Making the most of your money to keep those farm finances healthy
Whether it is re-evaluating overdrafts or finalising a cash flow, these four steps will help get your finances in order
Tuesday September 07 2010
Sick of feeling like you've been bailing out your bank? Here's four ways to help slash the annual charges you hand over to your banker.
Most farmers are great hagglers. But there's only so far a good haggle will get you these days. Size counts, as they say, and your bank, no more than any other supplier, likes to deal in bulk.
For this reason, many of the best discussion groups around the country have morphed into mini trading co-ops. They are able to leverage the fact that, as a group, they can offer a lot more guaranteed business to a supplier than they can as individuals.
As a result, there are farm buyer groups around the country that have secured some eye-watering lending rates.
While most farmers would be pleased to secure working capital or term loan rates of 5-6pc, some buyer groups are operating at rates of less than 2.5pc. This may not sound like a lot but for a farmer with a €100,000 farm loan, this equates to an annual saving of €3,500.
Unexpected purchases crop up all the time. It could be a replacement machine, extra stock or improvements around the yard.
It's surprising how quickly the thousands mount up. Typically, it will take 12-18 months to pay this investment off. Don't let it rely on your overdraft.
You'll be paying around 10pc on any overdraft. This adds up to €1,125 interest over 18 months on an initial overdraft of €15,000. Switch this to an 18-month term loan at 6pc, and you will have saved yourself €500 without lifting a finger.
flow
There are few things in life that appear as dull as the prospect of doing a cash flow. But the rewards should be motivation enough.
Apart from the stress that it saves, it prevents you from falling into a scenario where you breach your overdraft limit.
Remember, banks aren't that amenable to increasing overdraft limits these days.
If you do breach your limit, most banks will slap a €4.50 daily penalty charge on you. That's nearly €100 a month. Add to that the hike in rates that applies to any money you borrow beyond your overdraft limit -- typically 19pc -- and it's not long before your lack of cash flow projections are costing you thousands.
for your cash
Despite the tough times we are living in, many farmers have cash reserves of more than €10,000. If money like this is left in your current account, banks are likely to give a pitiful interest rate of 0.25pc.
There are plenty of better saving account options available, however. Typically, you should be getting 3pc or more for money that you commit to a 12-month saver account. That's €300 instead of €25 in interest on €10,000 over one year -- not bad money if you can get it.
- Darragh McCullough
Irish Independent
