Save, don't borrow.

ILW

Degenerate wrote: »

You obviously didn't read the thread very carefully or you would have seen the post where I pointed out how easily a homeowner could find themself in such a situation in the wake of a recession - It's called redundancy. People will naturally try to cling to what they have for as long as possible in the hope of finding another job - can you blame them? It's also not a very good time to be selling a house anyway, and broken heating is hardly a selling point.

If someone did not have enough income to save a contingency fund before redundancy and then runs up a load of debt to "cling on to what they have" logic says that they will have to earn substantially more when they do get another job just to service the debt This is pretty unlikely. Sorry if it sounds a little harsh, but it just simple economics.

AnonymousForObviousReason

Of course this post is general, it has to be - how can it apply to everyone that reads it?

There has been a change from the old, if you don't have it don't buy it, to the borrow and pay it off later. There will always those that say oh I need to get in debt for x, whilst others in the same situation won't do it.

Children often seem to be the reason given for getting stuff that can't really be afforded, not sure why people have children when they can't afford it or don't have the reserves for them (actually not sure why there is no licence required and why it's even encouraged through benefits)

Degenerate

ILW wrote: »

If someone did not have enough income to save a contingency fund before redundancy and then runs up a load of debt to "cling on to what they have" logic says that they will have to earn substantially more when they do get another job just to service the debt This is pretty unlikely. Sorry if it sounds a little harsh, but it just simple economics.

Exactly how much of a contingency fund do you think it is realistic to expect someone to save, and how far would you expect it to last after redundancy? Bear in mind the following:

- Someone who has worked and made NI contribution for a significant period will initially be entitled to contributions-bsed JSA. This means that their savings will not be taken into account. However, it also means they will not be entitled to claim support for mortgage interest. That's six months with no mortgage help.

-After six months they drop onto income-based JSA. Now, if they have more than £6000 left, it will be taken into account when calculating their JSA entitlement. (If they have more than £16000 they won't get a penny.)

- Now they can apply for support for Mortgage Interest. But they still have to wait another 13 weeks before they get it. So that's a total of 9 months with no mortgage help.

Soubrette

Degenerate wrote: »

Exactly how much of a contingency fund do you think it is realistic to expect someone to save, and how far would you expect it to last after redundancy? Bear in mind the following:

- Someone who has worked and made NI contribution for a significant period will initially be entitled to contributions-bsed JSA. This means that their savings will not be taken into account. However, it also means they will not be entitled to claim support for mortgage interest. That's six months with no mortgage help.

-After six months they drop onto income-based JSA. Now, if they have more than £6000 left, it will be taken into account when calculating their JSA entitlement. (If they have more than £16000 they won't get a penny.)

- Now they can apply for support for Mortgage Interest. But they still have to wait another 13 weeks before they get it. So that's a total of 9 months with no mortgage help.

Personally I would expect someone to always be putting money in their contingency fund. Someone on old style said it well - after paying all essential costs, what was left was split in three - saving for something like a holiday, saving for a rainy day and immediate fun money.

The times when you are vulnerable are if you've overstretched yourself and things go wrong (this should be a calculated risk but is certainly within your control) or if you are near the start of your contingency savings, this is one of the few times that events will not be under your control and you may have to borrow. As someone in the thread has pointed out though - people in their first jobs living at home should also be able to build up a good contingency fund.

Otherwise the older you are, the greater your contingency fund and even on a modest income there should be more than enough of it after a few decades to not worry about when benefit kicks in. If like most people you don't have to dip in too far (you are lucky enough to not be made redundant or fall seriously ill) - then you will have money for when you are retired.

Most people do not do this because they choose not to do this, they want the two cars, the gadgets, the clothes, the foreign holidays and the largest house they can afford as soon as they can borrow enough to get it. This is their choice but when things go wrong they need to take responsibility for that choice.

It is also illogical to plan your future based on what state benefits you may or may not be entitled to, as we are seeing now, benefits are subject to Government control and not guaranteed.

[Deleted User]

saving is well better than borrowing

opinions4u

Degenerate wrote: »

Exactly how much of a contingency fund do you think it is realistic to expect someone to save, and how far would you expect it to last after redundancy? Bear in mind the following:

- Someone who has worked and made NI contribution for a significant period will initially be entitled to contributions-bsed JSA. This means that their savings will not be taken into account. However, it also means they will not be entitled to claim support for mortgage interest. That's six months with no mortgage help.

-After six months they drop onto income-based JSA. Now, if they have more than £6000 left, it will be taken into account when calculating their JSA entitlement. (If they have more than £16000 they won't get a penny.)

- Now they can apply for support for Mortgage Interest. But they still have to wait another 13 weeks before they get it. So that's a total of 9 months with no mortgage help.

An individual who doesn't have debts for a family holiday, replacement washing machine or new 42" HD telly (because he or she saved up for these things) will make the financial impact of redundancy less painful.

