Nip and tuck for healthy finances

A few adjustments to your approach to money can reap major rewards without ruining the lifestyle you are accustomed to, writes Caroline Madden

Last Wednesday, Minister for Finance Brian Cowen unveiled one of the tightest budgets in several years, reflecting the fact that our economy is losing steam. But the Minister will not be alone in tightening the belt a few notches.

Taxpayers disappointed that their Budget wish list wasn't ticked off, and consumers simply finding it harder to make ends meet these days, will also have to take a long hard look at their own finances and rein in their more lavish outgoings.

Fortunately it's possible to adopt a more frugal approach to money without impacting too much on the lifestyle to which you have grown accustomed. Here are some simple ideas that can help:

1. KEEP A SPENDING LOG

If you just can't figure out how your pay cheque evaporates so quickly each month, or are routinely surprised by that nasty "insufficient funds" message at the ATM, it's time to keep a closer eye on your discretionary spending and track down those mystery leakages.

For the next month, try to keep a spending log. Bring a notebook with you and record absolutely every cent that you spend. Keep receipts, bus tickets etc. At the end of each day, update your log, separating expenditure into different categories, from essentials to luxuries.

At the end of the month you'll be faced with a brutally honest account of your spending habits, which should enable you to identify simple ways of curtailing your spending without noticeably reducing your standard of living.

Those in need of convincing should check out the "Pleasure v Treasure" calculator on www.thisisyourmoney.co.uk. The calculator shows how much you could save by diverting the cash you "waste" on everyday items such as cigarettes and sandwiches into a long-term savings plan.

2. CUT OUT SOME LUXURIES

"I've spent $40,000 on shoes and I have no place to live?" Don't fall into the same trap as Sex and the City's Carrie Bradshaw, who realised to her horror that an obsession with footwear had left her unable to scrape together a deposit for an apartment.

Whether it's a penchant for Jimmy Choos, Crème de la Mer moisturiser or even just regular facials, being high maintenance is financially draining.

It's tempting to justify such expenditure as "investing in yourself" or with the L'Oréal "because you're worth it" mantra, but if splashing out on these luxuries means that you can't afford the bare necessities, it's time to economise.

And although blondes may have more fun, maintaining highlights is a particularly expensive business. By forsaking those golden locks and going au natural, you could save a sizeable amount of money. With easi meche highlights costing €150 or more in the capital's salons, the cost of staying blonde can run into thousands over a year.

If you just can't see yourself as a brunette, consider joining the many women who regularly travel several hours to hairdressers in regional towns in order to avoid extortionate Dublin prices.

3. GO GREEN

Going green not only helps the environment and salves your conscience, it can also cut your energy bills. If you're keen to go green but are torn between investing in a new A-rated washing machine, insulating your attic or replacing your draughty old windows with double-glazed versions, it could be worth calling in the professionals.

Several Irish firms are now providing a home energy audit service. The first stage of the audit is a thorough assessment of your energy consumption.

From this, the assessors will be able to calculate your house's energy rating, and pinpoint where energy is escaping.

They will also make recommendations on how best to tackle these areas of weakness in a cost-efficient manner, and will identify any other areas where savings could be made. A further advantage of an energy audit is that it can help you to avoid installing expensive systems or technologies that are unsuitable for your home.

Prices can vary depending on the provider and the size of your property, generally ranging from €150 to €400. However, these costs will generally be recouped within a matter of months.

Even if you can't afford to hire professionals, there are a number of free home energy audits available online which, while unlikely to be as accurate, are nevertheless quite useful.

For example the home energy audit available on the ESB website generates a relatively detailed report based on the answers provided to 15 questions. The recommendations contained in the report are also accompanied by a rating of the investment costs involved.

4. CUT DOWN ON ALCOHOL

Irish consumers spend three times more on alcohol than any other European country. A survey last year revealed that we spend an average of €1,675 annually on drink. Those on the average industrial wage would have to work for more than a month to earn this amount after tax.

Most people end up drinking far more than usual this month. It can be hard to survive the social whirl of Christmas parties without some fortifying liquor. In order to give their liver and bank balance a chance to recover, many repentant revellers then spend January in a teetotal state.

Why not try to continue this restraint throughout 2008 and keep your alcohol consumption within the low-risk drinking guidelines that can be found on www.drinkaware.ie?

And by using the drinks diary on the Drink Aware website, not only will you be able to monitor your alcohol consumption, you can also calculate how much your drinking habit is costing you.

5. DON'T SQUANDER A WINDFALL

Even though we carefully salt away overtime payments and other hard-earned rewards during the year, for some reason we feel duty-bound to squander Christmas bonuses on the first extravagant treat that pops into our heads.

