When saving or investing, it is important to consider the rate of inflation, as it will be the determinant on whether you make a profit or not with your investment decisions. If inflation is running at 1%, you need to invest in a savings account or product that exceeds that 1% rate of inflation, otherwise the interest or profit you make is not real, as your purchasing power has been eroded.
Cash savings are generally not the place to keep your money long term. The interest rate will be lower than inflation, or you could be earning nothing,? so your money is in fact ‘devaluing’.
Moving your cash into higher-risk investments is a means of trying to beat inflation, and this may result in higher returns, but there is also the risk you may lose your money.
One of the economic tools used by central banks to regulate inflation is interest rates. If high levels of inflation continue for longer than anticipated the bank may raise interest rates, which is good news for depositors, but not for borrowers. Borrowers can prevent this by opting for fixed rate loans, which will ensure the loan repayments do not increase and remain the same.
I am a part-time beef and sheep farmer with some funds to invest - about €70,000. I could afford to put it away for a few years. Currently the funds are in a savings account, earning little or no interest, in my local bank. I have invested in shares in the past, which resulted in a bad experience for me, as I lost a lot of money. I am also concerned about the rate of inflation. With prices rising daily I would like my hard earned cash to make me a return. Would it be a good idea to invest through a broker? Your advice would be welcome.
Leaving your money on deposit in your local bank is not going to contribute to your earnings at the moment, and due to inflation your savings are actually being devalued.
Before you decide what you are going to invest in, you should avail of some professional financial advice. It is important that the financial adviser you chose is authorised and regulated, otherwise you will have no come back if anything goes wrong. There is a Central Bank register where you can check this.
When choosing a financial adviser, you might also check if they have any affiliation to a particular insurance company or funds manager, as it is better that the adviser can offer multiple choices of investments and not just specific ones.
Your own attitude to risk is important. You state you previously lost money on shares. Share prices are volatile. Their values go up and down so they will never give you a guaranteed return. Investing in the stock market involves risk, so if are not a risk taker, shares are not something for you to consider. The stock market can provide good returns but it is more a long term investment, such as five or seven years. Ultimately your goal is to get some return for your money, without risking the capital.
A managed fund can provide a combination of low and high risk investments, which should generate reasonable returns (much better than current deposit rates), while reducing exposure to market volatility. If you invest in a fund which guarantees your capital, the returns you earn will be lower. While, if you take moderate risk over the longer-term (five-seven years), it is likely you will get a reasonable return (better than the rate of inflation). Overall, a managed fund can be a mix of company stocks, government and commercial bonds, other investment products such as property, commodities and cash. That type of combination should generate a good long-term return, as you will not be overly exposed to any particular product, and also not too much volatility in terms of gains and losses year on year.
You don’t mention if you have a personal pension, but if you don’t, a pension is the single most tax efficient way to invest money for your future and retirement. You can avail of tax relief on both the premiums you invest and also avail of a tax free lump sum from the fund on retirement.
Whatever you decide, it might be a good idea not to invest your total savings in a long-term investment, but to keep a certain amount on deposit, to be available in the event of emergencies.
Best of luck, Margaret Nolan
I have a couple of kids at home very interested in the farm. They always do jobs about the place, milking, mowing and painting sheds but it has been irregular so the older ones got jobs off the farm this summer to earn a few bob. They would prefer to be at home and I would prefer to have them at home and give them the money instead of the farm relief. I have the work for them but what are the rules around this?
A family farm is not a one-person show and it takes a team to run a farm. So much so that every family member who works on the farm deserves to get paid. Lots of children work on farms and get a few bob here and there when they ask for it but this is not the most efficient manner to benefit the children and the farm. Usually, a son or daughter will not have to pay income tax or USC as the amount they earn falls under the single persons tax credit which allows them to earn up to €8,250 tax free once they do not have other taxable income in the same year.
There are also added benefits of working on a family farm for a son or daughter including – provided they live with their – parents; they are exempt from PRSI. This is only possible when the farm operates under a sole trader but if the farm operates under a company or partnership, they would then be liable to PRSI at 4%.
The first step should be to discuss this with your accountant and see how many hours work they can do in a week and how much they can earn in the year based on their age. Your accountant will set the children up on payroll depending on the frequency of payment and work. The wages must be paid to the children’s own bank account which in turns allows them to save for their future.
Can they work full-time?
Young workers are people aged 14 to 18, who work for an employer. As these are generally in full time education, there are different laws attached to young workers in comparison to adults. Children aged 14-15 can do light work during the school holidays. Outside school term they can work a maximum of 35 hours a week and during school term 14-year-olds are not allowed work but children aged 15 can do eight hours of light work a week. Young people aged 16 and 17 can work a maximum of eight hours a day, up to 40 hours a week. These are only allowed to work between 6am and 10pm.
How much can they be paid?
Since 1 January 2022, the national minimum wage is €10.50 per hour. However, not everyone is entitled to this. Workers under 18 are only guaranteed up to 70% of the national minimum wage, which is €7.35 per hour. Your employer can pay you more than the minimum wage if they want, but they are not required to by law. A son or daughter employed full time on the farm is entitled to their personal tax credit along with the employee credit which will enable them to earn up to €16,500 per annum or €317 per week tax free. If the farm is a sole trader, the son/daughter will not be liable for PRSI but will be liable for USC for income earned over €13,000.
One of the biggest benefits of paying family members is the tax relief. Depending on the tax band you are in, the tax savings of paying a full-time son/daughter can range from approximately €3,900 when in the 20% tax band and approximately €7,900 if you are in the top rate of tax. These are huge savings and could possibly be higher savings if the son/daughter is living at home and exempt from PRSI. The biggest benefits of paying family members are extracting money from the farm through a tax efficient method while also supporting family members and allowing them to save for future endeavours and earn a deserved wage.
I trust this helps, Jerry O Neill
Margaret Nolan, QFA has over 40 years’ experience in banking and finance. Jerry O’Neill, is an ACCA qualified accountant working as an agricultural consultant with Brady Group Agricultural Consultants and Land Agents