How can I manage my money and set up a budget plan?
Q I need to manage my money better. How do I go about putting a budget together, what kind of expenses and costs should I be sure to include – and what else should I have in a budget plan?
Frank says: For most people, there are four things which provide most of the information they need to manage their money better.
They are: an income statement, which outlines all the income you get in a given month, including salary, child benefit payments, pension; bank statements; credit and debit card statements; and receipts.
You will need a budgeting tool, such as a personal budget planner, to manage this information. The Central Bank's free Standard Financial Statement is a good tool. It helps you track your monthly income, monthly loan repayments, household expenditure, including electricity and gas bills, transport costs, medical expenses and so on.
There is also a free budgeting tool on the Irish Financial Review's website.
Receipts are one of those areas of personal budgeting that warrant attention. If you don't do so currently, get a receipt for everything you spend money on. Keep those receipts in a set place, and add them up once a month to find out exactly how much you are spending. Your bank and credit card statements will also provide a lot of this information but receipts offer far more granular detail, such as spending on cigarettes. It is important that you can trace what you spend money on.
Now you are ready to begin budgeting. In your budgeting tool, record all income that comes into your household in a given month – as well as all money that goes out.
Your final task is to add everything up, at which point you will see if you are in the red (spending more than you earn) or black (a smart budgeter). If you are in the red, you need to identify the expenses which are not priorities and which can afford to be cut out. Repeat this exercise every month and within three months, you should be an expert at personal budgeting.
Q My electricity bills have gone sky-high over the last few months and I'm considering switching to a pre-pay meter as a way of controlling my run-away electricity bills. Would that be a good move?
Frank says: The concept of pre-paid electricity meters has been around for a long time. They have seen a resurgence because of tough economic conditions and rising electricity costs.
Modern pre-paid electricity meters work in a similar way to prepaid mobile phones – you buy credit and top up pre-installed meters in your home. When you've enough credit in your meter, the electricity keeps on flowing.
You might be tempted to sign up to a pre-paid electricity meter because by doing so, you will no longer get electricity bills through the door. However, even if you no longer get electricity bills, this does not mean you will cut back on your electricity costs or use electricity more efficiently.
Pre-paid electricity companies charge customers 37.5c per day to rent their meters. This is in addition to the cost of the electricity. Over the course of a full year, the cost of renting such meters works out at €137. For a family that uses €1,000 worth of electricity, the cost of renting the meter is 14 per cent of their electricity costs. To put it another way, that family would need to reduce their electricity use by 14 per cent just to cover the cost of renting the meter.
Having a Building Energy Rating (BER) assessment on a home could be a more effective way of using that money. A BER will show you if there are simple steps you can take to make your home more energy efficient. If you shop around, you could get a BER for €135 – almost exactly the cost of the pre-paid meter.
Frank Conway is co-author of 'Cents & Sensibility, A Financial Guide for Young Adults'. He also founded the Irish Financial Review site www.irishfinancialreview.com