Farm Ireland

Thursday 23 November 2017

Case Study: Five steps to getting your finances in order

Meet Paddy, Geraldine and their family.

Paddy is a dairy farmer and Geraldine works part-time in their local pharmacy.

They have two children, Sean and Helen, who are both at primary school.

At the start of the year, they prepared their family budget, using a simple and effective five-step process.

As Paddy is a farmer, his income fluctuates. Therefore, the family needs to carefully manage its finances to ensure that it can pay the bills as they fall.

•Step 1: Income -- Put down the expected monthly income for the farm, any off-farm work, benefits and social welfare payments, dividend income from shares, cash gifts and bonuses.

•Step 2: Recurring Household Expenditure -- This represents costs that occur regularly. Note that a plan should include increased fuel usage costs over the winter months.

•Step 3: One-Off Household Expenditure -- This represents costs that usually only occur a few times each year.

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•Step 4: Other (Discretionary) Expenses -- This includes all costs not yet considered. These cost items are often referred to as discretionary costs, as they are costs you choose to incur rather than those costs that are essential for day-to-day living. It includes such costs as club memberships, holidays, pension contributions, savings plans, cigarettes etc.

•Step 5: The Bottom Line (Profitability) -- What we see here is a basic 'Profit and Loss' account over the course of the year. The aim is that income exceeds costs.

Once you have prepared your budget, you can now begin to manage and challenge it. If, as in Paddy and Geraldine's case, there are some months where you make losses, think about how you will manage.

Suggestions include:

•Shop around for insurance. Ask for a discount, or deferred payments. You might be pleasantly surprised!

•Most energy providers offer a budget payment scheme, where you can spread the cost over the course of the year.

•Consider changing your energy supplier.

•Check with your local tax office/accountant/tax adviser that you are claiming all allowances, reliefs and tax credits.

•Negotiate for all services such as broadband, telephone, refuse charges etc. You will make savings by doing this.

•Maintain a spending diary, especially if you believe you are over-spending in certain areas. This will help you understand where your money is being spent. Review this diary regularly.

•Prioritise your financial commitments.

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