Lose weight, exercise more, watch less Netflix … It’s the time of year when we can find ourselves making resolutions we’re bound to break. But how about, this year, trying instead to take a few steps towards sorting out your finances?
My own personal resolution for the new year is to sit down and assess not just what I’m putting into my pension but also to consider how it is actually performing, and whether or not I should consider switching what it is invested in.
To help you pinpoint what yours might be, we’ve asked some financial experts what their own resolution for the new year is; and what they think you should be focusing on over the coming months.
‘Get a plan’
– Carol Brick, managing director, CWM Wealth Management
My resolution: My new year financial resolutions are usually along the line of reducing costs, increasing savings and so on. The most important thing is that I adopt a strict, measurable and time-based based approach to these goals.
Our financial goals are usually too vague, such as “pay off debt” or “save more money”. Instead, these should be measurable, clear and have a timeline such as reduce credit card debt to zero by April or boost your children’s education savings plan by €2,500 by September.
Ensure that you are claiming the relevant tax reliefs you are entitled to
The more specific your plan, the easier it is to track your progress and keep you motivated.
My recommendation: One bit of advice for PAYE workers is in relation to the new PAYE modernisation system being introduced on January 1st, 2019. It is important that all PAYE workers are registered for MyAccount on revenue.ie and that you check that your tax credits and bands are correct as your January pay could be affected otherwise.
Also ensure that you are claiming the relevant tax reliefs you are entitled to. If your circumstances have changed, you may be owed tax back.
After the financial excesses of Christmas, January is not the ideal month to see pay reduced, so check that your tax credits are correct on MyAccount as soon as possible.
January is also time to claim back 20 per cent tax relief on health expenses you incurred in 2018 (and previous three years if you haven’t already!)
‘Save regularly’
– David Quinn, Investwise
My resolution: For my own finances, I have resolved to ignore Twitter, investment newsletters and basically anyone else who comments on the short-term financial and economic news. I want to avoid any short-term thoughts on trying to time markets or invest according to recent trends.
If those savings can go into the stock market, even better, as compounding will work its magic in the long run
With markets likely to be very volatile in 2019, it is going to be difficult to keep a long-term focus and stick to the plan. There will be huge temptation to move to safe-haven investments, but I know that, if I can avoid these typical behavioural investment mistakes, and stick with my plan, it will work out long term.
My recommendation: With the cost of living so high in Ireland now, and in Dublin in particular, this piece of advice is going to be hard to follow: save regularly. Always factor in the ability to save when making big decisions such as buying a car, a new house, holidays and so on. Savings can include small monthly pension contributions, or a direct debit to a savings account. Obviously, the more savings you have, the closer you are to financial independence but, as the saying goes, "mighty oaks from little acorns grow". And if those savings can go into the stock market, even better, as compounding will work its magic in the long run.
‘Be disciplined and remember your goals’
– Mary Cahill, head of global investment selection, Davy
My resolution: My own personal new year's resolution is to review my retirement plan. Saving for retirement through a pension is tax-efficient as, subject to limits, pension contributions are made from your gross salary. Therefore, I'm going to assess how to optimise my pension contribution allowing for my day-to-day expenses and other savings and investments.
Time in the market, not timing the market, is what builds wealth
I am also going to ensure that my portfolio is designed to generate returns allowing for an acceptable level of risk. Focusing on risk and return is important as we are now later in the economic cycle and there is a possibility of a downturn in the coming years. The best way to do this is to ensure that your portfolio is well diversified across geographies, sectors and asset classes.
My recommendation: Investor behaviour theory has demonstrated that most of us are inclined to invest when performance is good and to divest when performance is poor. However, this leads to a buy high and sell low result on your portfolio, which is going to be detriment to long-term performance. Stock markets will show short-term volatility but staying invested over the long term is what generates wealth (and avoids trading costs).
As the saying goes, “time in the market, not timing the market, is what builds wealth”. The best way to be disciplined is to align your investment strategy with a set of financial goals that you want to achieve. This helps produce meaningful outcomes from your portfolio for you and your family. It is in this context that my advice for the new year is to speak to your adviser about generating your own financial plan.
‘List your future financial events’
– Nick Lawlor, managing director, Employee Financial Wellness
My resolution: Plan for tomorrow but live for today. I will be sitting down with myself to do what I tell others to do most days of the week. They say the cobbler has the worst shoes and I am a little guilty of not making the small changes that I preach so often to others.
Things I’ll be looking to do will include increasing my mortgage overpayment; bumping up my pension payments a little; and I’ll probably change my insurance set-up, too, as some better life and serious illness products have come to the market in the last couple of years.
If you know your kids are likely to go to college in 10 years' time, having a savings pot put aside to pay for it is very handy
Small changes each year can make a significant difference over time. And then I’ll go back to living for today!
My recommendation: Target your own future financial events. Forget about products and jargon for a minute and stand back and "zoom out" on your finances.
Financial planning is a simple thing to do before you ever get into the technical stuff. It is just a matching exercise really. Simply match a portion of your disposable income to an expected future financial event.
For example, if you know your kids are likely to go to college in 10 years’ time, having a savings pot put aside to pay for it is very handy.
List what your future financial events are, whether it is protecting against unexpected injuries or illness, getting your mortgage paid down early, increasing your retirement pot or paying for kids’ education. Once they are written down, it’s much more likely you’ll address them, and then just go ahead and make those little changes. It’s like going for a run – you’ll never regret you did it.
‘Ignore the noise’
– Mark O’Byrne, Research director, Goldcore
My resolution: One financial resolution is to read and watch less financial news. I stay up to date with financial markets, including breaking financial news, as I have to write a market update every day and frequently provide comment to media. However, in the age of Trump and Brexit, it can be hard to keep up with it all.
I am going to unsubscribe from many of the alerts I get and become more selective and focused in my news consumption. This will help filter out much of the daily and weekly market noise and help me get more valuable long-term signal.
We believe that diversification and owning gold as a hedge and safe haven asset will again be important in 2019
My recommendation: We live in an increasingly polarised and uncertain world which casts shadows over our economies and the investment outlook. This is clearly seen with Brexit, the risk of "Italexit", an increasingly fractured EU and Trump's aggressive foreign and economic policies, including trade wars.
There are also very real risks posed by the global debt bubble as the world nears $250 trillion in debt and the global debt-to-GDP ratio has risen to nearly 320 per cent. We believe that diversification and owning gold as a hedge and safe haven asset will again be important in 2019 and in the coming years.
‘Switch your mortgage’
– Daniel Hardiman, financial planning consultant, Hardiman Life and Pensions
My resolution: I plan to allocate more of my investments to renewable energy investments to promote the reduction of greenhouse emissions. Ireland is the second-worst member state in terms of meeting climate change targets, and we need to do more to encourage more investment in wind energy, solar energy, biogas plants and energy from waste plants.
These investments also make a lot of financial sense in the current market as they tend to have very reliable income streams which are not dependent on the performance of the global economy. This will provide strong diversification in a portfolio.
I would encourage consumers to contact their mortgage provider or broker to hear the options available to them
This asset class is currently generating high yields – in the region of 5 per cent a year – so you will get the combined benefit of good returns and a positive contribution to the environment.
My recommendation: The easiest way for consumers to save money is to review their mortgage interest rate. They can get an updated valuation on their property, which may reduce their loan-to-value ratio and they may automatically qualify for a lower mortgage rate. Alternatively, they could look at switching providers to get a better rate.
There are significant savings to be made in this area, and I would encourage consumers to contact their mortgage provider or broker to hear the options available to them.
