Doing it the wrong way around

thomathy

Hello.

Feel like I'm rather doing this the wrong way around. I've always said "I've never understood money" and used it rather as an excuse, I think, not to put the effort in.

So, when after many years of just ignoring things and hoping they'd turn around, I really got in a pickle around 2010, instead of working it through from the debts point of view, I just put in a lot more time and effort at work, to try and increase income. Though this took time, it has largely worked out, in that payments are met, and the lions share of the debt has been paid - including HMRC debt which was rapidly reaching a crunch point.

Got to the beginning of 2013 with about £115k of debts still sitting there (excluding mortgage, which is more than the value of the property it relates to). Much of the total being overdue HMRC which I kept putting off and somehow ended up being months and then years. That's now all cleared, and some of the other loans and cards too - a total of about 97k of that paid. But now am completely burned out, and feel it's time to start planning finances properly and stop wasting money, and there is still 17.5k of extremely expensive credit card debt and my mortgage is for more than my property is worth.

Painfully aware that for one person on my income it is ridiculous to have any debts at all. But, life doesn't always seem that straightforward, while you're living it. So, my goal is to remove these debts, and, to start living a proper life plan and feel I'm making progress. As a side effect of really putting 100% in to work in order to pay debt down, income has gone up, but I am not making the most of it or living in an adult, planned way. Probably does not help that I am not very sociable; working in a tech / internet field and with little social interaction outside work. So I feel I lack examples of how people do usually organise themselves (whether financially or in terms of household, life and work balance, socialising and all sorts of other areas) and feel a little like an invisible bystander rather than a real participant in society.

Some complications on the SOA as I own a property I don't live in. It's not being paid off and is on interest-only. Need to either start paying it off very rapidly or possibly just pay the extra on the mortgage and sell up.

I rent the property I live in. I had always intended to buy - it is an ex-council flat and when I moved in to the building thirteen years ago, I thought buying outright could be within reach at 140k, the price at that time. The flats now sell for about £1m and I do not think I will realistically ever be able to buy even with a mortgage. As if it continues to rise at 16.5% a year it will never add up.

I do have a partner but have excluded his details as we live separately and don't share finances (though he tends to subsidise somewhat as he is very organised with money.) I owe him £11k.

The info below makes the figures look like regular monthly items. But, I've worked them out by taking every single statement over a year and going through line by line and averaging the months to an 'average month'. Income is regular, but it might come not at all one month, and double the next month. Therefore when looking at snapshots of a week or month it is hard to see exactly where you stand. And very easy to 'double count' money coming in by mentally allocating it to one priority, and then doing the same again with another when it pops into your head.

[tt]Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 1
Number of children in household......... 0
Number of cars owned.................... 2

Monthly Income Details
Monthly income after tax................ 7685
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 7685

Monthly Expense Details
Mortgage................................ 644.5
Secured/HP loan repayments.............. 0
Rent.................................... 1621
Management charge (leasehold property).. 167
Council tax............................. 114
Electricity............................. 50
Gas..................................... 0
Oil..................................... 0
Water rates............................. 34
Telephone (land line)................... 0
Mobile phone............................ 170
TV Licence.............................. 12.12
Satellite/Cable TV...................... 0
Internet Services....................... 70
Groceries etc. ......................... 290
Clothing................................ 145
Petrol/diesel........................... 60
Road tax................................ 38
Car Insurance........................... 67
Car maintenance (including MOT)......... 333
Car parking............................. 192.5
Other travel............................ 400
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 40
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 39
Life assurance ......................... 76
Other insurance......................... 15
Presents (birthday, christmas etc)...... 125
Haircuts................................ 45
Entertainment........................... 0
Holiday................................. 0
Emergency fund.......................... 0
Cleaner................................. 90
Gym..................................... 110
Cash (Entertainment?)................... 450
Coffees Out............................. 40
Dining Out.............................. 210
Total monthly expenses.................. 5648.12


