A few clever cuts can save your skin

From cycling to work to credit card hopping, cutting back in these straitened times may be less painful than you think, writes Fiona Reddan

WE CAN all expect our pay cheques to be a bit lighter this month, as the Government's budget measures, such as the 1 per cent income levy, start to kick in. However, rather than bemoan the reduction in your disposable income, there are some easy ways of cutting back your spending and boosting your income in 2009.

1. Claim all your tax credits

One of the easiest ways of boosting your income in 2009 is to avail of all the tax reliefs on offer. While you may receive many of your eligible deductions automatically, you will need to apply for others.

For example, the cost of medical and dental expenses can be significantly reduced by submitting either a Med 1 or Med 2 form to the Revenue Commissioners. While higher earners will only be able to claim back at the standard 20 per cent rate from this year onwards, all expenses incurred in 2008 are eligible for deductions at the 41 per cent rate. Claims can be made against a range of expenses including non-routine dental treatment, services of a doctor or consultant, speech or language therapy for a dependent child and maternity care.

If you rent private accommodation, you are entitled to relief at 20 per cent on your rental payments, subject to a limit of €2,000 for the under-55s and €4,000 for the over-55s.

Tax relief is also available for annual bin charges and this is given at the standard rate of tax, 20 per cent. So, if you paid € 400 in service charges for waste collection during 2008, you can claim back € 80.

And it has just become a lot easier to claim these reliefs, as you can now do so via text message for a number of reliefs, including refuse charges and trade union subscriptions. Log-on to www.revenue.ie for further details.

2. Make your savings work for you

With interest rates set to fall again early this year, now is the time to lock into a savings account offering a good rate of return. Despite the fact that interest rates have been falling over the past six months, many banks still have attractive rates on offer as they look to shore up their deposits.

Although some deposit account providers, such as Rabodirect, (which has cut the rate on its demand personal savings account from 4 per cent to 3.45 per cent) have cut the rates they offer because of interest rate reductions at European level, there are still some attractive rates available.

Halifax's "Flexi Saver" product offers 5.15 per cent on savings up to € 10,000 in the first year, and savers can make as many withdrawals as they like. Ulster Bank's "eSavings Plus" account pays 5.5 per cent on balances over € 15,000, and again, savers have instant access to their funds.

Those prepared to lock in for a longer period can also avail of attractive rates. Halifax has a fixed rate of 5.6 per cent for one year, while EBS offers 5.1 per cent on a minimum balance of € 20,000, and First Active has a six-month fixed-term money market deposit which pays 5.2 per cent on balances of between € 20,000 and € 3 million.

The difference between saving € 10,000 at a rate of 3 per cent and 5 per cent is € 200 annually, so it's worth making the switch.

3. Brush up on your negotiating skills

It's a buyer's market out there for everything from cars to houses, from televisions to couches, so don't accept what's written on the price tag as a given - particularly if you're paying cash, as with stock building up, stores are desperate for cash to pay their bills and you should get a decent discount for doing so.

While many people are too scared to go near the property market, there are bargains out there for the brave. Tales of people offering € 1 million for a €2 million house - and getting their offer accepted - are rife, so don't be afraid to start bidding with a very low offer, particularly if it's for a new house which a developer is keen to get rid of.

Time to renew your car insurance? Your first step should be to negotiate the rate offered by your existing insurance provider, as they often overquote by up to € 200.

Planning a break? Instead of accepting what the hotel is offering on the website, give them a call and see if you can get one night thrown in for free or an upgrade to a suite.

Remember, as the recession continues to bite, everything is open to negotiation.

4. Cycle to work

Cycling to work has always been cheaper than either driving or taking public transport, but from this month it has become even more attractive, following the Government's decision to introduce a tax incentive in October's budget.

Employees who cycle to work can now avail of a tax exemption to reduce the cost of purchasing a bike and associated safety equipment, such as a helmet, bells and lights. Introduced on January 1st, the exemption is applicable to people who cycle the whole way to work or part of the journey.

For a tax payer at the top rate, the initiative equates to savings of about 41 per cent on the cost of a new bike.

To qualify for the scheme, the employer must purchase the bicycle/safety equipment on behalf of the employee. This can be done either outright, or the employee can enter into a salary sacrifice arrangement, similar to the travel-pass scheme, whereby the employee agrees to forego part of his or her salary to cover the costs associated with the purchase of the bicycle/equipment.

Employees can only avail of the exemption once in any five-year period, and there is a limit on the value of such purchases of € 1,000 for each employee. The employer is not required to monitor the use of the bicycle/safety equipment, but is required to obtain a signed statement from the employee or director that the bicycle is for his or her own use and will be used mainly for journeys to and from work.

