As the new academic year begins in earnest, students begin the annual burden of getting their financial affairs in order. Many of these students will be beginning this process for the very first time with questions about budgeting, savings and even how to go about getting a job. Those moving into final year may be starting to contemplate pensions and even mortgages as they look towards joining the workforce. I surveyed my fellow students to find out their burning personal finance questions, then I went to the owners of DFI Consulting, Daniel Curran and Stephen Curtis to find out the answers…
I worked part time last summer. How do I apply for a tax refund without using a third party website or accountant who will charge me?
When you are starting your first job you should register with PAYE Anytime. Once registered you, and to avoid emergency tax, register the details of your new job through the Jobs and Pensions service in myAccount. You will need your employer’s tax registration number to do this and you can get this from your employer. If the revenue has not received either a Certificate of Tax Credits (for first time workers) or a Form P45 (for those previously in employment) before your first payday they will be forced to deduct emergency tax. If you work part time or for part of the year, you may also be due a tax refund. You can make claims for the previous 4 calendar years so you may have money owed to you that you don’t even know about and it can often be worth hundreds of Euros.
Follow this link for a free, step-by-step guide on how to make a tax refund claim – goo.gl/uebo7Y
How do I make my money work for me?
Starting to save is a great habit to get into early in life. Saving is something that we all tend to put on the long finger but if you start early you can have a huge positive impact on your finances. The best way to proceed is to start small. Saving €20 a week will put over a grand in your pocket after 12 months and then every year you can aim to increase this amount. It’s not so much about the actual money you will accumulate now, it’s more of an exercise in developing the habit of saving which will pay huge dividends in the long run.
I am interested in the idea of investing but it seems so daunting. Is there any way I can start small without having to be a finance expert?
We all like the idea of picking a stock or share that nobody has heard of, watch it soar in value and net a huge windfall. In truth it doesn’t work like that but investing is something that everyone can access. The easiest place to get started is with managed funds – a managed fund involves a number of investors feeding into one pool of money which is invested by an experienced fund manager. The easiest place to get started with these funds in Ireland is Rabo Direct – they have over 50 that you can go wild with. A word of warning – you can lose money with these funds and you’re not guaranteed to get all your money back.
What is a pension and why do I need one?
We all want to retire at some point and a pension is the income that we will live on once we’re not working any more. The state pays about €220 a week but if you want more than that you’re going to have to save for it. Some companies set up pension schemes for their employees and help with contributions or you can set up one yourself. The money is then professionally invested by fund managers. The general rules is that the income that you will have when you retire depends on how much your contributions amount to plus any increase in the value in your fund.
The most important thing to stress when it comes to pensions is the miracle of compound interest – the multiplier effect of interest compounding on interest over a long period of time. Put simply – if you saved €1000 per month towards a pension from age 21-30 and then locked away the cash and never added another cent, compound interest would mean that at 70 you would have a pension pot worth more than someone who saved €1000 per month from the age of 30-70 assuming both grow at the average rate of 7%. It’s hard to believe but it’s true. Getting to grips with this powerful effect can help you understand why starting a pension early is the way to go.
I want to own my own home one day. Property, especially in Dublin, is so expensive right now, how much should I be saving when I start my first full time job in order to afford a mortgage and how long will it take?
Although home ownership isn’t on the radar for most college students, widespread media coverage of the current housing crisis, especially in Dublin and the impact that the resulting rent crisis has had on students means that the whole topic of mortgages, rent and home ownerships is on the minds of students like never before. The most important aspect of home ownership that students should understand is that it’s a marathon, not a sprint.
The first hurdle to securing that elusive first mortgage is to have the necessary deposit. The Central Bank recently changed the rules for deposits and if you want to buy a house for more than €220k you will need a deposit of 10% up to €220k and 20% for everything after that. So if the house you would like to buy costs €300k you will need a deposit of €22k on the first €220k and €16k on the remaining €80k or €38k in total. Like I said, it’s a marathon, not a sprint.
After that the bank will want to make sure that you can repay the loan and again the Central Bank have rules on how much they will lend you. Typically, 3.5 times earnings is the max they will lend. So going back to our €300k house – once you have the €38k saved you will need to borrow €262k. If the bank will lend you only 3.5 times salary you will need an income of €75k to qualify for the mortgage.
Gina Canny is a Final Year Commerce student in UCD and an Intern at DFI Consulting, a Dublin based HR & Financial Advisory firm.