Assets
Cash.................................... 6500
House value (Gross)..................... 340000
Shares and bonds........................ 0
Car(s).................................. 12000
Other assets............................ 0
Total Assets............................ 358500


Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 345000...(644.5)....0
Total secured & HP debts...... 345000....-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
Barclaycard 1..................5010......112.7.....27.9
Barclaycard 2..................7649.96...240.......29.19
MBNA...........................3650......115.......31
CapitalOne.....................1344......145.......34.08
Total unsecured debts..........17653.96..612.7.....-


Monthly Budget Summary
Total monthly income.................... 7,685
Expenses (including HP & secured debts). 5,648.12
Available for debt repayments........... 2,036.88
Monthly UNsecured debt repayments....... 612.7
Amount left after debt repayments....... 1,424.18

Personal Balance Sheet Summary
Total assets (things you own)........... 358,500
Total HP & Secured debt................. -345,000
Total Unsecured debt.................... -17,653.96
Net Assets.............................. -4,153.96

[/tt]

(I am pretty certain this is going to be the same story as housekeeping; where it turns out that it needs time and effort to organise it and do it, and doesn't happen like magic. Live and learn, better late than never.)

Tixy

Hi

Looks like you have put a lot of work in to the SoA.

You've been paying off other debts previously, now that you are just left with the current ones are you overpaying them each month? and are you paying around £2000 a month to them? If so then you should get on top of the unsecured debts quite quickly even with your level of expenditure. Are you paying by your partner anything towards the £11k loan? have you talked about when you may repay that.

Once you are on top of your other debts and all paid off then I guess it will be time to make a decision on your property and where you live.

You mention HMRC arrears in the past - is your income figure after setting aside a percentage of your income for future tax bills? (I'm assuming you are not taxed at source)

There certainly looks to be quite a lot of areas you could reduce spending on if you want to be looking to build up savings quicker than £2k a month for a property purchase or to pay off the existing mortgage.
Most of your costs look like they could be reduced if you really needed to, some things that really stick out are owning 2 cars yet hardly using them but also spending £400 on other transport. The high car maintenance costs, high groceries, high mobile and high entertainment costs.

You are right though, starting to budget and get a hold of your finances is something that doesn't come easy to most people, but something that you can definitely learn and get better with practice and will continue to pay off longer term.

hohum

Well done on clearing as much as you have!

Your SOA is actually quite fun to look at as an outsider because you have lots of options. There are definitely places where you can save, as Tixy says the two cars thing, entertainment, groceries etc etc

Sometimes though, lots of options can make it difficult to identify what is a priority. From what you write it sounds like you're at a point where what was a priority before might be changing.

So, what do you want? Continue blasting the consumer debt? Create more security for the future? Make a new home? Have more or less financial commitments? You have been working hard basically to service a debt, and now you have a bit more breathing room. If you are working hard, what are you working hard for now? I can understand feeling burned out, so you need to have a motivation and decide on your plan of attack. Some people (myself included) take the more scenic route, others are prepared to have short term pain for long term gain. It's up to you to decide which you'd rather take.

The 'must sort this out' part for me was a) getting in arrears with rent and b) being presented with opportunity to purchase a house, which had not been available before. So security of accommodation is my goal, and being totally fed up with self employed highs and lows in income was my push.

I know this is the debt free wannabe board, but there are different motivations for wanting to be free of debt, especially if you are at the point of being able to meet regular commitments.

Have you snowballed the debt? That could be a motivator in playing with the figures and seeing how long or not it will take you to get rid of the consumer debt and crucially, how much you will pay for the privilege. You could clear Capital One card just by applying your (on paper) month's surplus. I know it doesn't happen quite like that every month but it's worth considering. Currently you are paying 34% interest on your balance just through lack of being strategic. Seeing as financial institutions are not my fave, I'd begrudge giving them the money!

