Published: Wednesday, 11th August, 2010 5:00pm
Moneytimes with Jill Kerby
Part 1: Good time for review
Jill Kerby.
Pic by==: 97
The dog days of August are as good a time as any for a financial review. We all seem to have a little more time in which to drag out the file box of documents and insurance contracts, tax slips and mortgage deeds and work out whether or not we're getting proper value for our outgoings.
If you don't have a file box, maybe you should pick one up at your next visit to Easons or Ikea or any housewares store and use the accordion style dividers to file away the tax slips, bank statements, insurance policies and house and mortgage documents. (It's important that you keep all tax and relevant documents for at least six years as that's how long the Revenue can ask for them to be presented if they conduct an audit or your apply for a refund or apply for a certain tax relief.)
Once you have the file box, you need a little ledger or hard-covered notebook where you can set up your personal financial budget and into which you can record annual, gross and net monthly or weekly income and outgoings. The ledger encourages you to hang on to receipts like grocery bills, credit card slips or statements, even ATM receipts though this exercise is also possible with a computerised budget - just key in 'personal budget template' and take your pick.
Now it's time to clear the kitchen table (and the children out of the kitchen) and put everything into orderly piles. I probably keep too many records for too long, but you should keep track of your bank statement, if not in paper form, then by banking via the internet, so that you can get a picture of not only the direct debits and standing order payments you make to pay the mortgage or car loan, or your insurance payments, but also how often you use the ATM machines or how often you pay for other discretionary spending with bank and credit cards.
Discretionary spending, alas, is what usually pushes otherwise solvent people into perpetual overdraft use, and we'll look at this next week. It is your income an essential spending that you should review first, starting by putting every bit of earnings that come into the house: yours, your partner's and even the older children's into the ledger. (I'm not suggesting that the teens who earn €50 a week stacking shelves after school should have to contribute to household bills, but it does mean that you don't necessarily have to feel obliged to pay them an allowance any more.) Meanwhile, don't forget to add all bonuses, commissions, bank deposit interest and social welfare payments, like child allowance.
Next, start listing your biggest ongoing expenses on the expenditure side of the ledger: mortgage, food, car payments, insurance and utilities, and essential clothing, ie work clothes, school uniforms. Ask yourself, how long has it been since you shopped around for insurance or utilities; have you switched to lower price electricity, gas, phone/mobile phone providers?
If you haven't been comparison shopping every year, you should end up with some level of discount by doing so now. Check out the Financial Regulator and National Consumer Agency (itsyourmoney.ie and consumerconnect.ie) websites for cost comparison surveys or use the services of a good general insurance broker and financial advisor to come up with better priced contracts for you.
Your financial review should also reveal some holes in your personal or family budget: if your employer (or if you are self-employed) does not provide maximum protection benefits like life insurance and income protection (also known as PHI, Personal Health Insurance) which pays up to 75% of your income should you be unable to work due to illness or disability, you should buy them yourself. A serious illness policy (as well as life cover) should be considered for a stay-at-home working parent. A good broker/advisor is best placed to help you work out how much cover you need and can afford.
Family budgets are tight, but I am a huge advocate of private health insurance unless you have absolute faith in the public health service to provide the level of health care for you and your children. Contracts still carry 20% tax relief, they allow you and your children to jump long waiting lists and though policies are getting more expensive, can be cost effective if you work out the loss of income and time involved in the long wait for treatment and the risk of becoming even more ill during that wait.
The other essential expenditure / existing contract to review this summer is your pension/retirement provision. Conventional managed pension funds have often been a huge disappointment to pension holders over the past decade, despite generous tax relief. If you are not part of a very good defined benefit/defined contribution scheme at your place of employment you should have any pension you do have reviewed by a pension expert who understands the importance of asset selection - and costs and charges - in these volatile times. Keep in mind that this might be the last year the government allow a higher rate tax relief of 41% on contributions; it has been well flagged that they intend to drop the tax relief to 33% and save over €1 billion in subsidies. The pension contribution deadline is October 31st.
Next week: Control Your Discretionary Spending in These Tough Times
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