Debt free, now what?

SkittyOnWailord

Hi all,

It's been, heck I think it's been about two years since i was here last. I am now debt free (last credit card payment will go out just before Christmas) and once I checked my initial plan to go party at the door, I started thinking about my next step.

I can, for the next few months comfortably set aside 150 pounds without seriously risking my lifestyle, and I want to do something long term and useful with it.

How does this sound (and if it sounds pants, please give me advice. I crave advice on how to sensibly use money after a decade of being financially undisciplined)

1. For the first three months put it all into a savings account for a rainy-day disaster fund. Specifically to bring it up to 500 pounds as emergency money for things like when my washer broke in October. Not having the 240 quid for replacement was heartbreaking as it set my debt-freeness back by a month

2. Once that's done and my April cost of living allowance goes up by about 54 pounds I plan to find a nice decent high interest account and put 150 pounds a month in that to provide a long-term survival plan incase of job loss. I want that to get to 4.5K and then sit there and grow.

3. At the same time I am in desperate need of some light-heartedness, so I want to put 50 pounds a month into a 'fun' fund, probably a third savings/high interest account.

I'm not willing to commit to long term investment planning beyond the next six months, but this should give me a good start I think.

So my questions

A: Does this sound like a reasonable plan of action
B: Can you suggest good high interest accounts for the rainy day and long term disaster fund.
C: Assuming I continue my fairly frugal lifestyle, how would you suggest I begin putting some money into long term investments for wealth building. Now that I'm debt free I'd like to never be in this position again, and the best way to do that I think is to learn how to invest properly.

Have at it, and thanks in advance

Elmly

I'm in the same situation as you so very interested to see what advice you get!
Congrats on getting debt free for 2013!

atush

Sounds Ok, but I have a few suggestions.

1, 500 is low for emergencies I’d go higher. 1-3 months spending would be my target for you (maybe one to get started)

2, you don’t need 3 different funds, all your money should get the max interest and be tax free if you pay tax

3, a Fun fund is a fine idea to both motivate you and show you the way forwards. But this is the only area I would suggest a separate acct. A regular saver is the way to go. If you find a fun way to spend 300 after 6 months (such as a cheap holiday) 'borrow' that cash from your instant access Isa and replenish an Isa (current or next) with the cash you took out- should only need to do this the first year.


a- Yes, but as above and below

b- Use the links at the top of the page for best easy access Isa/savings and Best regular savers

c- Use your earliest opportunity (ie after you have saved one month’s spending etc) to join your company pension. this means 'free' money for both your company and the taxman and is a great long term play. Every 80 you put in is worth 100 min. Continue saving cash, filling your ISas each year. Once you have one year’s money saved and a pension, come back to us.

SkittyOnWailord

atush wrote: »

Sounds Ok, but I have a few suggestions.

1, 500 is low for emergencies I’d go higher. 1-3 months spending would be my target for you (maybe one to get started)

I wanted to draw a distinction between small household emergencies, and a longer term emergency, hence the one fund for approx 500 pounds for minor household snafu's like a broken washer or windor, and the second one containing the 4.5K, or approximately 4 months worth of day to day expenses. In my head at least they are seperate things.

2, you don’t need 3 different funds, all your money should get the max interest and be tax free if you pay tax

Okay, and I do.

If you find a fun way to spend 300 after 6 months (such as a cheap holiday) 'borrow' that cash from your instant access Isa and replenish an Isa (current or next) with the cash you took out- should only need to do this the first year.

Why borrow it from the ISA?

b- Use the links at the top of the page for best easy access Isa/savings and Best regular savers

Lots of reading this weekend then. Thanks

c- Use your earliest opportunity (ie after you have saved one month’s spending etc) to join your company pension. this means 'free' money for both your company and the taxman and is a great long term play. Every 80 you put in is worth 100 min. Continue saving cash, filling your ISas each year. Once you have one year’s money saved and a pension, come back to us.

Unfortunately I'm a contractor with Adecco, so no company pension. They've made strides towards equalising contractors with salaried employees, but that's not one of them. We've been given vague assurances of something to happen in 2013, but that's not been confirmed.

I will save for a year and find a private pension fund to begin investing in, and then I shall be back.

Any other advice for the next year?

atush

I said take it fromt he ISA if all 5K was in an instant access one, and only if you wanted to spend some of the fun money before the 12 months was up.

If you keep 500 out of the ISA in an instant access acct you could 'borrow' that for 6 months and then replace. But then instead of one ISa you'd have an ISA with 4.5K, an instant access acct of 500,a nd a regular saver.

Personally, emergencies are just that, and I don't differentiate between needing a new washer, or having to replace the central heating boiler and other emergencies.

As a side note, do be prepared to spend on new white goods, but always look at interest free credit at your chosen outlet. Last 2 times I had to replace something, I got 10 months interest free credit and paid 1/10th of the price each month while the money I had set aside was still getting interest. So paying it out of income meant I didn't have to dip into emergency savings.


If I do buy, I use a cashback CC which I pay off in full each month. Something for you to look into now you are out of debt. CCs can work for you instead of against you if you keep yourself form spending more than you can pay off each month.