Other things I note - is some of your income the rental from your existing property? Because otherwise I can't see the point in having a house, on which you have a potential shortfall twice over as you say is in (small) negative equity plus on interest free mortgage. Other omissions- as Tixy says, are you setting aside tax/ class 2&4 NI? And do you have buildings insurance if you own a property - or is it included in other insurance/ life assurance?

Finally I'll do a plug for YNAB, which I don't work for honest but I have found really helpful especially in forcing me to look at my priorities and be honest what they are! It's a budgeting software/ approach to budgeting, plus spending tracker. I find it works well with variable income. You have to pay for it but there's a 30 day free trial.

thomathy

Tixy wrote: »

You've been paying off other debts previously, now that you are just left with the current ones are you overpaying them each month? and are you paying around £2000 a month to them? If so then you should get on top of the unsecured debts quite quickly even with your level of expenditure. Are you paying by your partner anything towards the £11k loan? have you talked about when you may repay that.

Well, I haven't been since clearing the larger and more immediate items, which is why there is a small cash amount in there. But now I have done the SOA and also noticed the interest rates which I had actually never even looked at before, I cannot believe I am paying 34% for absolutely nothing. So yes, it seems very clear that I ought to pay off as much as possible as quickly as possible. But - it really didn't seem obvious without the SOA. Quite a reactive person, I think I can do things in my head but I can't.

Tixy wrote: »

is your income figure after setting aside a percentage of your income for future tax bills?

Yes it is, that is one lesson I have learned the hard way and learned very thoroughly.

Tixy wrote: »

There certainly looks to be quite a lot of areas you could reduce spending on if you want to be looking to build up savings quicker than £2k a month for a property purchase or to pay off the existing mortgage.
Most of your costs look like they could be reduced if you really needed to, some things that really stick out are owning 2 cars yet hardly using them but also spending £400 on other transport. The high car maintenance costs, high groceries, high mobile and high entertainment costs.

Too true - so, the challenge is to work out not just which costs are high, but which costs are poor value in terms of enjoyment. I agree on the cars. On the bright side they are at least appreciating rather than depreciating. But nowhere near as much as their parking and maintenance costs, in particular, eat up cash.

Part of it is that when you feel 'stuck' financially it is hard to plan and behave strategically rather than reactively, and really picture what a good position (whether financial, emotional, or else-wise) might look like / feel like. And without a vision of a happy future you would like, it's hard to progress toward one.

So, I think next exercise is pay down the highest rates rapidly, and start to think, not 'what can I spend money on that feels good today' - but, what investments can I make which are prudent, but give a sense of satisfaction along the way? For example, saving for a house in the country which with some more work might be feasible in a number of years without going the mortgage route, which I am really anxious about doing since I already have one in negative equity and don't want to get in that situation again. Or, just paying down mortgage rapidly so that feels less edgy.

Found a whole category I missed from the SOA, another 105 a month on toiletries / washing stuff etc. (everything from Boots, which to my astonishment averages that amount every single months.) I have no idea how I am even spending that. I have no interest in that sort of thing. Easy target.

misskl

Thank you for posting this. To me I look at your income and it's like you are a millionaire compared to what I earn. But it still shows that money management is nothing to do with how much you have, it's how much you spend/save.


I wish you all the best. It is a long road, but you've had your LBM (lightbulb moment) now. Time to get organised- stick up progress plans on your wall so you will see it every day and keep your mind motivated. Don't feel too down about the size of it and know that you can earn enough to be debt free in time.


Good luck

thomathy

misskl wrote: »

it still shows that money management is nothing to do with how much you have, it's how much you spend/save.

This is exactly it. I thought, if I just keep working on the income side of it, I wouldn't have to take responsibility for finances or plan them properly. But it just doesn't work like that. There is no opting-out, and there is no level at which it starts to 'not matter' how you manage it.

savingmummy

You have done amazingly well reducing your debt.


You have money left over what do you do with that?
I would reduce clothing shopping, groceries, presents, dining out etc you could easily free up a good few £100`s left a month to throw at the debt!
A spending diary really helps on those things you buy and forget about!

