Volume 1, Issue 1

Lets Talk MoneyLets Talk MoneyLets Talk Money Business Name

When the current financial crisis first

erupted, the Government came up with

imaginative proposals to rescue the banks

It seems that Government is preoccupied with

rescuing the bankers and the speculators who

were primarily to blame for what has hap-

pened, but little consideration seems to have

been given for the plight of the innocent peo-

ple who have been caught up in the mess.

Everybody is being hit by the current

depression, but it seems as if the authorities

are only worried about the bankers and the

speculators. Homeowners are finding it nec-

essary to cut back on other payments in order

to keep up their mortgage repayments and

there are indications that interest rates are

going to increase in order to help the banks

w i t h t h e i r c a sh - f l o w p r o b l em s .

There is evidence that homeowners are re-

viewing their finances by cutting back on their

life insurance cover and mortgage protection

insurance in order to keep their costs to a

b a r e m i n i m u m .

Yet there have been suggestions that people

could save up to 25% by shopping around. A

number of factors have contributed to lowering

the cost of life cover in recent years. Obviously

some of this has not been passed on to consum-

ers, because they have not requested that their

policy be reviewed to determine if there is better

va l ue e l se whe re i n t he marke t .

Often when people query the cost of insurance,

they find they can get the same cover from

another company for significantly less.

Its time to for cheaper lifecover.

Issue One Vol 1

With Select Financial Solutions

At Select Financial Solutions we have been

working with our Life Assurance providers to ensure that we have access to the most

competitive life cover on the market .

Select Financial Solutions are commit-

ted to giving the best possible service to

our clients while at the same time keeping

the costs down.

Your Your Your

1st years premium1st years premium1st years premium

Sean Byrne,

Financial Advisor

“I am committed to helping

my clients achieve their

f inancial goals , for

themselves, their families

and their business, by

providing them with

solutions that work”

54 South Main Street,

Naas,

Co Kildare

M: 087 6822441

E: info@selectsolutions.ie

W: www.selectsolutions.ie

Most people use short term debts, such as personal loans, credit cards or store cards, at some point during their lives. However, few realise how significant an impact this can have on their fi-nancial well-being. Albert Einstein once remarked that the most powerful force in the universe is compound interest, and it is this interaction that this factsheet attempts to explain. Basic financial planning says that you should always attempt to pay your debts off before you save.

PAYING OFF DEBTS EARLY

PAGE 2 LETS TALK MONEY VOLUME 1, I SSUE 1

What you need to know about…

Why pay off your debts?

Basic financial planning states that you should always attempt to repay your debts before you try to save for other long-term goals. This is a fact of life because most debts will have greater Interest rates than that achievable through savings.

For example, if you examine a bank savings account you might be able to achieve interest of 3% to 4% per year, and this interest will usually be taxable.

In comparison, personal loan rates vary from 7% to 20% per year, and some credit cards will cost up to 30% per year.

From this point of view it makes sense to clear your debts as soon as possible.

How debts affects our ability to plan

Debt obviously allows us some short-term aid. For example, you might use a loan to make a significant purchase or make an improvement to your home.

However, the resulting interest can have a significant impact on your future financial well-being. While you are paying interest, you are paying this to someone else. If you could avoid paying interest, this money can be used to your advantage.

Compound interest applies to every loan you have. What happens with compound interest is that interest will be added to the balance, so that over time interest can be paid on the interest. If repayments are not made, or are not of sufficient levels, this can lead to the debt growing over time.

Making minimum repayments

It is common, especially with credit cards, for a provider to insist that you make minimum debt repayments. It can seem attractive to simply make these repayments because they keep your outgoings low.

However, in the long run this will make you pay more interest.

For example, it is typical for a credit card to require repayments of 2% to 3% per year. This payment would result in only a small proportion of the debt being repaid, the majority being interest. This can mean that you would take many years to clear the debt. When you consider the very high interest rates on credit cards, this can mean thousands of pounds in extra interest.

The effect of overpaying

If you can overpay on your debt, even by a small amount each month, this can reverse the effect of compound interest. The overpayment (if allowed by your contract), will reduce the balance quicker, leading to less interest being paid.

Overleaf, are some calculations of how this could work in practice, given a generic charging structure.

A note of caution!

