The Roman god of all beginnings, Janus, is a twofaced figure portrayed on coins looking to both the past and the future. January is therefore an ideal time to put the personal finance mistakes of 1999 behind you by correcting them with a start-of-year financial review.
Overspending during the holiday season means most of us head into the new year with a higher level of debt than usual. As consumers, we often are unaware of what we actually pay for credit cards, overdrafts and personal loans compared to our profit on investments and deposits. Putting all these figures down on paper, or into a computer spreadsheet, brings these "hidden charges" out of the dark recesses to the forefront of the smart consumer's mind.
Left-facing Janus presents us with the best place to begin our financial review - in the past with our debts.
Outgoing expenses: Make a list of all your monthly and annual expenses to determine your annual outgoings. Include once-off costs such as schoolbooks, holidays and seasonal clothing expenses.
List all loans and the percentage rates being paid for them on an APR basis - credit cards, store cards, motor loans, personal loans and mortgages. Include overdrafts in your review as they are one of the dearest forms of lending with rates similar to credit cards. Which is your most expensive loan?
If possible, pay off the most expensive loans first as the interest rate you are paying eats into your profit on any investments. Look at your entire financial situation as a balance between debt and income. Why pay for a loan at 20 per cent APR and only make 5 per cent annually on your investments? Pay off all debt before making any investments with lump sums.
Ask your pension provider/adviser for a review. Are you on target to receive the amount you expect on retirement? If not, think about increasing your contributions? How much is the pension returning each year? How much are you paying in fees/ commission annually? Can you use an increased pension contribution to reduce your tax bill this year?
Reassess insurance premiums and coverage levels for your home, car or annual holidays. Determine how much protection you need in light of increased replacement costs.
Try to get a handle on how the Budget changes affect you and your family. What, if anything, are you saving next year? Are your taxes being calculated correctly to take account of all possible reliefs, etc.? Explore ways to reduce your tax bill with your accountant or tax adviser.
Incoming credits: Right-facing Janus presents us with opportunities for a better financial future through the effective use of our income and credit.
List any expected income for the year: salary, employee bonuses, share dividends or maturing insurance policies or benefits.
Take a look at your income level. Has it increased over the past few years? If not, why? Consider asking your boss for a salary/performance review if one has not been undertaken recently.
Think about renegotiating your mortgage rate. REA Mortgage Services' Ms Sarah Wellband says this possibility really depends on your relationship with the bank. The majority of lenders list their rates and will not deviate from them. However, if a lender has one variable rate for existing clients and another for new business clients they may be persuaded to change your rate to the lower one.
Mortgages are a standard product, much like a television or microwave, and lenders need to make it worth your while to continue doing business with them as opposed to their competitor, says Ms Wellband.
If you are on a fixed rate and the penalty is not too high you may renegotiate the mortgage or move to another lender. The new deal should reduce payments but it is important to factor in the costs before considering a move.
Examine your investment portfolio for its risk assessment, sector exposure and assets mix. Does this suit your current financial situation and age profile? How much are you paying in commission and fees each year? Is there a way to reduce this amount?
Review any money on deposit. How much are you making on it per year? Inflation is currently more than 2 per cent and expected to rise to 3 per cent this year. If your rate of return is less than these percentages you are losing money by having it on deposit. Some demand deposit accounts are only returning 0.02 per cent a year. If your debts are already paid, make the extra money work for you by investing it to suit your risk profile or consider increasing your pension contributions to the maximum allowable amount for tax relief.
Ensure that you are looking far into the future and have made a will. Combined with proper inheritance planning, this is one of the most cost-effective ways to ensure expenses are minimised for those receiving your estate.
It is unlikely you will answer all these questions in one sitting but even mini-reviews are a move towards total financial health. If the thought of conducting a financial review on your own is daunting, contact your personal financial adviser or the nearest Money Advice and Budgeting Service (MABS). MABS provides free budgeting advice in locations throughout the State.
