Business Personal Finance

Monday 19 August 2019

The four-step summer financial check-up before reality returns

Now is a good time to get your finances in shape and prepare for costs to come, writes Louise McBride

'Another red flag is if you are regularly asking friends or family for money to tide you over until payday. This would suggest that you are spending more than you are earning - and that you are not aware of the extent, and timing, of the bills you must pay'
'Another red flag is if you are regularly asking friends or family for money to tide you over until payday. This would suggest that you are spending more than you are earning - and that you are not aware of the extent, and timing, of the bills you must pay'

Summer is a good time to review your finances. Life is often less hectic now than it is at other times of the year - so you may have more time to examine how you are managing your money. Doing a review mid-year also gives you the chance to get your finances back on track - or to put yourself on an even better financial footing - before you see the year out, and before the costly back-to-school, back-to-college and Christmas bills hit.

Here are four steps to follow during your summer financial review.

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Check for red flags

There are a number of red flags which you should watch out for - as one or more of them is a sign that you are not managing your money well.

"If you've had to fund a lot of expenditure on your credit card because there hasn't been enough money in your bank account [for day-to-day expenses], this is a sign that you're not on the right financial track," said Michael Laffey, the regional manager with North Leinster's Money Advice and Budgeting Service.

"Other signs are if you're regularly trying to delay payment of electricity or other utility bills, if you're only making part-payments of bills, or if you have no money in your bank account when bills come in for payment."

Another red flag is if you are regularly asking friends or family for money to tide you over until payday. This would suggest that you are spending more than you are earning - and that you are not aware of the extent, and timing, of the bills you must pay.

Be on the alert for debt red flags too, as debt can become a huge problem if you have taken on more than you can handle. Some red flags to watch for here include if you have recently been turned down for a credit card or loan; if your credit card is at, very near, or over its credit limit; if you can only afford to make the minimum payment (usually around 2pc to 5pc of the total amount you owe) off your card each month; if you have had a letter from your bank- or a debt collector acting on its behalf - asking you to repay mortgage arrears; if you are being chased over unpaid utility bills; if you have got a warning letter from a landlord over unpaid rent; and if you are regularly getting hit with penalty charges for exceeding your credit card or overdraft limit.

Tackle priority debts

Should you identify red flags, you need to address them. Start with debt - and tackle the most important debts first.

"Priority debts should be your rent, mortgage, food, heating and lighting," said Laffey. "If you fall into arrears with your mortgage, you could lose your home. If you're renting and fall behind on your rent, you could be evicted from your home. If you don't pay your electricity or gas bill, you could be disconnected.

"Find out where the pressure point is with debt. That is, is it mortgage arrears - or is it a secondary debt which you will never be able to clear? For a lot of people, mortgage arrears are still an issue - and there may be options under the Abhaile scheme [a service to help homeowners find a resolution to their mortgage arrears] for these people."

Should you have fallen behind on a gas or electricity bill, utility providers are usually open to agreeing a payment plan with you - where you repay the bill over time in instalments.

Credit card bills, personal loans and overdrafts are secondary debts, according to Laffey. "These debts still need to be paid but you should only look at secondary debts after you've addressed your priority debts," he said. "You may be able to come up with a payment plan [with your creditor] for your secondary debts."

There are a number of options for those who cannot cope with debt, including a debt relief notice (DRN) or a debt settlement arrangement (DSA). A DRN - which is for those with very low disposable income or assets - allows for the write-off of qualifying debts of up to €35,000, if it is unlikely that you will be able to repay those debts and if your financial situation is unlikely to improve over the next three years.

With a DSA - which is for people who have run into problems with unsecured debts (such as credit cards, overdrafts and personal loans) - you agree to pay a portion of your overall debt over a period of time.

Boost your income

It is always a good idea to maximise the amount of income you have coming into your household - but particularly so if you have identified red flags during a financial review. "Check that you're getting all the social welfare payments and tax credits that you're entitled to, as there may be some which you're eligible for, but which you're not claiming," said Laffey.

One social welfare payment which is often overlooked is the working family payment, a weekly tax-free payment available to low-paid workers who have children, according to Laffey. (The working family payment is not available to the self-employed.)

All workers should check they are making the most of the various tax reliefs and credits available to them. Tax credits and reliefs could be worth hundreds - perhaps, thousands - a year to you. Some of the most valuable tax reliefs include medical expenses (where you can claim back a fifth of certain medical bills in tax), nursing home expenses (where up to 40pc tax relief is available), and flat-rate employment expenses (which cover the cost of certain expenses incurred when carrying out your work).

Notify Revenue if there has been any change in your personal circumstances (such as marriage, divorce or redundancy). Such changes often have an impact on an individual's tax credits, and so your credits may need to be adjusted to ensure you are not getting too little - or too much.

Check your spending

Should you find that you are still under financial strain, even after maximising the income coming into your household, take an honest look at your spending and cut back where you can. Keep a spending diary - where you record everything you spend your money on - for the next month.

Do not omit small daily expenses from this diary, as you could be surprised how such costs add up. This diary should allow you to see where you are spending your money - and help you identify areas where you are spending it unnecessarily. Cut out luxuries if you are finding it hard to make ends meet.

You should also make a list of the one-off bills which crop up throughout the year - and note when they fall due.

These bills - which typically include your car tax, NCT, car service, TV licence and car insurance - can be high, and it is always wise to save up for them in advance. "It's the less frequent expenses which can catch people out - and which people may find hard to budget for or anticipate down the road," said Laffey. "This may then lead to them paying for something by credit card - which in turn could create a debt issue."

Find out too what has become more expensive over the past year - and do what you can to reduce the impact of higher prices on your pocket. There have been big price hikes in some groceries over the past year.

For example, the price of potatoes is almost a fifth higher than it was this time last year, while the price of yogurts is up 5pc.

Gas and electricity have also become more expensive. So too have rent and private health insurance. The cost of ferry travel has jumped by about an eighth over the past year - while the price of flights has increased by 5pc. Takeaway food is about 5pc more expensive, while the cost of a visit to your hairdresser is almost 7pc pricier.

The best way to tackle high prices is to shop around, reduce the amount you buy, or cut out a particular item entirely. Eliminate waste, as Irish consumers dump 80kg of food waste a year, according to the food services company Compass Group Ireland. Potatoes are the most wasted vegetable, and bananas and apples the most wasted fruit. Remember, you pay for waste twice because, as well as the initial cost of buying the product (which you then throw out), you must pay the bin charges to dispose of it.

Be mindful that steep grocery price hikes could be on the cards if a hard Brexit comes to pass, so getting thriftier with your weekly shop, and other expenses, now should ease some of the potential financial pain to come.

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