Tuesday 26 September 2017

Sinead Ryan: My top tips for debt management, budgeting and savings for the year ahead

Personal finance expert acknowledges many may have a festive spending hangover and explains how to get to grips with your money

Stock photo
Stock photo

Oh dear. Still weeks before pay day and there's far more month than money left. Christmas certainly has the capacity to strip our finances, so what better resolution in 2017 than to trim and slim down your spending, and get to grips with your money so that this year isn't like the last one?

We head into the year with three main problems to tackle: debt, budgeting and saving. Here are my tips to make sure that this is the year you control your cash, and not the other way round!

Debt

Debt comes in two forms: good and bad. 'Good' debt is normally that associated with an asset, like a mortgage. At least when the debt is gone, you have something solid to show for it.

'Bad' debt, on the other hand, is caused by day-to-day spending. Racking up your credit card to buy gifts for other people, or using it in the supermarket for weekly groceries. Let's look at long-term and short-term borrowings.

Make a list of all the debts you have, who you owe it to, what term is left on it and how much it is costing you. You may be surprised by the figure.

List them in order of the interest being charged: money lenders and credit cards are right at the top, along with catalogue companies (who are considered money lenders by the Central Bank due to excessive interest charges).

Now to get rid of it:

Short-term: This is the stuff you need to lose over the next few months, such as Christmas overspends. If it's on overdraft, you're paying at least 14pc per annum in interest plus possible additional fees if you haven't agreed the amount, so set aside a figure each month to pay it off (it may mean diverting what you would have spent on going out, alcohol or the other vices you'll be giving up!).

If it's on credit card, then consider a Credit Union loan to clear the debt (credit cards are the most expensive interest vehicle around at up to 22pc p.a.; a Credit Union will charge you typically 8pc p.a.) and clear it over six months or a year.

Alternatively, you might be able to move to a card with a zero balance (Tesco, Bank of Ireland and Permanent TSB all offer these with no interest for six or seven months).

Crucially, you mustn't put any new purchases on the card, but use your money to pay down the debt instead and stick to your debit card in the shops and online.

Long-term: This is generally hanging around for years - personal loans, old car loans, etc. Bundling them up in to one loan and one repayment may be cheaper, and clearer, allowing you see the outgoing each month. Ask lenders if you can pay off the loan in one go by negotiating a new one; interest rates have dropped on many personal loans over the last year or two.

budgeting

Making a budget is an organic exercise; only Michael Noonan does it once a year! Involve the whole family - kids can be very good at spotting over-spends (unless they're the cause, of course!) and should understand, in an age-appropriate way, how money works. Paying them pocket money, as long as they save half, is a super start.

• List your income. Include State benefits such as Children's Allowance, salary or wage and any other fixed, certain incomes.

• List your outgoings. Print off two months' worth of bank statements and really study them: list every direct debit, who is it paid to and what it is for. I'll be surprised if you don't find an old insurance policy you'd forgotten about - do you need it?

• Estimate weekly or monthly spends on other things (see table). While it's easy to remember groceries, bus tickets and regular amounts, we often forget one-off spends like back to school costs, bin charges and the TV licence. This is the time to do all of this and divide it back by month.

• What is the gap? Hopefully you earn more than you spend. If so, divert at least some of it into a savings account (they're free to open online). If not, then you must sit down and re-do the outgoings. List them by 'must-have' and 'nice to have' spends and be ruthless. You absolutely must pay for electricity, but do you need to spend that much on food or entertainment?

• See if you can save elsewhere. For instance, if you switch or bundle your utilities, can you cut costs? If you don't need movies or sports, get them off your TV contract. If you bundle phone, broadband and TV, can you get a cheaper package? In my opinion, you're almost certainly overpaying on health insurance - switch to a cheaper plan.

• Any and all savings should be diverted into a separate account for the once-a-year spending that will trip you up. Deposit accounts are free and should be named as 'household', so you're not tempted to strip them.

Time Typical Costs Don't forget

Weekly Groceries, transport, lunches, pocket-money Petrol, bus/train fares, tolls, parking, coffee, snacks

Monthly Mortgage, insurances, subscriptions, TV, utilities, Gym fees, babysitters, hairdressing

socialising, medicines, pet costs, kids' classes

(e.g. dance/football), loan repayments

Annual Property tax, bin charges, TV licence, birthdays,Plan for date when they must be paid. Christmas, back to school, Residents' Budget monthly if necessary

Association fees, holidays

Other Dentist/doctor visits, window cleaning, clothes,Review last year's calendar/diary savings, car service, appointments for contingency fund.

Irish Independent

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