Irish Financial Review

Successful budgeting for 2013

Successful personal budgeting for 2013

The ultimate tool when establishing a household budgeting plan is an income and expenditure spreadsheet. Detailed ones are pretty common on many home PC’s and on the internet. There is also a free tool attached with this website under calculators.

Before starting on a personal budgeting exercise, it is important to have all of the facts. Generally, this is broken down to two key components:

1. Income

2. Expenses

On the income side, if one is a PAYE worker, then their recent pay-stub or most recent P60 will have all of the required information. Self-employed are a different matter, but they should have sets of accounts.

The big issue is on the expenses. I always advise people to focus on the small items because we all know the big expenses like mortgage repayments and insurance costs. For example, food snacking, smoking and odd little spends here and there can add up to the thousands of Euro per year. So, for a 4-week period, ask for and keep a receipt of everything you purchase:

So, here is what you need:

1. Income documents

2. Spending receipts

3. Bank statement (this will show your direct debits for various payments)

4. Credit card statement

List your expenses as follows:

The Unplanned Costs

  • Home repair & maintenance
  • Medical bills (Doctor, Dental, Eye care)
  • Car repair & maintenance

The Expected Costs

  •  Property taxes
  • Water Charges – (not required yet but are on the way so plan for them!).
  • TV License renewals
  • Insurance & Protection costs (life, home, health, car)
  • Bank loan repayments
  • Child care payments (and maybe child support payments)
  • Credit card payments
  • Household rent or mortgage payments
  • Broadband connection
  • Telephone
  • Utilities (ESB, Phone, Gas)
  • Car payments
  • Food
  • Transportation (bus, petrol – hey, don’t forget the tax-saver scheme if you use public transport – ask your place of work for more details)
  • Savings

Random Costs

  • Books,
  • Magazines,
  • Entertainment,
  • Impulse purchases.

 Good Habit Costs

  • Sports membership
  • Charitable contributions

Bad Habit Costs

  • Alcohol
  • Cigarettes

Personal budgeting will allow you to view what money you need to make ends meet and live comfortably as well as which expenses you can live without. If managed well, it can even allow you to increase contributions in order to plan for a comfortable retirement.

However, before you tackle personal budgeting, look at some of the reasons why personal budgets sometimes fail.

1. Failure to prioritise expenses (in Ireland, debts come two ways, Priority and Secondary – a mortgage is a priority debt, a credit card payment is a secondary debt. Because credit cards can be a convenient source of instant cash, some people can be prepared to make credit card payments when they need to pay other debts first).  Remember, utility arrears are a priority debt.

2. Failure to budget practically for normal out-of-pocket expenses like food and petrol.

3. Failure to plan for the unexpected. This is big issue for some people where say an emergency car repair expense can put a household budget in the red.

 Prioritising Expenses

Top priorities on any expense list are food and shelter. Shelter includes your rent or mortgage payment as well as mortgage protection, car insurance among others.

Next in line are essential utilities like heat, electricity, and water service.

Car loans are essential to your budget if your car is essential to your job.

Home insurance (required by lenders in Ireland) and health insurance should also hold a place on your list of priorities.

Along with discretionary expenses, low priority expenses include unsecured loans, and credit card payments. Make sure your personal budget takes care of essential expenses and then consider the rest.

Practical Personal Budgeting

Put the amount of money you have left after tracking your spending at the top of your budget. Next, add your net monthly income. You may have calculated this when you tracked your money, but if you didn’t your net income is the money you take home each month.

Add these figures together. Your total is your available cash for this month’s personal budget.

List your expenses by priority. List the total amount of each expense and the date it is due.

Transform weekly expenses into monthly. Then, divide annual, semi-annual, and quarterly expenses by 12, 6, and 3 to calculate a monthly figure for your budget.

Use data from tracking your spending to determine your discretionary expenses.

Include a monthly figure for unexpected costs. Also, if you’re not saving regularly, do allow for some savings, it will give you a buffer for the unexpected and serve as a bonus if nothing goes wrong.