You should always bear in mind that your own debts may have penalties to redeem the balance. We advise that you examine your contract carefully! Also, different contracts will calculate interest in different ways, so you need to be careful in your calculations. Each loan will give a comparative indicator, called the APR (annual percentage rate). This will give a percentage annual rate based on the total charges for

Which debt to repay first?

The general advice is to combine all your resources into the repayment of one debt at a time, to repay this as quickly as possible. Normally, we would recommend that you repay the debt with the greatest interest first.

Some examples

In these examples we have assumed that interest is applied monthly and there is no penalty for making regular overpayments.

Credit card balance: €5,000 Interest rate: 20% Minimum repayment: 2.5% Monthly repayment: €125.00

Total interest: €3,057.54

Total repaid: €8,057.54

Paid off in: 5years and 7months

Example 1

Extra monthly repayment: €5.00 Interest saved: €250.52 Paid off: 5 months early

Example 2

Extra monthly repayment: €15.00

Interest saved: €647.50

PAGE 3 LETS TALK MONEY VOLUME 1, I SSUE 1

Example 3

Extra monthly repayment: €25.00 Interest saved: €949.04 Paid off: 1 year 5 months early

Example 4

Extra monthly repayment: €125.00 Interest saved: €2,175.55 Paid off: 3 years 6 months early

These figures hopefully go to show the benefits of repaying your debts early!

Equivalent tax-free growth

If you were to calculate the amount your overpayments would have to grow by each year to generate the interest saved, this equates to a tax- free growth figure. In the case of example 4, this equates to a growth of 41%. There are few “investments” that could promise this level of “growth”.

PAGE 4 LETS TALK MONEY VOLUME 1, I SSUE 1

Keep track of your existing pension investments

Changing jobs throughout your career is no longer unusual. As you move through your career it can be all too easy to lose track of your pension investments.

You may also have very little say in how a scheme is managed once you have moved to new employment.

So it could make real financial sense to dust off your old work pension and get it back on track to providing for your long term retirement.

It is also important to remember that changes in the pension market may mean that the plan you have in place is not as cost effective as it could be.

Pension providers are competing for your business like never before.

What is the Pension Review Service? The Pension Review Service allows us

(on your behalf) to effectively run an audit or examination on your pension plan to point out whether the plan is performing better or worse than industry standards.

The Pension Review Service will benefit you regardless of what type plan you currently hold, or how near or far you are from your chosen retirement age

Who is the Pension Review Service for? The Pension Review Service is for

you if you already have a private pension savings plan and you would like an independent opinion on it as you feel it is not meeting your expectations.

Why is the Pension Review Service important? The charges on your plan may be TOO HIGH versus the marketplace.

The investment funds chosen may be UNSUITABLE for your needs.

You may not have the CONTROL over your investments that you desire.

Are YOU receiving the necessary due care and advice from your Pension Plan provider? If not then you should speak to us today.

Pension Plan Review Service

PAGE 5 LETS TALK MONEY VOLUME 1, I SSUE 1

Don’t Let your lifestyle

disappear

Have you thought about what would happen to your lifestyle if an injury or illness were to prevent you from working and earning an income? How would you pay for your mortgage, energy bills, personal or car loans, education and the upkeep of your home?

If the worst was to happen, you might think that you could rely on your employer to provide you with an income while you are sick or injured and unable to work. However, research shows that less than 15% of workers in Irish companies would receive sick pay from their employers for more than six months*, while those who are self-employed would receive no sick pay at all. This means that 85% of private sector em-ployees would be fully reliant on the State Illness Benefit if ill or injured. In 2011, this would entitle them to just €9,776 per year for a single person.

For those who are self-employed, they are not

eligible for even this benefit.

Protection and peace of mind

Fortunately, there is an answer. It’s called Income Pro-tection, and it ensures that if an illness or injury pre-vents you from working, then your lifestyle can be pro-tected. It covers you for any illness or injury which pre-vents you from working. Income Protection is a very straightforward way of ensuring that your most press-ing financial commitments are met and offers you complete peace of mind.

With Income Protection you pay a monthly premium which is based on your occupation, your health, your income and the level of financial protection you re-quire. You can protect up to 75% of your income less the applicable Social Welfare entitlements. You decide what age you want your policy to finish at, with a choice of ceasing ages available – 55, 60, or 65.

