Am I over stretching?

paulmapp8306

Just want some thoughts really.

Im currently in the forces and earn £38k, and have 14 months left to serve. At this point my family will need housing. So - rent or buy? We had decided to buy as renting (at present) costs more, and with no chance of housing benefit (at least initially - see later) it seemed obvious.

However, were going through a buy process now and (as most I susspect) and getting a little jittery - mainly because I have no idea if Ill be employed or not once my army life comes to an end - and if I am what my wage would be.

So - some facts.

The house is £112k, and we have a 20% deposit. That leaves a mortgage of £467/month fixed for 2 years at 3.79%.

When I leave the forces, I will have an imediate pension that equates to £780/month after tax (for 9 years, rising to £880 after that).

We will be entitled to Child Tax Credits (or the equivilant under the new system), should me and the wife be unemployed at this point - which equates to £77/week in the first year rising to £113/week from year 2. Thats due to me leaving 3 months into the financial year - and those 3 months earnings are taking into account.

We would also be entitled to normal Child Benefit of £33.50/week.

So - that gives me an income of £15,106 after tax IF both me and the wife are not working in year one, and £16,978 per year thereafter - again if we are still not working.

On top of that, I have a lump sum (and the reason why I wont get means tested benefits like housing) which will be £48,000. I have some things to pay from that (mostly a family loan to help with the house purchase - legal fees, moving costs and a deposit top up so we could make the 20%), but Ill be left with £35,000 in the bank at that point.

My plan is, to use that £35k to top up my income to live IF we are unemployed, or if we dont earn enough to manage without (say the wife get a job, but its 15 hrs at min wage). If we CAN manage that lump will either be invested if we can get a better return than the morgtgage interest, or will be used to part invest while overpaying what we can every year if we cant get that return on investments.

I have no idea on costs TBH in the real world (doesnt help Im currently in Belfast where utilities, petrol, food etc is more than on the mainland - but we dont pay water rates), but Im working on around £2000/month being enough? That means worse case I need to top my income by £750/month (or £9000 !!) year one, then £585/month (or £7000/year) thereafter. Based on that, my lump sum would last around 4 1/2 years before it ran out (roughly - and depending on mortgage interest rates after that fiorst 2 years). It also means I need to earn around £9k after tax (so £13.5k before) to not need to top top - OR the wife needs to earn £9k (as she has her tax free entitlement where as I dont as its used against my pension). Im sure that income is more than achievable providing the jobs are actually available where we will live (Nottingham).

The plan I guess, is that should we not be managing without a top up by the end of year 3, the house would go on the market giving us 18 months to complete a sale before the lump sum runs out - and then go into renting with whatever equity we get (maybe nothing is house prices go down by 20%). Were open eyed about that one.

so - is this plan reasonable? is £2k per month sufficient for a family of 4 with a £470/month mortgage? (obviously we'd be cut back as much as we could at this point with no jobs) Am I being really silly here or am I planing well.

Any comments welcome.

Angry_Bear

I ran some figures through the SOA calculator. I've guessed what I think is realistic for someone who is being reasonably careful but not totally broke (criticisms welcome). I'm assuming you are running 1 car with no large travel expenses, that you have no debts and that you don't need to pay for childcare.
I'd suggest you play with the figures a bit yourself and see if you're comfortable. I'm sure people round here can give you ideas of realistic costs of specific things if you ask.

Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 2
Number of children in household......... 2
Number of cars owned.................... 1

Monthly Income Details
Monthly income after tax................ 2000
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 2000

Monthly Expense Details
Mortgage................................ 470
Secured/HP loan repayments.............. 0
Rent.................................... 0
Management charge (leasehold property).. 0
Council tax............................. 120
Electricity............................. 30
Gas..................................... 30
Oil..................................... 0
Water rates............................. 40
Telephone (land line)................... 25
Mobile phone............................ 50
TV Licence.............................. 12.12
Satellite/Cable TV...................... 0
Internet Services....................... 0
Groceries etc. ......................... 300
Clothing................................ 40
Petrol/diesel........................... 40
Road tax................................ 15
Car Insurance........................... 30
Car maintenance (including MOT)......... 30
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 20
Medical (prescriptions, dentist etc).... 15
Pet insurance/vet bills................. 0
Buildings insurance..................... 15
Contents insurance...................... 0
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 50
Haircuts................................ 20
Entertainment........................... 50
Holiday................................. 50
Emergency fund.......................... 50
Total monthly expenses.................. 1502.12


Assets
Cash.................................... 0
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 0
Other assets............................ 0
Total Assets............................ 0


Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 85000....(470)......4
Total secured & HP debts...... 85000.....-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
Total unsecured debts..........0.........0.........-


Monthly Budget Summary
Total monthly income.................... 2,000
Expenses (including HP & secured debts). 1,502.12
Available for debt repayments........... 497.88
Monthly UNsecured debt repayments....... 0
Amount left after debt repayments....... 497.88

Personal Balance Sheet Summary
Total assets (things you own)........... 0
Total HP & Secured debt................. -85,000
Total Unsecured debt.................... -0
Net Assets.............................. -85,000

Created using the SOA calculator at www.makesenseofcards.com.
Reproduced on Moneysavingexpert with permission, using Firefox browser.

paulmapp8306

Most of that looks reqasonable - with a few exceptions.

