Making Cents: Be smart and make financial planning a must-do task this year

After what seemed like a very long Christmas (Christmas Eve feels like a month ago) January is upon us. That brings positives, many people love the clean slate of a new year and the littlest bit of a stretch in the evenings is already noticeable, writes Grainne McGuiness.

However, January can also bring serious financial stress, cancelling out the positivity of the extra minutes of daylight.

Brendan Bartley, right, is a specialist with Spectrum Wellness, a provider of corporate health and wellbeing including financial health. Mr Bartley specialises in personal financial planning and taxation and says it is a tricky time in many households.

“Even for those who are on top of their finances ordinarily, January often involves an additional strain and can be one of our busiest periods,” he says.

“Why? It’s the hangover effect. December inevitably involves a spike in most people’s normal spending.

“We socialise more before Christmas, then there’s the additional cost of presents, food and drink over the festive season and we’ll often take in the January sales all before we return to work and with payday seeming a long way off.

“All this costs money and if we use cash to finance it all, we would probably have nothing left to get us through January. If we use debt to tide us over, the chickens come home to roost when the credit card bills start to arrive in early January.

Cashflow can therefore become a big problem; the likelihood is that payday came early in December, all of the money has been spent, the credit card is being stretched to its limit and we won’t get paid again until the end of January. It’s a perfect storm really.

So far, so depressingly familiar in many homes right now. So what does Mr Bartley suggest is the best way to tackle the situation?

“My starting point is always the same,” he says. “Take stock of where you’re at financially right now.”

These are the questions he suggests you ask yourself.

How much short-term debt have you accumulated?

What known expenses will you have between now and next pay day? — rent, mortgage, food etc.

Once you know what the outgoings will be, identify if you have the resources to meet all these costs. Do you have the cash, an emergency fund, savings or anything else that you might have in place? If the answer is no, now it the time to work out a plan of action.

"You’ll need to prioritise certain expenses such as ensuring a roof over your head, food on the table, travel costs etc,” he says.

Given your normal take-home pay, how long will it take you to pay off your loans/credit?

When addressing debt, always prioritise what costs you the most, ie, has the highest interest rate. Generally that will be the credit card debt, which can have an interest rate of more than 20%. If you have been burning up the plastic over the festive period, address it head on. Meeting the minimum payment is not enough, work out how long it will take to clear the full balance.

If it is in the next couple of months, great. If it looks like you will still be clearing your December/January spending in April, seriously consider moving debt to a personal loan. This will have a lower interest rate and a regular payment is easier to manage.

This new year, why not resolve to work on your finances between now and December, to ensure that next year you are in a healthier financial position? It doesn’t have to be complicated. Money is one area where small changes really can make a big difference.

“I recommend everyone adopts sound financial practices so as to minimise stress and practice better financial management. Integral to that is to get a good handle on your cashflow by preparing a robust personal or household budget,” he says.

Next week, Mr Bartley will talk through ways to get a better understanding of your money and simple changes that can put you in a stronger financial position.

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