Making Your Personal Budget Work for You

As you begin personal budgeting, it’s not uncommon to find your expenses total more than your income. Always take care of top priorities first. Then work on making practical decisions for the rest of your expenses.

  • If you don’t have enough money to take care of the priorities, you will need to find a way to generate more cash.
  • If an expense isn’t a priority, roll it into next month’s budget. However, if you can’t pay a bill or meet a minimum payment, do contact your utility provider or creditor and let them know. Tell your creditor when you will be able to pay the bill. Don’t let creditors make budget decisions for you.
  • Look over discretionary expenses and see what you realistically are willing to sacrifice to make your budget balance.
  • Can you cut down on food costs and personal care items? When shaving Euro from these expenses, consider purchasing generic items and shop brands for a few weeks (or months) until your budget is under control.
  • Will your utility (ESB, Eircom, Vodafone) company allow you to make partial payment on utility bills?
  • Could you carpool or take alternate transportation for a couple of weeks to save on vehicle expense?

With a growing number of homeowners facing stagnant wages and increasing costs, the demands on personal finances have never been so great. This trend is not likely to reverse itself anytime soon. So, it is very important that good personal budgeting habits are developed and adhered to. It can be possible to maintain personal financial well being but this needs to be done on a long-term basis. Develop a personal budgeting plan and stick to it…it will pay off in the long-run.

 

Budget 2013 – consumers take another major hit!

Following on its promise to deliver another tough Budget, this Government did not disappoint.

Prudence again took a hit. Tax on savings has risen, pensions have been targeted, education will cost more as will owning a home and all of this is taking place while as many as 1.8 Million citizens already struggle with less than €€100 remaining after essential bills are paid.

On the flip side, drinking alcahol and smoking will cost only marginally more…it would appear that this Government at least does not want its citizens to drop unhealthy habits…especially if doing so could jeopardise the tax take.

Following is a summary of where this latest Budget impacts:

·  Back-to-School Clothing and Footwear Allowance to be reduced by €50

  • Respite Care Grant to be reduced by €325, from €1,700 to €1,375 per annum
  • No increase on excise duty on diesel and petrol
  • Excise duty on a pint of beer or cider will increase by 10 cent, on a standard measure of spirits by 10 cent, and on a 75cl bottle of wine by €1
  • DIRT will increase from 30% to 33% (Battle against savers).
  • Capital Acquisitions Tax and Capital Gains Tax to increase from 30% to 33%. The threshold at which CAT applies will be reduced by 10%.
  • From midnight, the price of 20 cigarettes rises by 10 cent, while roll your own tobacco rises by 50 cent per 25g pack
  • Student contribution in higher education will be increased by €250 in each of the years 2013, 2014, 2015
  • Allocation to VECs to be reduced by €13m in 2013
  • People 70+ with income of €600-€700 p/wk for single person and €1,200-€1,400 p/wk for couple will have their medical card replaced with a GP-only card
  • Drug Payment Scheme threshold is being increased from €132 to €144 per month.
  • Prescription charge for medical card holders to be increased to €1.50 per item, and monthly cap for a family is being increased from €10 to €19.50
  • Child benefit rate to be reduced by €10 per month
  • Primary weekly rate of social welfare payment will not be reduced. Duration of Jobseeker’s Benefit to be reduced by three months to save €33m in 2013 and €82m in a full year
  • €11m in 2013 and €26m in a full year given to increase number of placements available in ‘labour market activation schemes’
  • Enterprise Ireland allocated €139m to support indigenous Irish exporters in 2013
  • Government to maintain the 12.5% Corporation Tax rate
  • From 1 July 2013, Maternity Benefit will be treated as taxable income, but will continue to be exempt from the USC
  • Any Household Charge arrears that have not been paid by July 2013 will be increased to 200 and collected through Local Property Tax system
  • Property tax payable on 0.18% market value of the property up to €1m. 0.25% on balance of property value over €1m
  • Three-year exemption of Property Tax for first-time buyers, and people buying new or previously unoccupied homes
  • Voluntary deferral available for those whose income do not exceed €15,000 for single person, €25,000 for couple
  • Some people will be able to defer payment of the Property Tax, subject to 4% interest
  • Property tax to take effect from July 2013 for the second half of the year
  • No change to current rates of income taxtogether with bands and credits
  • Employees to pay more PRSI – Increase to the minimum level of annual contribution from the self-employed from €253 to €500.