According to a study recently published by Bank of Ireland, "the only time those in their 30s and 40s splurge is with their Christmas bonus, which is treated differently to bonuses received at other times of the year".

"The theory of mental accounting describes how people see different functions for money depending on where it comes from," says Dr Ken McKenzie, social psychologist with the Geary Institute at UCD. "Splurging the Christmas bonus on the festive season is a good example of this."

So whether it's your Christmas bonus, a refund of an overcharged bill or a tax rebate, think twice before spending a windfall in one lavish gesture and consider instead how you could use it to achieve your longer-term financial goals.

6. SHOP AROUND (ESPECIALLY FOR INSURANCE)

It may take more time and energy initially, but shopping around for financial products such as insurance is generally worth it.

"Remember that any savings you make aren't just a one-off - they accumulate year on year," says the National Consumer Agency. "So even if you only save a few euros initially, think how much you'll save over the long term . . . Sometimes, the mere threat of switching can result in a cut in your bill."

Take motor insurance, for example. The Irish Financial Services Regulatory Authority has published a new cost comparison survey on its website (www.itsyourmoney.ie) which confirms that large savings can be made by simply shopping around.

"Car insurance can be expensive for some drivers, but, as our survey shows, the prices are wide-ranging and there are significant savings to be made, whether you choose to shop around yourself or through a broker," the financial regulator says.

In particular, the survey highlights the savings that young drivers can make. For example, a 22-year-old male student in Cork with two years' no-claims discount could save more than €1,800 on comprehensive cover.

7. SWITCH YOUR CURRENT ACCOUNT

The fierce territorial battle being waged in the current account market has resulted in some tempting offers for consumers willing to switch banks. The introduction of the bank switching code a few years ago has meant that this is now a relatively hassle-free process and could be worthwhile.

Many banks began offering fee-free banking last year in an attempt to lure customers away from their rivals. AIB then upped the ante by offering to pay interest on current account balances and many of the major banks have followed suit, including Bank of Ireland, which is currently offering an introductory interest rate of 10.5 per cent on cleared credit balances of €1,500. However, if you're considering switching, make sure to read the fine print as conditions sometimes apply to fee-free banking, such as maintaining a minimum balance or conducting a certain number of transaction online or through phone banking. Similarly, check the restrictions attached to any interest rates offers.

8. TAKE ADVANTAGE OF TAX ENTITLEMENTS

According to estimates, an incredible €350 million in tax credits and reliefs goes unclaimed annually. For example, only half of all trade union members claim relief on their subscription fee, even though they are entitled to a credit worth €60 this year, which will increase to €70 in 2008. As a taxpayer it is your responsibility to claim any tax refund due, so make sure you're not losing out.

If you have expenses such as service charges, rent and tuition fees you may be entitled to additional tax relief. Also if you have incurred medical expenses which haven't been reimbursed by a private health insurer such as VHI, you may be able to claim further relief.

More information is available on www.revenue.ie. Credits can be claimed by phone, online or in some cases by simply sending a text to Revenue.

9. RENT OUT A ROOM

If you're struggling to meet your monthly mortgage repayments, there could be an easy solution right under your nose - give up the luxury of having a spare room.

Yes, you may have relished the thought of never again having to share accommodation with strangers who use up the last of the milk, but renting out a room is one of the few ways of earning extra money by doing very little.

Thanks to rent-a-room relief, you can currently earn up to €7,620 a year tax-free by renting out your spare room. Thanks to an amendment announced in the Budget on Wednesday, this limit will jump to €10,000 next year. That equates to almost €19,000 gross income if you were to earn this as part of your salary (if you are on the higher rate of tax).

Rent-a-room relief won't affect your entitlement to mortgage interest relief, but remember that if the rent exceeds the exemption limit, the entire sum becomes taxable. Also this relief won't apply if the tenant is your 30-year-old "Kipper" (Kids In Parents' Pockets Eroding Retirement Savings), as the exemption no longer applies where a child pays rent to a parent.

10. SORT OUT YOUR DEBTS

At this time of the year it's very easy to slide into debt. There's no easy way to claw your way back out of the red, but the first step is to pay off your most expensive debts. Typically, the interest rate of credit cards ranges from 10 per cent to 19 per cent, which is well in excess of that charged on overdrafts and personal loans.

Try to clear off as much as you can afford from your credit card each month, because the longer you delay the more your debt will grow.

Consider taking out a personal loan with a lower interest rate to pay off your credit card bill, rather than using a second credit card to do so.

It can be worth switching to a credit card that charges a lower rate of interest.

Best of all, chop up your credit card once and for all, so that the temptation to run up debts all over again is removed.