Consumers warned to watch their spending

LAVISH spenders have been advised to keep their hands in their pockets this year as a survey shows a quarter of people have experienced a drop in income in recent months.

The Financial Regulator warned consumers to stick within their limits when it came to day-to-day spending and avoid living beyond their means.

“Try not to use credit to fund a lifestyle that you cannot afford,” said consumer director Mary O’Dea.

The advice comes as a survey by the Financial Regulator found consumers were making tough decisions in the current recession. When asked, 26% of respondents said they had experienced a drop in income in the last six months including changes to salaries, bonuses and overtime pay.

Consumers also admitted to changing their habits when it came to spending with up to 45% admitting to budgeting more carefully. In addition, some 40% said they were cutting down on day-to-day spending.

“This year is going to be a challenging year for some people. Some may be spending more than they earn, particularly if they went on a Christmas spree they could not afford,” added Ms O’Dea.

Despite the change in spending habits, however, the survey also noted that only 5% were actually paying off their credit cards in the recession while just 10% had actually reduced their credit card spending.

“If you prioritise one financial goal this year, it should be to try and live within your budget,” advised the watchdog’s consumer director.

Consumers were asked their opinion on their spending habits just before the new year.

Meanwhile, the regulator has published a list of tips for maintaining healthy spending habits during the recession.

Top of the list is the advice that people should complete an overall financial health check and revise their budgets. This includes laying out annual expenses and loans alongside incomes. This will give people a clear picture about where they need to make changes, said the regulator.

Other tips include:

* Cutting back on luxuries and non essential items such as magazines and entertainment expenses or replacing morning coffees and work lunches with homemade brews and packed lunches.

* Changing credit card usage. Leave it at home to stop the temptation or simply switch to another with a lower interest rate if all you can pay off is the minimum each month.

* Checking that all one’s tax entitlements are being claimed, including mortgage interest relief, medical costs, and subsidised transport tickets. Sometimes a person may even be entitled to backdated payouts.

* Making one’s cash work harder and generating savings by switching phone providers or even downsizing the car.

* Reviewing one’s outstanding debt repayments by adjusting payment options and amounts over time to lending institutions. Missing repayments will impact negatively on one’s credit record and the ability to get loans and mortgages in the future.

* Setting aside or starting an emergency fund for unexpected events such as redundancy or large medical bills.