Weekly allowance for employees of €127 abolished. This will cost €264 a year.

  • The reduced rate of USC for over 70s with an income over €60,000 will be discontinued in 2013
  • Pension levy to be abolished in 2014
  • Tax relief will end for pension schemes providing over €60,000 a year from 2014
  • Central Bank overseeing the rollout of a range of options to deal with unsustainable personal and commercial debt
  • Mortgage Interest Relief to end on 31 December
  • VAT rate of 9% to be continued in 2013
  • Relief from Capital Gains Tax arising on disposals of farm land for farm restricting purposes
  • Some people will be able to defer payment of the Property Tax, subject to 4% interest. Three-year exemption of Property Tax for first-time buyers, and people buying new or previously unoccupied homes

Humane debt laws benefit all of society…even Moses would agree!

Finally, the end is near in what has been a long and tortuous road to bring Ireland’s debt laws into the modern era.

We should thank the Law Reform Commission for its persistent work throughout the years and the IMF for giving this the final major push to force our legislature to act.

The proposed laws will invariably have detractors and supporters. What must be remembered is that deleting the current debt laws from the statute books is cause for celebration. Those old draconian laws stopped serving useful purpose a long time ago.

For those that reach that point in their lives where debt levels are unsustainable, availing of the facilities provided for under the new laws will provide a legal framework under which they can eliminate debt.

This will permit them to return to a life where their income can again support their day-to-day living costs. It will allow them to return to a life that is not governed by the thought of debt, debt servicing, debt management and debt worries morning, noon and even in the depth of night. It will allow parents to become parents again and families to become families again.

That said, the managed and qualified wipe-out of debt under the various provisions will likely raise concerns for those not directly availing of them.

Indebtedness can occur for any variety of reasons, including ill health, family breakdown and of course, loss of income. Since the financial collapse of October 2008 and the ensuing realignment of incomes, many people have lost a significant amount of income as well as net take-home pay. The introduction of the Universal Social Charge has not helped matters. Neither too has the ever-increasing cost of basic necessities, including utilities.

But the new debt laws are not just about those that come to rely on them.

For many, especially those that may never have cause of avail of the facilities provided for under the new debt laws, questions can arise as to the benefits to them personally. This appears to have been a common question raised in many of the public discussions on the new debt laws in general and debt wipe-out in particular. These are valid questions to which there has been a low level of discussion.

Across all modern societies, there has been wide recognition of the benefits of returning those in severe debt to full participation in society. Debt concerns create anxiety, ill health and family breakdown. These issues left unchecked create a drag on society. Additionally, here in Ireland, there have been many elected politicians as well as business leaders that have heralded Ireland’s return to price competitive which, it is claimed has been underpinned by lower wages. While a return to competitiveness is a good thing, it comes at a human cost. Some people fall into indebtedness when their wages and net take-home pay fall. Yet, by falling, society benefits from higher inward investment.

And this is the trade-off. Society and individuals share a cost that provides for a two-way benefit to support one another.

All societies have collective provisions. We collectively share education, defence and health services through taxation. Debt should be no different. Fairly managed through legislation, sound debt laws provide a route back to becoming active participants to those affected.

Perhaps the best analogy of why the new debt laws matter to all citizens comes from nature. Over the years, various outbreaks of diseases affecting livestock have been variously dealt with through a combination of culls and compensation. Affected livestock are destroyed and affected farmers are compensated. This process works as it ensures that farmers play ball in containing disease while the wider community also benefit as disease being spread is significantly reduced and even eliminated.

Debt write-off is not a new concept…it has been debated for centuries and talked about for millennia. In the Book of Leviticus, God councils Moses to forgive debts in certain cases. It seems that the scourge of indebtedness and its menace to society has long been recognised…and dealt with! Finally, here in Ireland, we are about to do the same.

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