Each new year gives us an opportunity, whether it is to reflect on the past year or set some goals and ambitions for the year ahead. Managing money will always be of concern to farming families, so it is no harm to take a little time at the start of each year, to review your finances and banking and plan for the year ahead.
There is no point in leaving surplus cash sitting in your current or savings account as you are earning practically nothing on it.
Together with inflation running at around 5%, this means your money is actually “evaporating”. It is wiser to invest it in a short-term notice deposit account, or one of the State savings accounts where you will earn some interest, however small.
The best regular savings account in the market currently is State savings – six-year instalment plan (with An Post), where you save anything between €25 and €1,000 per month, and has an (annual equivalent rate) AER of 0.63%. It has a seven days withdrawal notice, and you will not pay DIRT.
Each year you should review your farm insurance policy and your home buildings and contents polices. It is not a good idea to ever accept the first quote you get, particularly at renewal times. With farm insurance, you will need to check each year if the cover is adequate – do you need to change the level of cover for public liability or employers’ liability cover? Have you purchased any assets (machinery/livestock) in the past year that need to be included? Is it an all risks policy to ensure you are protected against theft, fire and accidental damage? Make sure you are covered for personal injury in case of accidents.
The farmhouse cover and contents can all form part of the same policy and should be adequate to replace same, if required. If you have a mortgage protection policy, check that it is on a decreasing scale, otherwise you are paying over the odds for it. As you repay your mortgage, the cover on the policy should reduce, in line with the outstanding balance of the mortgage.
When was the last time you reviewed or switched your energy, TV, phone or broadband supplier? There can be quite a difference in price between all the suppliers of these services in the market. Comreg’s website (comreg.ie) is useful to check for comparisons or just shop around. By reviewing your utility suppliers each year, you could actually save yourself quite a lot of money.
Checking your bank loan accounts and what interest rate you are being charged annually is a good idea. Is it the most competitive rate around or is there a cheaper source of finance in the market? This is in particular if you have any long-term loans. Are your loans on variable or fixed interest rates – variable rates tend to be higher than fixed rates. Is it worth your while to switch? If your lender holds security for the loan you may incur extra legal charges if you switch lenders, so you will need to include these in your assessment. If you have an overdraft, always remain within the limit, otherwise you will incur extra fees and charges, which are expensive. Arranging a temporary overdraft increase in advance is the best way to avoid these. Using online banking will make it much easier to keep track of your bank accounts.
Anyone who sells an asset (such as shares) can avail of the annual Capital Gains Tax (CGT) exemption of €1,270 per annum on any profit made on the sale. Any profit earned over this amount of €1,270 per annum is subject to CGT at 33%. This exemption is allowable for each tax year but is not transferable between spouses.
Credit cards are a very costly way of borrowing money unless you clear the balance in full each month. The interest rate charged can be anything between 9.13% and 24% depending on the credit card company. Although credit cards are very convenient, it is not a good idea to make just the minimum payment, as it will take much longer to clear the balance, and you will incur extra interest charges. By switching to another credit card company you can often avail of 0% interest for a period of time, which will allow you clear the balance much quicker. An Post Money has the best deal currently for credit card balance transfers – 15 months at 0%. This can create quite a saving for the family budget. A prepaid credit card can also be an alternative.
For any self-employed person a personal pension is the most tax-efficient means of saving for your retirement. Apart from the tax relief on the premiums at your marginal rate of tax, all growth in the fund is tax free. A further incentive is that at retirement age you can take 25% of the pension fund as a tax-free lump sum, capped at €200,000. Any excess taken over this amount is taxable at 20%.