When it comes to your personal finances, you have to look beyond your daily budgeting endeavours to see the true picture of your financial status.
Too often we get caught up on what we spend our cash on that we forget to look at the broader picture, the things that really matter.
I am going to leave mortgages out of this one, as it is a beast in its own right, which I will cover next week.
Below are the main areas you should be considering as an individual who has an income:
Savings & Investments
Specified Illness Cover
Why these six you might ask?
Because these six will be either the most profitable (pension and savings) to you.
Or, if not considered, could be the most financially crippling to you and your family (Salary protection, life assurance and Health Insurance).
Your salary is the cornerstone of your financial world. Considering all the finances in your possession and planning, if your salary is not protected and you can’t work, everything will stop.
If you have no income, you cannot put money away for savings or a pension and you may not have the budget to pay for health and life insurance.
According to Unum, three out of every ten workers between 25 and 65 will be kept out of work due to some kind of illness or injury for a period greater than three months.
We all hope that nothing will happen, but being covered just in case can mean the difference between maintaining your lifestyle, and poverty.
A policy will guarantee to pay up to 75% of your wage until a time that you are able to return to work or until you retire.
It will cover any illness or any injury that keeps you from doing your job, whether it happens in the workplace or outside the workplace (nearly 60% of the injuries happen ‘off-the-job’).
A huge benefit is that you can get tax relief on the premiums meaning Revenue will pay either 20% or 40% of the premiums for you.
The mothership of financial planning.
Some say they will worry about it later and some have already started.
The key advantage to planning for your pension is the earlier you start the earlier you can retire, or the richer you can retire.
The magic of compound interest means starting a pension 10 years earlier would add hundreds of thousands to your pension pot.
Retirement may be a long way away for some.
But, come 55, wouldn’t you like the option to retire rather than being forced to work to 66+ because you didn’t plan a little when you could?
Give yourself the choice by taking control now.
If this wasn’t enough, you also receive tax relief on your pension contributions; this means money actually comes off your tax outgoings from your payslip and into your pension fund.
For example, if you contribute €500 per month to your pension and you’re on the higher tax rate of 40%, the government adds an extra € 200 onto your tax credits each month.
So, you now have €200 more each month in your net pay.
Therefore, the net cost to you is €300 per month but you have €500 per month going into your fund. Oh, and your pension fund grows tax-free too.
It’s about protecting the ones we love should the unthinkable happen.
If you bring in an income, what does your household lose financially if you were to die?
Firstly, the income no longer coming in is the big one, especially if you have dependents.
Also think of any debts; credit cards, loans, hire purchase agreements etc.
Note that your mortgage protection is a separate life insurance policy that pays the bank if you die.
This really is simple math; adding your debts, plus lost income over the number of years until your youngest is aged 25.
Then, by subtracting the amount of cover you have in place at present, or death-in-service at work, you arrive at your ‘life cover need’.
Savings & Investments
Rather than letting dust gather on your money in a bank account with zero interest rate growth, or under a mattress, it is more rewarding to put your money to work. Your goal might be your children’s education fund, an extension, a holiday home, or new car.
Whatever the reason, or even if there is no reason, your money is much more likely to grow faster and bigger through an investment than in a bank account, even if it is a low risk investment.
We advise you to look at the options; look at the low risk, the high risk and your time horizon.
If you still want to leave your money in a bank, then at least you know and understand the options available to you.
Specified Illness Cover
Like income protection cover, this is one of the lesser-known forms of cover.
In essence, there is a list of 50+ serious illnesses e.g., cancer, heart-attack, stroke, aneurysm.
If you are unlucky enough to be diagnosed with one of those listed illnesses, the policy would pay you a tax-free lump sum of an amount you choose at the beginning of the policy.
The idea is that you may have to take time away from work or pay for large medical bills.
At a time of diagnosis, it is just one less thing to worry about.
You can choose any amount of cover, but rule of thumb is covering one to two times your annual take-home pay.
Studies show that those who claim and survive the illness are back to work in 12 months.
Most of us have had an experience with hospital visits.
Whether we stayed a few nights ourselves or visited a friend, relative or colleague. For those that this resonates with, then you know the potential costs involved in your stay and care.
Ensuring that you have the right cover in place brings a peace-of-mind like no other.
Whether it is a bump on the head, a broken bone or something that needs more attention, you need the assurance that you can arrive at the hospital confident that your expenses will be covered.
For some, this will be more expensive than others, depending on history and family size.
However, you are better knowing all the options available to you and selecting the most effective policy for you.