1. Gas/Elec. you have £60 combined for those. My electric only currently (though I use Oil for heating only - soo cooking is electric) is £140/month !!!! Ive been on comparrison websites, and based on my current useage (though I will be cutting that) £1800 duel fuel/year looks reasonable - thats £150/month. That may well come down once I get used to saving more (liek taking the kids TVs aweay, and ditching the surround system - also using the tubmle dryer less and the dishwasher not at all).

2. We have mobiles, but will be out of contract. Were not renewing. Well either ditch them completely or just use £10/month PAYG BUT we do need internet for the kids schoolwork - I think that will ballance out.

3. Groceries - Ill need help there. I know we overspend a LOT at present. We budget £180/week art present (though thats not just food) but usuallt come in at £130-£140. Were working on £100/week as of now for everything and see how we go. Ive allowed that - so £500 for a 5 week month. That adds £200 to the budget.

4. Petrol - £40/month - probably do-able if were not working. Weekly shopping trips and job interviews only I guess. I had allowed £100/month though so I could save a little there.

5. Holidays - dont have them, so thats £50 saved, but my building/contents insurance quote is £35/month which will take some away, and my savings (X/mas - BDays etc) was higher at £70/month.

I guess If I move money from one pot to the other, bu allow an extra £100 for utilities and £200 for food (should we struggle there - we dont want to eat just rubbish for the kids health - rather spend a little extra there on fruit/veg/healthy stuff TBH), that would take the budget up to £1800 or so. If I include a little extra petrol and possibly a little more for general spending (£10/week or so) then £1900 looks achievable quite reasonably. Thats £100 below my initial thoughts - though if I CAN get down to your figures (REALLY not sure on the Gas/Electric ) then I could get close to living on just my pension and benefits after year one.

Angry_Bear

Hmm, sounds like maybe you need to borrow one of these energy usage meters from your library. My Gas and Electric come in at about £40 per month each but I'm terrible for not switching things off at the wall and I have the computer on all the time (including overnight ).

You should be able to get your home phone and internet for £25 if you shop around & use cashback sites. Doing the same could cut also your buildings/contents insurance. I got my contents (I rent) for £15 this year after cashback was taken into account - still feeling smug about this

And I know EXACTLY where you're coming from on groceries. My OH and I were spending about £100 a weekfor two fo us :eek: By switching to Lidl/Aldi/markets and dropping some brands we've cut to about £60 a week without changing our menu at all (still lots of fresh fruit/veggies and home cooking). The biggest saving I've seen is my nearby outdoor market that sells a bowl of whatever fruit/veggies are on offer for £1 :money:. Meal planning and not buying those incidental extras also makes a huge difference.

Good luck!

paulmapp8306

The Electric is the big one - BUT I know we use lots. Some things I know can be cut back on:

1. Kids - they have a TV each - and one has a seperate DVD player. They both have IPod Dock/Dab radios and they are constantly getting left on.

2. Entertainment - we have a big Plasma, a surround sound processor, Sky (getting cut) apple TV (can turn that off when not used) and Wii (ditto). We also have a 32"" LCD with Sky and a Blue Ray in our bedroom. Again sky is getting cut - and its cheaper to watfh the smaller LCD in bed of an evening that the big plasma in the front room. Its warmer too

3. Pets - we run two fish tanks - on in my daughters room and a big on ein the front room. That MAY not get re-stocked. Its the 24 hr/day fiter and lights on timmer that costs. Dont knwo how much though - need to find the useage I guess.

4. White goods. Washing machine is used lots - and also the tumble dryer (we line dry where we can - but its Ireland !!! - Rains a LOT). Dish washer is always used - though that may stop (Ill see how much it uses). the cooker is electric - and we cook seperately for the kids and us at present (another thing that will stop once we move). The new place has built in gas hob and electric oven so that will cut a little leccy.

5. Hobbies - I play guitar/keys and record. I must play an hour a day - and nearer 2/3 at weekends. Running an amplifyer with FX processors must use a fair bit of leccy. Something else that will get cut once we move. I can use the processor with headphones meaning the power amp (the nig user) doesnt need to be on, and Ill cut my hours.

This is worse case of course - and as my wife will move in a year before I leave the forces, hopefully shell find a job before I do leave. Ive told her "try for full time". Im basing this onthe fact that even if ALL her wages go in childcare around school.work/holidays in that first year - once I leave I can have the kids and well have her full income to help out - which even at min wage would be enough to not need the savings to supliment.

paulmapp8306

In fact - a quick calculation:

37 hours /week at min wage = £11850/year = £11,000 after tax (using next years £9300 income tax threshold).

My income = £9354/year (pension) which my tax free eliment is taken from (meaning a whole £54/year taxable income).

Child Benefit = £1740

That means a yearly income of £21,940 after tax = £2000/month. That doesnt take into account and Tax Credits either. Child Tax Credits on £19,000/year is £77 per week - so Im guessing Working Tax Credits (as Nik would be full time) would be at least £50/week on £21k earnings?. That would be an extra £200/month for some little extras (or more likely an interest rate hike after the fixed term ends )

JimmyTheWig

paulmapp8306 wrote: »

So - rent or buy? We had decided to buy as renting (at present) costs more

This seems like a no-brainer to me. Your figures look reasonable. Well done for thinking it all through - I bet many wouldn't and would end up struggling.

Will obviously depend on whether you can get a mortgage or not, though.