More ways to fine-tune your personal finances for the New Year
Despite it being a record year for savings in Ireland, much of it was accidental given that large sections of the economy were shut down for long periods in 2020 so there was reduced opportunity to spend.
And many people were not in a position to accumulate savings given that their source of income had been severely curtailed because of those restrictions.
We look at areas where long-term savings can be made into the future in our New Year personal finance checker.
Overpaid on tax?
The answer is most likely ‘yes’.
People leave thousands in unclaimed refunds and reliefs with Revenue every year that they are unaware they are entitled to, according to Marian Ryan, Consumer Tax Manager with Taxback.com.
“For example, medical expense relief is something that nearly all taxpayers are entitled to, but not nearly enough claim,” she said.
“Tax refunds can be claimed for up to four years – so, the longer you’ve left it, the more you could be owed.”
It’s not just medical expenses. Everything from the rent-a-room tax relief, the cycle-to-work scheme and the Flat Rate Expense Relief could end up yielding hundreds, if not thousands for taxpayers.
The latter is a form of tax relief for PAYE workers in specific trades and professions whereby they can reduce the amount of income that’s taxable each year on the cost of certain expenses.
“Over 180 different occupations are entitled to flat rate expenses of varying amounts between €21 and €2,476 per year with an average of €247 per year,” Ms Ryan explained.
It’s not automatically deducted from pay, so workers have to be proactive in claiming them.
And in a year in which many workers found themselves spending the majority of their time working from home, there’s an incentive known as the e-worker Relief.
This can be claimed by any worker whose employer chooses not to pay them the tax-free amount of €3.20 per day to cover the cost of utlities and other expenditure that might be incurred in the course of the working day.
“Revenue will allow 10% of your utility expenses as an e-working expense, with the exception of broadband bills of which 30% is allowable,” Ms Ryan said.
Taxback says its PAYE customers end up with an average refund of €1,076 from Revenue.
You can start the process yourself by visiting Revenue’s online system, ros.ie.
This is an area that has seen significant changes in recent months that could end up costing some account holders a lot more in the longer term.
Owing mainly to the low interest rate environment, banking service providers are looking for alternative ways of making money from their customers.
And changing the fee regime for current account services is one way of doing this.
Both of the main pillar banks are no longer offering ‘free’ banking to those who keep a threshold of cash in their accounts every quarter.
They will now levy a monthly or quarterly charge; in Bank of Ireland’s case, it’s a flat €6 charge per month for all current account holders, with some exceptions.
AIB will charge €4.50 per quarter with additional charges for certain transactions.
For some account holders, it will work out cheaper. For others, it won’t. Either way, it’s worth using the opportunity to look around at the current account landscape.
According to Central Bank figures, only three current account holders out of every ten thousand changed service providers in the latter six months of 2018.
“Unlike with other household services such as energy and broadband, we tend to harbour incredible inertia in Ireland when it comes to switching financial institutions and current accounts in particular,” according to Daragh Cassidy, Head of Communications with bonkers.ie.
When it comes to deposits, the banks and other providers are offering scant returns for your savings because of the low rates on the market.
In fact, some credit unions have taken to restricting deposits, in some cases as low as €10,000 per member.
There’s little to be made on saving money at the moment.
Arguably, your money may in fact be declining in value by sitting in a deposit account because of inflation.
However, it’s still a good idea to get into the habit of putting some money aside every month.
As a good rule of thumb, financial adviser Frank Conway, founder of the Irish Financial Review and the website, Moneywhizz, recommends putting aside around three to six months of living expenses into a ‘rainy day fund’ that’s easily accessible if needed.
“Savings are an important financial buffer for those who can afford to have them,” Kevin Johnson, CEO of the Credit Union Development Association, CUDA, said.
“If at all possible, consider putting something, anything away on a regular basis. The key is to keep it constant,” he explained.
For those with some extra cash beyond the ‘rainy day fund’, and who think they have a significant savings buffer, putting money into a pension fund is a great way of putting money to work.
“You can get up to 40% tax relief on your contributions,” Mr Conway said.
“An employer can match your contributions and that doesn’t eat into your tax limits,” he added.
For those who don’t have access to an occupational pension scheme, the same benefit applies to a Personal Retirement Savings Account, or PRSA.
Generally, the earlier you start putting money into a pension the better.
“By making contributions early in life, your pension benefits from the notion of ‘compounding’ as, not only can the funds grow, but the ‘growth’ can also grow,” Tommy Nielsen, Head of Legal with the Independent Trust Company explained.
Even if you’re in your 60s and have made limited savings for retirement, it’s not too late. It may at the very least be worth while funding the tax free lump sum that’s available to you at retirement, Mr Nielsen suggested.
“The amount of this lump sum depends on the rules of your scheme, but typically you can take one and a half times your final salary as a tax-free lump sum, up to a max of €200,000.”
Invest money to make longer term savings
For those who managed to put aside a significant sum of money during ‘lockdown’ and don’t relish the idea of leaving it sitting in a deposit account – earning little or nothing – there are a number of options to consider that could yield considerable savings over the medium to long term.
The money could, for example, be invested in making a home more energy efficient.
The Sustainable Energy Authority of Ireland (SEAI) offers a range of grants for such projects, including a grant of up to €6,000 for insulation, depending on the size of the housing unit.
According to the SEAI, a home can lose up to a third of its heat through poorly insulated walls and attics.
By getting them insulated, heating bills should decline as the home becomes more energy efficient.
The SEAI also offers grants towards the cost of various heating systems, as well as for heat pump systems.
Staying on the sustainability path, another worthwhile move could be to upgrade to an electric vehicle when next changing car.
The differential between an internal combustion engine version of a car and an equivalent electric one can still be significant but the longer term savings will likely outweigh that gap in outlay over time.
Grants and tax relief (at least up until the end of 2021) of up to €10,000 are available towards the purchase price of a new electric car.
An electric car attracts an annual motor tax of €120 compared to €170 for a hybrid.
It’s claimed that service charges are much lower, because there are fewer moving parts in an electric car.
The cost of charging an electric car for 200 kilometres of driving a week, according to ecars, is less than €3 (using a night time charge).
For a petrol car, it would cost around €20 to cover that distance and more than €15 in a diesel car.
A grant of up to €600 is also available towards the purchase and installation of a home charging unit.
And toll operators are offering reduced toll pricing for electric car drivers up to the end of 2022.