Irish Mortgage Corporation

Personal budgeting is more important than ever

In the heady days of borrowing, equity release, debt consolidation and top up loans, few homeowners really had the need to concern themselves with budgeting for the household finances. Incomes were rising, borrowing costs were reasonably low and banks seemed as if they could not give away enough money. So who could blame borrowers for putting things like budgeting at the bottom of their list of priorities.

In a recent survey carried out by Irish Mortgage Corporation, 56% of respondents revealed that they did not manage their household finances by way of a household budgeting structure. Of that, 17% admitted problems paying their monthly bills. The absence of any budgeting structure is a concern and means that some people may not be in a position to change their lifestyles to match recent changes to incomes.

Today, we are all experiencing a very different reality. The day of borrowing to support our lifestyles is gone and in its place is a growing need for personal budgeting, not to just support a lifestyle but often as a means of survival.

Identify all costs: As companies continue to reduce staff and wages as well as increasing Government taxation (income and pensions levies), a first point of action for any homeowner is to take stock on their current spending. A simple income and expenditure spreadsheet is a great starting point and offers a structure for homeowners to follow as they begin the process of tracking and understanding their spending habits. For homeowners who may be unsure where to start, the simplest form of budgeting is to:

1. Look through bank statement for all direct deposits.
2. Take a note of all bank withdrawals. 3. Request and maintain copies of all spending receipts.
3. Keep a log of all expenses on credit card statements

Take greater control

By recording and noting spending, habits, the next step is to take greater control. For example, what may appear like small daily costs can over time cost as much as an entire years car insurance, or more. A pack of 20 cigarettes costs about €8.50. Smoking just one pack a week will cost the user €442 a year.

In addition to the obvious financial (and health) benefit of giving up cigarettes, a secondary benefit lies in reduced insurance cover, particularly Life protection cover. Here, non-smokers can qualify for discounts of up 30% provided they have been a non-smoker for 12 months or more.

Income and expenditure spreadsheet

The ultimate tool when establishing a household budgeting structure is an income and expenditure spreadsheet. Detailed ones are pretty common on home PC’s and on the web. They can even be amended to suit personal circumstances.

The ultimate power of an income & expenditure spreadsheet is that they highlight all spending to the user. It is best if the user gets into a pattern of weekly or monthly updates and the individual spending profile will build much quicker and changes to personal spending can happen sooner.

An end to the current severe recession will not be an end to the personal financial difficulties for many. In fact, the fall in mortgage repayments over the last 9 months have gone a long way to masking underlying problems that will become an issue as the ECB begins to increase interest rates at some stage in the future. For homeowners who have seen their mortgage repayments fall by over €500 a month, the question they now need to ask is what they would do if repayments were to increase again by a similar amount, could they cope? Could they afford a substantial rise in repayments.

On this basis, homeowners and mortgage holders who begin to prepare for the years ahead by taking control over their spending habits by way of a budgeting tool should be in a better position to handle many financial strains as they arrive.

Preparation for possible negotiation

Another advantage of keeping an income and expenditure spreadsheet is that in the event one has to contact a creditor to request a loan modification, their lender will generally request to see some form of income & expenses sheet on which to carry out their analysis. It is important for customers who may be considering contacting their banks for a modification of their existing loan to have an up-to-date account of their present situation.

One last point. 25% of respondents to Irish Mortgage Corporation Debt and Budgeting survey felt that credit card borrowing represented good value for money. This finding is a concern, especially since interest rates on credit cards can cost anywhere up to 17% or more of the balance. Credit cards should never be used as supplementary income and be paid off at the end of each month.

Frank Conway is a Director with Irish Mortgage Corporation. He can be contacted on This e-mail address is being protected from spambots. You need JavaScript enabled to view it . Website www.irishmortgage.ie

How debt can become unmanageable?

Few people start out to arrive at a situation where they cannot manage their debts, but this is what can often happens to many people. There are two primary routes consumers can fall onto where paying their debts become unmanageable debt:

1. Sudden impact: In the sudden impact situation, significant events can have drastic consequences on personal capacity to pay all one’s monthly bills. One of the most common is being hit with an illness, where a person is out of work for a long time and receiving a reduced income (if any). The other, which has significant resonance today, is being made redundant.

2. Slow roast: In the second scenario, the development of a crisis can take longer but is equally destructive on ones personal financial situation. The gradual increase of ones personal debt levels to the point that they are so indebted, all it takes is an unexpected series of relatively benign expenses to tip the individual over the top to where they begin to miss some repayments. An unexpected car or home repairs are good examples that can have significant consequences to over-indebted consumers.

Preparation, financial discipline and regular budgeting can provide a strong barrier against many personal debt crises.

Warning: The cost of your monthly payments may increase, if you do not keep up your repayments, you may lose your home.
Warning: The entire amount you have borrowed will still be outstanding at the end of the interest-only period.
Warning: You may have to pay charges if you pay off a fixed-rate loan early
Warning: This new loan may take longer to pay off than your previous loans. This means you may pay more than if you paid over a shorter term.