What's the difference between a ' Spring Clean' and a ' Spring De- Clutter' in my house? The former is a noble aspiration. The latter actually happens, one step, and one room at a time. Jill Kerby
Gradually, but steadily decluttering your finances may also be a more realistic way to get your wider financial position sorted out, though I still highly recommend a big, major wealth review at least once in your lifetime and usually triggered by three major events: marriage, a house purchase and as retirement approaches.
But this column is about how to do a " Spring De- Clutter" and the best way to begin is with the financial issue or issues that you've been putting off, or that is causing you the most grief. Judging from my postbag these include poor returns on savings; expensive and elusive mortgages; investment funds and pensions and long term funding for children's education. I'm going to address each of these issues over the next few columns:
Let's start with savings.
The legacy of the 2008 crash in this country is that not only are personal borrowing rates considerably higher than in many other EU countries, especially for mortgage loans, but Irish savers are also penalised by the wider, on- going policy by the ECB and other central banks to maintain zero and below zero base interest rates in order to " stimulate" moribund economies where borrowing is low and the paying off of debt by individuals is high. The great fiscal stimulus hasn't worked, though it has pumped up stock prices and other favoured assets of the super-rich, like their incomes, share options, property and art. The rest of us are avoiding more debt, paying off existing ones and we're saving more. We're also buying more precious metals that, like cash these days, never pays a yield, but unlike cash, maintains its intrinsic value for the simple reason that it is impervious to the ongoing devaluation and debasement of paper money by central banks. (The intrinsic value of a paper (or even electronic) banknote is nothing more than the cost of the ink and paper.)
There is no easy fix for cash savings that are yielding no or nil returns. We are at the mercy of global central banks that have already introduced negative returns for their wholesale customers, who in turn may be considering charging their customers - us - for our deposit accounts. It's also one of the less publicised reasons for why central banks are so keen to replace cash with electronic money - it will stop people from withdrawing cash and stashing it in mattresses and home safes, which is an even worse consequence of their ' stimulus' campaigns.
But I do have a few suggestions on how to make surplus savings work harder:
Have a clear picture of how much savings you have - in your deposit bank or building society account, the credit union or post office. Does any single, individual account exceed the €100,000 bank deposit guarantee limit?
Use surplus savings, especially if it is earning nil net returns to pay off expensive debt - credit, hire purchase and personal loans. There is no point in paying a range of interest from 10%- 24% per annum on any debt if your savings are only returning 0.24% gross. (Anyone with an incredibly cheap tracker mortgage (as little as 0.5% in some cases) will probably want to hang onto it as inflation is also steadily eating away at the capital repayment.)
If you can afford the time and effort, consider shifting some cash in and out of different deposit term accounts. Up to date savings comparison websites like bonkers.ie show the best demand short and longer term variable and fixed rates.
Investing some of your surplus cash will most likely produce a better return ... over the longer term. Upfront costs and on- going charges are a drag on all investments, but this impact can be reduced if you choose low cost funds and take a realistic longer- term view and get proper professional advice.
Private lending. Any positive return from savings needs taking a risk. Lending a portion of your surplus savings to a family or friend runs the risk of default that may be difficult to foreclose - even if you create a legal contract. But charging a grandchild 4% for college loan, for them to buy a much needed car to get to work, or even to buy a home, is still 4% more than you will get from any bank.
Ditto for peer to peer lending in which you bid to lend money to small companies who need modest loans, usually €20,000 - €30,000 that they repay with interest over three years. Average returns are c7%- 9% according to Irish P2P lenders, www. LinkedFinance.com.
Consider exchanging some paper currency for real money - gold or silver. (See Goldcore.com for details and costs. Check out their monthly Goldsaver Account).