Calling a family finances board meeting will pay dividends

WHEN was the last time you sat down with your family and talked about money? The odds are that it's not recently, if ever. And that's understandable, given that money is a sensitive subject and a common cause of conflict.

But this summer may be the perfect time to change that, given the mounting pressure on household finances. We're in the eye of a storm in which rising energy, food and fuel prices have, with the considerable help of a jump in VAT, sent the benchmark measure of inflation towards the 5 per cent mark.

Deloitte has estimated that the average family faces a 780 drop in disposable income this year alone, thanks to inflation, tax rises and spending cuts. Yet one in three couples admit to knowing nothing about their partner's finances and say they have never raised the subject of financial planning.

So, set aside a couple of hours to sit down together and build a better picture of how your finances are faring, where you might be vulnerable and how you can improve matters. It might not be fun but it needn't be too painful and it can prevent a lot of grief further down the road.

1 Make time

Clear the diary and get any distractions out of the way - the quicker you get on with it, the sooner you can make progress.

Brian Steeples, managing director of The Turris Partnership, a Glasgow-based IFA, compared the process with a company board meeting, held regularly to review performance, identify threats and opportunities and work out ways of best using resources.

"Run your personal finances like you would run your company. Have a monthly personal finances meeting to review all of the key areas and to agree the plan. Agree who is to do the various task and that they will report progress at the next meeting."

2 Know where you stand

Begin by working out your income and expenditure, then compare your assets (such as savings and investments) with your liabilities. Jot down how much money you spend each month, including mortgage payments, bills, food and any other expenses. Then set out your income, such as your earnings, savings and any benefits. That will help you work out a rough monthly budget and identify ways of sticking to it.

Paul Lothian, director at Verus Financial Planning in Dundee, said: "It's not just a matter of ensuring that expenditure is within income, but also making room for regular savings (both short and long term), putting in place a plan to pay down debt and setting targets and timescales."

3 Act on the findings

In listing your incomings and outgoings some figures may well stick out as needing a trim. In the current climate they may well include energy bills, which are set to soar further after Scottish Power last week announced gas and electricity hikes of 10 and 19 per cent respectively.If you're on a standard tariff paying every quarter you could save hundreds by switching to a dual fuel online deal paid by direct debit. Even if you're already paying an online tariff, visit www.thenergyshop.com or www.energyhelpline.com to see if you can switch to a cheaper deal.

Also scrutinise your bank statement for any monthly outgoings you don't need to keep paying, whether it's a magazine subscription, club membership or a packaged current account with extras you don't use.

4 Tackle your debts

Review each of your debts and look at whether their repayment could be accelerated or if there is some way to bring down the borrowing costs. Try to pay down any credit cards, which are usually the most expensive debts, and consider consolidating them if you have several.

Are you claiming all the benefits or tax credits to which your family might be entitled? Your local authority or the nearest Citizens Advice bureau can offer information on benefits, while the Turn2Us website, at www.turn2us.org.uk, has a benefits check tool.

If you're struggling to control your debts, seek free advice as soon as you can. Visit your local Citizens Advice bureau, or contact National Debtline (0808 808 4000), Money Advice Scotland (www.moneyadvice scotland.org.uk or 0141 572 0237) or the Consumer Credit Counselling Service (www.cccs.co.uk or 0800 138 1111).

5 Review your mortgage

If you're a homeowner the biggest family debt is almost certainly the mortgage. Low interest rates mean many households are currently enjoying low repayments, so consider using any spare cash to overpay your loan and get it cleared quicker.

If you need to remortgage, the more equity you have, the better the deal you'll get, but shop around because several competitive new products have hit the market in recent weeks.

6 Make a save

If your household income outstrips your expenditure and your debts are cleared or under control, take a look at your savings. Millions of people leave their cash in easy access accounts paying about 0.1 per cent interest, but even though very few savings options can combat inflation, it's still worth shopping around for a better deal, with some accounts currently paying around 3 per cent interest.

Ensure you use your annual tax-free cash Isa allowance, currently 5,340 a year, before saving into any taxable accounts.

7 Pensions and investments

Dig out any pension or investment contracts you have. Again, investors should ensure they use the annual Isa allowance of 10,680. If one or both of your employers offers a workplace pension, take advantage because most companies top up your contributions.

When reviewing your investments look out for charges and get an update on performance. Investors have billions tied up in investment funds where performance fails to justify their fees, so spend a bit of time reviewing your portfolio and, where necessary, looking for some alternatives.If you have several long-standing pensions, perhaps from previous employers, take a look at the charges, as the costs of certain pension plans can decimate the eventual returns. It may be worth consolidating them so that you only have to pay one set of charges. Again, independent advice is highly recommended.

Finally, if you're nearing retirement you could find out what kind of pension you can expect in retirement, by getting forecasts for any private pensions and the state pension. For the latter, visit www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/DG_184319 or call 0845 3000 168.

Independent financial advice is recommended when it comes to pensions and investments - visit www.unbiased.co.uk to find an IFA near you.

8 Tax

This is probably the least appealing topic of the lot, but it's also an area which many families and couples fail to exploit to their advantage. For example, if one spouse is a higher rate taxpayer and the other isn't, transferring some income to the latter could cut the annual tax bill. The same can be done to reduce capital gains tax, with taxable assets transferred to the spouse in the lower tax band.

Similarly, if one has used their full annual Isa allowance and the other hasn't, the former could help fund an Isa for the latter, maximising tax-free savings.