In my days of selling mortgages, my sales spiel was typically along the lines of "this is how much you can borrow, but I'd strongly suggest you borrow less". You can lead a horse to water ...

As you rightly point out, state support is slim. If your mortgage is over £200k and/or your rate above 3.63%, then support with mortgage interest is only partial anyway.

Far better not to have been frivelous with borrowing prior to an unexpected redundancy. Far better to have 3-6 months net pay in a contingency fund.

It's a better cushion than thousands in pointless unsecured debt and no contingency fund saved - and buys a lot more time to deal with the consequences of unexpeted redundancy.

vinh1000 wrote: »

saving is well better than borrowing

I suppose I could have cut the crap and said that!

Degenerate

Soubrette wrote: »

Otherwise the older you are, the greater your contingency fund and even on a modest income there should be more than enough of it after a few decades to not worry about when benefit kicks in. If like most people you don't have to dip in too far (you are lucky enough to not be made redundant or fall seriously ill) - then you will have money for when you are retired.

Most people do not do this because they choose not to do this, they want the two cars, the gadgets, the clothes, the foreign holidays and the largest house they can afford as soon as they can borrow enough to get it. This is their choice but when things go wrong they need to take responsibility for that choice.

What you're describing here is the recipie for a lifetime of under-consumption. Very fashionable with my Grandmother's generation indeed - hence many of them dying leaving substantial sums of money behind. If that's what floats your boat then good for you I suppose.

OTOH, those who tread a less risk-averse path and end their life roughly even would probably look back at the fun they had spending their money with no regrets. They might just consider you a fool to have declined the opportunities that money might have afforded you. You can't take it with you, after all.

tiff

Degenerate wrote: »

What you're describing here is the recipie for a lifetime of under-consumption. Very fashionable with my Grandmother's generation indeed - hence many of them dying leaving substantial sums of money behind. If that's what floats your boat then good for you I suppose.

OTOH, those who tread a less risk-averse path and end their life roughly even would probably look back at the fun they had spending their money with no regrets. They might just consider you a fool to have declined the opportunities that money might have afforded you. You can't take it with you, after all.

It doesnt mean you cant spend money, it means you can spend it after having taken care of necessities and safeguarding the future.

Soubrette

Degenerate wrote: »

What you're describing here is the recipie for a lifetime of under-consumption. Very fashionable with my Grandmother's generation indeed - hence many of them dying leaving substantial sums of money behind. If that's what floats your boat then good for you I suppose.

OTOH, those who tread a less risk-averse path and end their life roughly even would probably look back at the fun they had spending their money with no regrets. They might just consider you a fool to have declined the opportunities that money might have afforded you. You can't take it with you, after all.

LOL - those that consider that only money brings happiness might consider me a fool

I am very happy with my lot, I have survived redundancy (only for 4 monthss though), a divorce where I had to leave with a suitcase (the settlement was a year later), a marriage with two part time jobs which just covered essentials, no maintenance for 4 years.

All survivable because I have always been cautious with savings and when times were tight I cut my cloth to my income rather than ploughing through my emergency savings.

That doesn't mean I sat at home sobbing into my tissues though - thanks to this site I've lived a life well above the apparent income that I had.

Now my husband has a full time job and a good income and times are better but we still continue to save.

It seems as if your argument is slightly changing though, instead of most people being unable to save due to circumstances beyond their control, it seems as if you are saying that actually we shouldn't be saving, spend spend spend after all and hope the state picks up the bill later on.

Edited to add - I also answer the charge of underconsumption as not guilty - any money saved when I am older will be used in conjunction with my very small pension pot to buy an annuity. I intend to have no mortgage and a home which is ecofriendly (to cut down on bills) and most of the rest of it will be used for income. I may be unlucky and die before this happens but this could happen to anyone with a house (even those with a mortgage and mortgage protection insurance).

Sharon87

It's easy to say to people save money, but difficult if you've had periods of unemployment or on a low income.

I saved up 2k in my last year of uni, as I knew I was moving to London. I had a 1.5k student overdraft, so the 2k paid it off, but shortly after moving to London I went right back into it until my jsa and hb came through. Didn't get a permanent job for 8 months, then on a low wage one for a year. So I know I can save, but only when I can afford to.

Now I earn more, but my debt is actually larger (about 3k) because I wanted these luxuries I couldn't have before, I'm young and want to live life. I'm sensible enough not to get into debt too much, I'm paying off my debt steadily and having fewer luxuries next year so I can be debt free and save. Everything for me depends on how much I earn, I work on temporary contracts, so sometimes I'm unemployed not knowing when the next job is.

I'm going to make a plan of putting a percentage of my wages toward my debt.

We all have our own money management plans. I want to save for future things, like holidays and emergency funds.