Getting your finances in shape

The financial hangover following the Christmas spending splurge is probably one of the main reasons why January 24th has earned the unenviable reputation as the most depressing day of the year. Swollen credit card and bank statements, increased mortgage payments and higher prices just about everywhere combine to create quite severe financial anxiety for many people.

The first step towards alleviating that anxiety and getting your finances in shape for the new year is to get advice, according to Bank of Ireland head of financial wellbeing Dawn Bailey. “Irish people can be a bit uncomfortable talking about money,” she says. “We assume people are going to try to sell us something. Actually, financial advisers are there to do just that, give advice. You should use the free advice from the banks and other institutions to identify gaps in your finances and help you to reach your goals. Even taking that first step of getting advice can lift a load off your mind.”

AIB head of business development wealth Siobhan McNally agrees. “Don’t be deterred by the scale of the task,” she advises. “There is help available out there to put a financial plan in place.”

Personal finance expert Bernard Walsh advises people to look at their expenditure from the perspectives of importance and urgency. “Use a grid with the horizontal axis for important items and the vertical axis for urgent. There are items which will be both urgent and important like putting food on the table, paying the utility bills, rent, and so on. Other things are important but not necessarily urgent like renovating the kitchen, unless the roof is falling down. Expenditure that is not urgent and not important comes down to luxuries. Of course, there can be differences of opinion. The Sky Sports subscription might be important to one partner in the relationship but not the other. It can be very cathartic to categorise your spending like this and it helps you get in control of your finances.”

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The Money Advice and Budgeting Service (Mabs) offers a variety of online tools and face-to-face advisory services. “People should go to our website at mabs.ie,” says Mabs national spokesman Karl Cronin. “The money tools on the site allow you to do your own financial health check. If you are having difficulty with your bills, it will guide you on where to go for help. If it detects that you might be in trouble it will suggest you make an appointment for advice. The My Budget tool allows anyone to create a budget and see their income and expenditure at any point in time. We should all do that from time to time.”

Budgeting exercises allow you to start the process of living within your means. But there are some simple things you can do to tilt the balance in your favour.

“There are things you can do to maximise your income,” says Cronin. “Are there tax credits you haven’t claimed? Is there a better way of managing the tax credits you already have? Are you claiming all your social welfare entitlements?”

Some steps can be taken on the expenditure side. “This is a brilliant time of the year to look at your finances,” says Money Doctor John Lowe. “Look at everything that’s going out like insurance payments and shop around for better deals. The money is better in your pocket than someone else’s.”

Cronin agrees. “Shop around for savings on things like broadband, electricity, and gas. There are some really good comparison websites out there to help with that. Insurance is another one. A lot of people auto-renew. This is probably the biggest cardinal sin people can commit. There are lots of companies out there competing for your business.”

Interest payments can also be trimmed. “You should look at your credit card spending,” says Bailey. “That could be costing you a lot in interest payments. You can look at paying off the credit card balance by taking out a personal loan to do it, for example. A lot of institutions offer relatively low-cost loans for debt consolidation.”

Those steps will help to stabilise the situation. After that, it’s a question of putting a plan in place to achieve goals in the short and longer terms. “That’s really important,” says McNally. “If you don’t have a plan that’s when you can get into difficulties. There are a few of starting points when making a plan. You need to look at what might have changed in your life. Has your family grown, have you changed jobs or got a pay rise? If you decide to set goals, you need to look at your priorities for your family. After that, you can look at what protections you have in place in terms of insurance and savings.”

In most cases, savings are viewed in the longer term, but McNally acknowledges the need for shorter-term planning as well. “An emergency fund is really important. What do I do if the car breaks down or the washing machine needs to be repaired?”

The more distant time horizon covers things like children’s education. “That’s something you may not need for a long time, but we can help put a solution in place for it,” she says. “Some people put child benefit away for it if they can afford to.”

The other key piece of advice is not to let perfect become the enemy of good when it comes to personal financial planning and budgeting. “No one keeps to the 50, 30, 20 budgeting rule of needs, wants and savings during December and January and other high-spending months,” says Bailey. “Don’t beat yourself up if you can’t put money away every month.”