Seanymph

For me part of the reason was working out my 'plan' - having looked at what I wanted I was able to start addressing how to get there.

So, what are your goals now your 'crisis' has passed and you are able to make more choices?

There is also a free Money course on the Open University that I'm doing which is quite fun:

http://www.open.edu/openlearn/futurelearn/money

If money is ever fun!

thomathy

hohum wrote: »

You could clear Capital One card just by applying your (on paper) month's surplus. I know it doesn't happen quite like that every month but it's worth considering. Currently you are paying 34% interest on your balance just through lack of being strategic. Seeing as financial institutions are not my fave, I'd begrudge giving them the money!

Too true. Done today. I didn't really intend to. I thought I would start with the easy steps. So I rang and asked them if they would lower the interest rate from 34%. I have held that card - with a continuous balance - since 2002, twelve years ago. During which time it has been paid on time every month, apart from one month marked '1' month late, in June 2010.

They said 'no, we don't reduce interest rates.' Once I'd sat and thought about it for a bit, it suddenly seemed very obvious that not only were they treating me like a mug, but I was indeed a mug. Like a magic-eye picture, suddenly coming into focus. So I rang back. Paid in full, closed, and cut up.

I might start holding a (small) grudge against financial institutions myself. I think it is probably good for both mental and financial health.

hohum wrote: »

Other things I note - is some of your income the rental from your existing property? Because otherwise I can't see the point in having a house, on which you have a potential shortfall twice over as you say is in (small) negative equity plus on interest free mortgage. Other omissions- as Tixy says, are you setting aside tax/ class 2&4 NI? And do you have buildings insurance if you own a property - or is it included in other insurance/ life assurance?

Yes, it has rental income of about 1300 a month after agents expenses and so on. Because the calculator takes income as net, but has the mortgage as a line item, I subtracted the mortgage from the income and applied tax to the remainder, and then included that in my income. I didn't really mean to end up with a flat that was rented out; it was meant to be for me to live in but didn't work out that way. I am leaning towards moving it to a repayment basis after the high interest items are paid. As at least then it can either be sold at some point, or perhaps hang on to it, but either way without the feeling that it's not by choice. So now is the time to start paying it while it covers its costs and turns a monthly paper profit, and has a little breathing room. I do think it likely to become a millstone one day if progress isn't made with it. The income on it works out at depressingly little mind you, given the amount of risk involved in owning it, as the tax on what comes in seems an awful lot.

(Speaking of which - yes, I am setting tax and NI aside. I have excluded them from the figures altogether. In theory, it would be possible to use some of the set aside for cash-flow to pay down debts and then stow it away again later having benefited from paying out less interest. But that sort of thinking is exactly how I got into trouble in the first place, so I am just keeping it very simple this time around and daren't break that holy rule of set-aside.)

Buildings insurance is included in the (exorbitant) 'management charge' line item as the mortgaged property is a long-lease.

hohum wrote: »

If you are working hard, what are you working hard for now? I can understand feeling burned out, so you need to have a motivation and decide on your plan of attack. Some people (myself included) take the more scenic route, others are prepared to have short term pain for long term gain. It's up to you to decide which you'd rather take.

A very good question. At the moment I am quite enjoying the day-dreaming. It is quite a new feeling to imagine that options are open and there are possibilities and choices. Just getting used to / enjoying that, for the moment!

BadBehaviour

Could you make do with just one car? Also, if you live alone, shouldn't you get a discount on the Council Tax Bill? Your mobile phone bill looks high as well... just some thoughts I had looking at your post, sorry

moohound

thomathy wrote: »

I might start holding a (small) grudge against financial institutions myself. I think it is probably good for both mental and financial health.

Totally with you on this one, it's my new religion 'The Church of not Paying Interest'

We'll done on getting your finances sorted, and good luck with the rest of your journey to financial peace.