Taking Stock In The Event of Shock
04 July 2010
Sunday Tribune
Your focus at the moment should be on shoring up your finances to guard against more setbacks
We have reached the half-way point through this year of personal austerity and as the country emerges from recession, albeit technically, it is a good time to take stock of your own finances and assess how the year is going. With the safety valve of low mortgage interest rates set to gradually disappear and the prospect of the introduction of even more punishing fundraising measures in the government's next budget looming, keeping a tight grip on your finances is more important than ever.
Assessing where you are at is a simple enough process and doing a proper analysis of your financial activities will give you a clear idea of what you should be doing with your money whether things are looking a little bit bleaker than you might like or are rosier than you were expecting.
Your starting point should be a detailed income-and-expenditure statement listing everything coming in and everything going out no matter how small, says Frank Conway from online financial mentoring service MoneyCoach. "People may know what their mortgage repayment is on a month-by-month basis, but it can be those little expenses that you sometimes forget. If you smoke for instance, you know how much you smoke monthly. The same applies to snacks, lunch money and so on. A good income-and-expenditure should guide you through your expenses and it must be as detailed as possible," he says.
If you haven't been keeping accurate records of your spending in the first half of the year, don't worry. You can get a fair idea of what you have been spending by making a quick trawl through your bank statements – your withdrawals will, at least, indicate how much you are spending, if not where you are spending it. Ideally, you should start keeping a proper record of spending - listing everything from your morning pastry to the mortgage payments for the next month and work from there.
If things are looking bad
Don't panic if the results of your income-and-expenditure statement are negative - identifying that there is a problem is crucial to ensuring that the situation does not spiral out of control.
Where you are really struggling to pay the bills, it is important to prioritise debts. Your mortgage and utilities are more important than your credit-card bill because they keep a roof over your head and light and heat in your home. If the mortgage is causing problems, inform your provider and work with them to come to a solution - a payment holiday or interest-free payments - which will give you breathing room. Take control of your utility bills by reducing consumption and switching providers to ensure that you are getting the best deal available. Seek help from the Money Advice and Budgeting Service if you are really having problems.
If the situation is not quite so bleak but you are spending more than you earn, making small changes like switching mobile phone provider or planning your shopping in advance – sticking to it can make a huge difference. Big-ticket items like mortgage payments may be out of your control but your day-to-day spending can be reined in with a little effort.
If you have high unsecured debt, now is the time to get your house in order, says Brian Douglas manager of Greystones Credit Union. "There are other debts that people could manage better - credit cards and overdrafts can prove to be very expensive debts, so, if someone finds themselves with some extra cash it's always worth considering using it to clear these or try to refinance and consolidate expensive short-term loans on much better terms with a bank or credit union. People should also take a good look at their direct debits. Are they paying for something that they no longer use or could live without? If so, cancel them," he says.
Positive results
If you are pleasantly surprised by your analysis and find that you have money to spare, try to resist the temptation to splash out on something shiny and new. It may sound a bit Scrooge-like but protecting your cash and making it grow is the most sensible option to take right now. Depending on the level of access required, there are a wide range of deposit accounts on the market which, while earning nowhere near the kind of interest that you could have achieved two years ago, do offer the chance to moderately increase your nest egg while being covered by the government guarantee.
If you are looking for a long-term investment, the Government's National Solidarity Bond offers a very attractive return if you are willing to leave your money untouched for 10 years. For those looking for a shorter-term solution, Anglo Irish Bank's 12-month 3.5% fixed rate is a decent return and you can lodge anything from €1 to €1m. With a considerable amount of uncertainty still plaguing the economy, you may want to keep your money in a place where it is readily accessible, but rather than leave it in an ordinary current account where it will attract a negligible rate of interest, invest in a regular savers account which gives you the freedom to make emergency withdrawals if necessary. See www.itsyourmoney.ie for a cost comparison of the accounts on offer.
Thinking long term
The focus at the moment is very much on shoring up your personal finances to protect against any immediate economic shocks, but any review of your fiscal situation should also give consideration to your long-term needs and whether your pension is going to be enough to adequately support you in retirement. If you do have cash to spare, you should consider making additional voluntary contributions to your fund – it is both tax efficient and will have a significant impact on your final pension. Efforts should also be made to improve your asset classes, says Fionán O'Sullivan, director with IFG Corporate Pensions.
"While you are younger you should keep your money in equities and broaden the spread when approaching retirement. Although confidence in the markets may have waned, historic evidence suggests that people can safely recover losses experienced over the long term. A sensible approach to asset class distribution throughout the lifetime of a pension is the imperative to minimise risk, but equally you don't want to avoid experiencing the upside of growth by switching assets following every hiccup in the share market," he says.
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