk avoiding admission of a patient when an inpatient admission is vital in their care.

All in all, I do agree that I will benefit from professional advice in this area, especially when I am not happy to take any risks when it comes to investments.
Many thanks
 
ClubMan said:
c. -7% (not even taking DIRT into account) at the moment once inflation is accounted for.
Click to expand...
Deposit rates are getting higger and they are currently 2.5% or more on raisin. Its far better than what you'd get on deposit in an irish bank at the minute and may be of appeal to some.
Its easy access so makes sense if you have a chunk sitting in an account earning nothing. Its obviously risk free as well as the deposit guarantee covers you up to 100k.

Im just mentioning it as an option, wont suit everyone. Certainly suits me.
 
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