By Martin Glennon, Martin Glennon, Head of Financial Planning at ifac.
Ifac, the farming, food and agribusiness professional services firm, is providing sound advice to Roscommon deposit holders to help them plan for their financial security.
The squeeze is on as household deposits surged by €14 billion in 2020. The Central Bank reports that they are now at record highs of €125 billion as Covid restrictions significantly dampened spending habits. The recent news has not been good with bank closures, reductions in interest rates on State savings, and Credit Unions charged negative interest rates.
All this news should prompt deposit holders to reflect and review their options. But what to do?
Rainy Day Fund
Holding money for the ‘rainy day’ or emergency makes sense. How much you hold depends on your personal preference. As a guideline, we recommend at least three months’ income.
You also need to able to access funds for planned expenditure such as changing your car, home improvements, a wedding or college fees – expenditure likely needed over the next 2 to 4 years.
These two steps ensure that you have the right money set aside for the expected and unexpected. The priority is access, not growth, so do not fret too much about the interest rates.
With interest rates ranging from 17% – 23%, it makes sense to clear credit cards first. It is like your deposit money has earned the level of interest rate applying to your card. Personal loans incur interest rates of 6.5% to 8.5%, so they are worth a look also.
The same applies to the mortgage. What interest rate are you being charged? Does it make sense to clear down all or a portion of this loan?
A key consideration when repaying debt is that the money you repay is gone. You no longer have access to it. If you need to apply for a loan or mortgage in the future, how confident are you that you will receive the funds?
Explore growth opportunities for the deposit money that you do not plan, or want, to spend in the short/medium term.
When assessing your investment options, it is important to get the correct balance between the growth you want and the level of risk you are comfortable taking. Beating inflation and maintaining the real value of your funds is one of the main goals here.
If you are considering investing, I would strongly recommend that you talk to a Financial Advisor. A good adviser will assess your risk appetite by looking at your ability, need and tolerance for risk. This will help find the best investment option suited to your circumstances.
Make savings work for you
Life is unpredictable so it’s important to keep your personal finances under review. Making your savings work for you can make a big difference to your financial security.
Regardless of your circumstances, it makes sense to shop around for the best deals. For more information and/or advice, contact your local ifac office.