Tailored to your needs

Because everyone’s lifestyle is different, you can tailor your Income Protection policy to suit your individual circumstances and needs. So, for instance, to simplify your financial planning under the Guaranteed Premi-ums option, you can ensure that monthly premiums will not change during the lifetime of your policy – so long as your level of benefits does not change. Because the Government recognises the importance of planning for the possibility that illness or injury would prevent you earning an income, the Income Protection premiums you pay are eligible for tax relief at your marginal rate.

Let’s look at two examples of workers taking out

Income Protection:

Alison is an employed sales manager earning €850 per week. She is 30 years old, a smoker and chooses Full In-come Protection to protect the maximum available amount (75% of her salary less Social Welfare), i.e. €440 per week. She chooses a 26-week deferred period, with guaranteed premiums to a ceasing age of 65, and she takes the 3% indexation option.

Mick is a self-employed tiler earning €1,000 per week. At 32 years old and a non-smoker, he decides to take out Friends First Wage Protector to protect 50% of his earn-ings, i.e. €500 per week. He has a 13-week deferred pe-riod, to a ceasing age of 60, and selects to take up the 3% indexation option.

As you can see both Alison and Mick have tailored their Income Protection policies to suit their needs and circum-stances, with Mick opting for Wage Protector as the more cost efficient alternative for his occupation. In the unfortu-nate event of illness or injury each of them will be well pro-vided for by their Income Protection policies, yet as mar-ginal-rate tax payers a glance at their net premiums dem-onstrates the excellent value for money and peace of mind that Income Protection provides.

Protect your income today.

When thinking about the cost of a plan like this, the best thing to ask yourself is, “Can I afford not to have this cover? What would I do if I was out of work and had to do without my income? Could I afford all of life’s essentials, let alone the luxuries that I have become used to?”

Benefit amount: €22,864 p.a.

(or €440 per week)

State Illness Benefit, 2008: €10,286 (Employed)

Gross premium: €88.93 p.m. (Employed)

Net premium

(after tax relief at 41%) €52.47 p.m.

Benefit Amount: €26,000 p.a.

(or €500 p.w.)

State Illness Benefit, 2008: €0 (self employed)

Gross premium: €53.08 p.m.

Net premium

(after tax relief at 41%): €31.32 p.m.

Home Insurance Are you paying too much??

If you have just got the renewal quote for your House Insurance and are not happy with the quote then there is a way to reduce the cost. It is advisable to review the amount you are in-sured for at least every two years. The amount that you insure your house for is referred to as the Re-instatement Value or the Rebuilding Cost. Basically this the amount of money it would cost to rebuild your house in the unfortunate event that it burned to the ground. If you have not checked the rebuilding cost of your house recently then chances are you will be way over insured. The reason for this is that it is now a lot cheaper to rebuild a house than it was a few years ago. Figures released by the Society of Chartered Sur-veyors show that the cost of rebuilding homes has fallen sharply, which has lead to experts warning homeowners that they could be paying too much for their home insurance cover.

The average cost of rebuilding a house has dropped by around 8 per cent in Ireland according to the numbers, which comes on the back of a fall of 5 per cent during the previous year. This makes for a cumulative decrease of 13 per cent in the cost of rebuilding a property.

The Society of Chartered Surveyors says that pre-miums should be reflecting the smaller costs of re-building for homeowners. A spokesperson for them said, "This is very good news for homeowners. We would urge them to go to our website scs.ie, before they renew their house insurance or if they want to check that they are paying the appropriate pre-mium. Given the current economic climate, everyone is shopping around and looking at ways of cutting down costs. By carrying out this straightforward calculation, people could end up making consider-able savings." Homeowners in Dublin saw the biggest drop in rebuilding costs, with a fall of 9 per cent.

The Society says the estimated fall in rebuilding costs reflects averages across the State and people will only be able to claim up to the value for which they have insured the property in the event of dam-age to the property through devastating event or fire.

Your house insurer will never tell you that you are over insured as they want to maximise profits. The higher your rebuilding cost the higher the profits are for the insurer. Despite this fall in rebuilding costs, home insurance premiums have risen by 14 per cent in the past year, according to the Financial Regulator, who has urged people to shop around for the best deals. The winters flooding and icy conditions are expected to push premiums up further following an estimated €500 million worth of damage.

Contact us today to review your home Insurance and save! CALL: 087 6822441 Email: sean@getsorted.ie