You and Your Money – May 2009

Your personal economy is in your hands, so know how to manage, plan and control it. By Johnny McNamara

From the risk of redundancy to the tightening of credit lines, there is no doubt that times are tough with many of us now facing our own ‘personal recession’. In the backdrop of this global economic downturn where we have all been affected in one way or another, how can you regain some element of control?

Many of the factors that are causing these problems are outside of our control and as such, we have little or no influence on them. However, there are factors in our financial lives that are firmly in our control and it is these factors that we must plan carefully to ensure that we not only survive the economic downturn, but that we are in a position to thrive when the turbulence thaws.

How do we do this? Well we can look to Ireland as an example. Ireland is a small, open economy and therefore, we as a country have no control over decisions taken by the larger economies of the world. Yet they have a very real and dramatic effect on the economy as a whole. We need only look to the recent US sub-prime crisis and the knock-on effects we have experienced as evidence of this. So what should the Government do to protect the country in this environment?

Well, every year the Minister for Finance produces an annual Budget for the Irish economy. This sets out the fi nancial plans, goals and objectives for the year ahead using the tools available, which include everything from altering tax rates to amending capital expenditure. The purpose of this is to ensure that the economy remains in a stable, balanced position while also implementing strategies that can create wealth for the country in the future.

So even though there are many factors at play in the global economy that Government can’t control, there are also many factors that they can control and it their responsibility to co-ordinate these factors in such a way that helps us make it through global downturns and prosper in periods of global stability.

How can this be applied to you and your finances? We know that the decisions made by Government have a massive impact on our lives and even though you can’t control it, you need to understand them and take the necessary steps to manage your way through any economic environment.

It is up to every individual to learn how to plan and control their own personal economy to ensure that they are running as efficiently as possible and to be in a position to plan for future wealth creation in the same way as the Government of a small open economy plans and controls.

How many individuals can say that they prepare their own personal economy budget and implement necessary strategies using the tools available to them? Based on our experience, very few people think of themselves in this way but rather continue to plan their finances in a haphazard manner as a need or problem arises. By doing this, people will never fully maximise their efficiency nor will they be in a position to take advantage of any possible wealth creation opportunities.

It is now vital that people take this holistic approach to personal financial planning and the key to doing this is to understand what the factors are that influence your personal economy and more specifically what factors you can and cannot control.

What are the elements that make up your personal economy? Many elements of the fi nancial world are outside of your control, however the elements that can be controlled must be managed and developed to maximum efficiency through careful planning and advice-driven decision making.

There are a number of key elements that make up any personal economy. Each of these elements are so intrinsically linked, it is vital that you understand the effect of decisions made in one area on the next. We believe that you cannot separate each of these elements when planning your finances, but rather you must plan them as one entity – your personal economy – which includes:

• Cash flow management
• Tax planning
• Financing and mortgaging
• Investment planning
• Wealth creation and planning
• Retirement planning

The management of a personal economy will be different for every individual and will depend on a wide range of factors specific to you. This is where the need for a competent, qualified financial adviser comes into play. Through our holistic approach to tax and financial planning, we can help you to deliver a strategy that can put you back in control of your finances.

We have seen the implications of poor economic strategy and the ripple effect that this has caused throughout the global and local economies, not to mention the knock-on affects that this has caused on your financial lives. This is a lesson that we can all learn from. It is vital that you take back control of your own personal finances and implement strategies that protect you in bad times and maximise opportunities in good times.

You need to start thinking of yourself as a small, open economy and use the tools at your disposal to protect yourself and maximise your efficiency. It’s your personal economy, so plan it, control it and understand it!

For more information or to arrange an appointment, call McNamara & personaleconomy.ie | Commercial profile MAY 2009 | YOU&YOUR MONEY 35 Associates on 01 230 9000.

NEXT MONTH… PersonalEconomy.ie will develop this concept and provide case studies to help you control, plan and manage your personal economy.

Tags: Cash flow management, financial advise, financial advise ireland, investment advice, personal economy, personal financial planning, personal recession, retirement, tax advise, Tax planning, wealth creation