5. Reduce your electricity bill by € 500 a year

By making simple changes you can knock some € 42 a month off your electricity bill, or € 500 a year - without noticing any real change in your energy consumption habits. How to do it? You can start by setting your heating thermostat to one degree lower than it currently is - this will straight away knock € 100 off your annual bill. To save another € 100, don't run appliances such as washing machines and dishwashers until you have a full load. Leaving appliances on standby can run up an extra € 30 a year, so before you go to bed remember to switch off the television and computer. For a list of energy-saving habits, see www.powerofone.ie

6. Pay yourself first

By "paying yourself first" you can significantly add to your bank balance by giving priority to your savings over other expenses.

For example, if you normally decide how much to put into your savings account at the end of the month, based on what you have left over from your pay cheque, it is likely this haphazard savings method means you are not saving as much as you should.

Instead, set up a direct debit for a fixed amount to a regular savings account that offers a good rate of interest (for example AIB offers 5.75 per cent on its account). This way, how much you save is no longer dependent on how much you spend in a month, and over the course of a year, it is likely that you will at least double how much you normally save.

7. Credit card hop - and don't pay the minimum balance

If you are stuck with a significant balance on your credit card, and are paying about 15 per cent in interest for the pleasure of being in this debt, consider switching to a credit card provider that offers a 0 per cent interest rate for an introductory period.

For example, First Active offers 0 per cent on its First Active MasterCard for the first nine months on all new purchases, as well as any existing balances that you transfer. Other providers that offer a 0 per cent introductory period include MBNA and Ulster Bank. Indeed, if you are pro-active enough, you could get a couple of years of free credit by regularly hopping from one credit card provider to another.

You should also try and pay more than the minimum balance each month - particularly for the months when you are not being charged any interest. Generally, credit card providers demand that you pay between 2-5 per cent of the outstanding balance each month, subject to a minimum payment of about € 5. However, this low rate is aimed at you staying in debt for as long as possible, thus racking up large interest payments which benefit the bank.

For example, on a balance of € 2,500 with an interest rate of 15 per cent and a minimum monthly repayment of 2.5 per cent of the balance, you would be required to pay back € 62.50 a month initially. However, if you just pay back the minimum amount, it will take you a massive 16 years, or 202 months, to be rid of your debt - and in that time you will pay almost € 2,500 in interest. If, however, you make a fixed payment of € 100 a month, it will take just 1½ years and € 500 in interest to clear your debt, while you can save yourself the € 500 by continually switching from one credit card provider to another.

8. Home swap for your holidays

While the idea of allowing a bunch of strangers in your home may seem like some people's worst nightmare, the concept of swapping your house has become increasingly popular among people looking for a bit more comfort from their holiday - without the cost. If you're lucky enough to own a holiday home, swapping this can take a lot of the stress out of exchanging your primary residence with strangers.

The major benefit of a home swap is the savings on accommodation, as well as the opportunity it offers to visit places not serviced by traditional tour operators.

While you will still have to pay for flights, the massive savings you make on accommodation can be used to plan a holiday further afield. For example, a holiday for two adults and two children to Portugal's Algarve costs from about € 5,000 for two weeks this summer in four-star self-catering accommodation. By arranging a home-swap in Portugal, you could save yourself thousands by just paying for the flights - and there won't be any need to rent a car either, as most arrangements include the use of a car.

Alternatively, you can use the cash you would normally spend on a package holiday in Europe to go further afield. For example, € 5,000 will fly a family of four to most destinations around the world, such as Canada, the USA or Argentina.

HomeLink International (www.homelink.ie) has 14,000 properties available to be exchanged worldwide, ranging from a four-bed villa with a swimming pool in Carvoeiro on the Algarve, to a three-bedroom penthouse apartment in the posh district of Argentina's capital, Buenos Aires.

An alternative to arranging a swap with strangers could be to swap your foreign holiday home with a friend or colleague.

9. Have a car boot sale - on ebay

Instead of bringing all your unwanted gifts and the products of an early spring cleaning to the recycling centre, how about selling them on the internet? Online marketplace Ebay has a dedicated Irish website, where you can sell anything from antique clocks, to computers, to musical instruments.

10. Cut back on coffee for the new year

Start the year as you mean to go on by cutting back on your daily coffee intake, or at least replacing some of your expensive take-out coffee with a jar of instant coffee. By forsaking your morning € 3.50 latte, you could save almost € 1,000 a year.