nearly DF - advice on next steps

LianneH

Hi folks

I'm about 2 months off being DF :j, I am mixed on excitment and nerves! I want to make sure that with my extra money each month, I am being sensible!

At the moment we are throwing £1000 per month at our debts so in effect will have £1000 "spare".

What I had planned to do with it:

£250 - overpayment to Mortgage (on low interest so original payments were overpayments too, have been since last year)
£200 - spreading what I call annual bills, like car MOT, insurances, professional fees. I would like to pay for these annually to get cash back on my credit card. (not really budgeted well for these in the past, just worried about them when they came up - prob reason for our debt mess!!) so this way its taken care of
£200 - spreading the cost of Christmas
£100 - spreading the cost of a holiday

The remaining £250.... what would you do with it? Am I being irresponsible by splitting it between me and my hubby as pocket money?

thanks!!

DVardysShadow

First step is to change your operational rules on your current accounts. If you are used to finishing the month at £0 or thereabouts, you need to pump up the accounts so you have £500 cushion. And when you go down to near £500, you need to think that you are in overdraft.

Next is make sure you have an emergency fund - which you can combine with your Christmas and holiday funds - ideally in an interest bearing account. Know that about 3 months income is in the fund as emergency and keep the fund topped up with all of your spare money.

Once this fund looks capable of bearing 3 months emergency plus all your annual spends for 6 months ahead, only then overpay the mortgage - or keep the money to hand for replacing your car, domestic appliances etc.

Obviously, your income is well sufficient to keep you as long as you stay out of debt. You could probably do well to stop thinking of everything in monthly terms, because you are effectively spending your money 'ahead' - which requires credit. If you have savings, you are spending it 'behind' and things like replacing appliances and cars don't create debt.

*Louise*

I agree with the previous poster about saving a chunk for emergencies first.

After that, why not treat yourself a little Do you really need the whole £250 though, if you have managed without it until now chances are it's more likely to get spend just because it's there.

If I had that left over, I would probably allocate £50 each for spends and keep theat emergency fund topped up with the remainder

Ps - congrats on being nearly debt free :T

LianneH

DVardysShadow wrote: »

First step is to change your operational rules on your current accounts. If you are used to finishing the month at £0 or thereabouts, you need to pump up the accounts so you have £500 cushion. And when you go down to near £500, you need to think that you are in overdraft.

Next is make sure you have an emergency fund - which you can combine with your Christmas and holiday funds - ideally in an interest bearing account. Know that about 3 months income is in the fund as emergency and keep the fund topped up with all of your spare money.

Once this fund looks capable of bearing 3 months emergency plus all your annual spends for 6 months ahead, only then overpay the mortgage - or keep the money to hand for replacing your car, domestic appliances etc.

Obviously, your income is well sufficient to keep you as long as you stay out of debt. You could probably do well to stop thinking of everything in monthly terms, because you are effectively spending your money 'ahead' - which requires credit. If you have savings, you are spending it 'behind' and things like replacing appliances and cars don't create debt.

thanks very much for this!

I suppose when you have been paying debt off and working on a SOA its why my mind is set on a "monthly setting"!

I have always thought of my bank accounts as finishing the month on £0 (and that being a triumph) so I like the idea of having a cushion.

I did have a debate (with myself) with emergency fund v's mortgage overpayment - I guess I thought that since my interest rate for my mortgage was so low (1.25%) that I should take advantage of this and if i did have an emergency I could "dip" into my Christmas / Holiday fund?

LianneH

*Louise* wrote: »

If I had that left over, I would probably allocate £50 each for spends and keep theat emergency fund topped up with the remainder

thanks Louise, after reading the first reply, I think this is where im going to head.. some pocket money and the remainder into an emergency pot.

Its funny that when you think you can take the foot off the MSE pedal, there's another financial pot to consider! I am glad i am here though and not at the beginning again!

ElmerFudd

I don't have any advice, but wanted to say congratulations on nearly being debt free

LianneH

ElmerFudd wrote: »

I don't have any advice, but wanted to say congratulations on nearly being debt free

thanks Elmer, i cant wait but then theres ensuring i stay that way and being responsible with my new found freedom! x