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Get a grip on your finances with some budgetary resolutions

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It can be difficult to focus on budgeting after an expensive season.

It can be difficult to focus on budgeting after an expensive season.

It can be difficult to focus on budgeting after an expensive season.

It can be difficult to focus on budgeting after the expenses of the festive season, but it is an essential task for every household. This is particularly the case for self-employed people, such as farmers and the first few weeks of the new year is the ideal time to set down some financial ground rules for the coming year.

The advantages of compiling a budget are numerous, not least as it gives you a sense of control over your finances, even if they are limited and you are under financial pressure.

In the context of a farm, good budgeting allows you to be prepared for months and seasons when expenditure will be particularly high and earnings at their lowest.

A budget need not be a complicated document. Indeed, there are numerous templates available free to download online and any of these would provide a good framework for your budget.

From an on-farm prospective, Teagasc provide a farm business financial analysis service using the e-Profit Monitor programme. Using this programme the financial performance of your business can be looked at in detail with each enterprise (dairy, cattle, sheep or tillage) getting its own individual analysis.

Once you have the information on your farm output and costs of production then you can begin to identify areas to focus on for improvement by carrying out a comparison of your farm figures versus a target or versus results from other farms locally or nationally.

Profit monitors

Many farmers in discussion groups will focus on completing profit monitors in the coming months to assess the profitability of each farming enterprise.

A common barometer which is frequently used is the gross margin per hectare. In simple terms, this is the gross output of the farm minus variable costs, or the costs associated with production.

However, fixed costs such as building depreciation, machinery, leases etc. also have to be taken into account in order to assess the true profitability of the farm. Fixed costs can vary greatly from farm to farm based on farm investment.

Remember, many banks will require an assessment of this sort for facilities like overdrafts, loans etc. as they will need to know when money will be available to discharge the facility, so you are well prepared for every eventuality.

For a household budget it is essential to get a clear picture of your finances by adding all of your sources of income. For example, your payslip will show your income from employment.

You should also include any benefits, for example, unemployment benefit, rent allowance, children's allowance etc.

Also, for those with an additional farm income, this can be estimated from doing a simple farm budget to accompany your household budget.

Expenditure can be particularly difficult to account for in a busy household.

However, you can get a handle on outgoings by recording your bills for the previous year such as utilities, direct debits, credit card statements etc.

Then, you can break down your spending further into 'everyday spending' which includes items such as lunches, pubs, phone credit and 'ongoing expenses' which should include gas, electricity, TV, phone and broadband and loans and debts which include your monthly/weekly repayments.

It is also important to write down how much you still owe on your mortgage or loans and the time it will take to repay them in full.

The final category comprises 'occasional expenses' such as medical costs, insurance and holidays. As well as your outgoings you should make an account of your savings and any dividends or interest due.

After you have compiled this essential information the next step is to set yourself some goals for the year.

Surplus

These should reflect the amount of money which you expect will be surplus to the requirements of the above categories of spending.

By setting yourself short-term, mid-term and long-term goals you are more likely to achieve targets such as paying off credit card debt etc.

An example of a short-term goal could be to save for back-to-school expenses or a family wedding, while mid-term goals could include saving for a home renovation.

Long-term goals like saving for retirement or a pension plan are often put on the long finger, but there are a number of services that can arrange even a small regular contribution for your later life which could make for a much more comfortable retirement.

After you have set your goals it may well be worth pricing around for some deals to increase the surplus between the income and expenditure in your budget.

This can be as simple as checking for better deals with phone providers and other utilities.

By including other family members in the process you may find that you have greater support as the challenges of any financial year spring up.

Just remember to be honest with yourself in the process as there is no point in creating an ideal budget if it has no bearing on your reality.

Theresa Murphy is a barrister based in Ardrahan, Co Galway

Indo Farming