Facing Facts - Rich but Broke

DebtFreeDude · 24 November 2014 at 11:40AM

Earning around 2.5x the national average salary at age 29 I should be well on my way to happiness. Perhaps living my childhood dream of owning a Porsche by age 30. Perhaps a healthy pension in the making. Perhaps a few grand stuffed away in a savings account for a rainy day.

Perhaps not.

I'm married, with 2x wonderful daughters (6 and 3), have a good job, enjoy fancy things, have expensive hobbies. The typical 'living beyond means' type person you could say.

Despite my wonderful salary, the monthly bills are a constant battle and living month to month has never been this bad.

Both myself and my wife have become accustomed to spending money without thinking - £50 here, £100 there. Not thinking of the state of the bank when we do it. Worrying about it after.

So, exactly 30 days, 13 hours and 19 minutes before xmas, i'm starting this journey with my wife to get ourselves sorted.
I'll be posting a bit more background info later, so you can all see just how ridiculous our life is right now.

enjoyyourshoes · 24 November 2014 at 11:47AM

Hi

doing it as a family is the most effective way of achieving what you want, so Brill.

Its sometimes painful (Financial cold turkey , resolving to spend less than earn and agreeing what to ditch). Also takes time (finding out exactly your costs, and reconciling daily you accounts) and need perseverance. But its empowering knowing you will benefit from compound interest and not be a slave to them charging you compound interest.

1. Have a clear objective (specific, measurable, achievable, realistic & time-bound)

2.Understand your total annualised costs & savings (to meet your objectives) (i.e. do a budget or similar) & ensure this is LESS than incoming money. (if not do a review to allocate LESS than income)
(DONT forget to include Christmas, Holidays, Birthdays, Savings, clothes etc as well as the boring stuff)

3. Break budget into two part (part one: monthly costs) (part two: 1/4ly ; 1/2LY & annualised bills. This annualised £'s should be divided by 12 to produce a monthly cost to save for these bills. Can do a cash flow to ensure monthly savings pot has enough £ to pay allocated Bills on the estimated months they become due)

4.Produce a monthly reconciliation which has your income LESS all your costs (including the monthly savings described above), Cash withdrawals, monthly DD & SO, cheques cashed, credit card purchases & savings (linked to your objectives). Do this reconciliation daily and ensure you spend LESS than income.

5. If you dont deduct credit card payments off your monthly income then you will not have the £'s to repay and thus end up in DEBT.

5. Put your monthly savings into a high interest account and track allocated savings against costs. Also DONT PAY insurances by monthly credit agreement pay them annually.

6. Get online access for your current and other accounts so you can see your separate reconciliation is accurate and moving monies is less hassle on line

7. Produce Excel docs to assist

DebtFreeDude · 24 November 2014 at 12:03PM

Enjoyyourshoes - Thanks for the quick reply and great advice.

It is much easier on the mind knowing that my wife is along for the ride too.

I love a bit of Excel action and so have created a budget spreadsheet that we will be sitting down together and going through on Wednesday (pay day).
I've set it up in a such a way that it has all our fixed/monthly outgoings, then takes in to account any 'luxury' outgoings and then gives us a figure of what's left. Simple but effective.
Already i can see that not having a having a budget has been our problem - all those £30, £50, here and there soon add up and it's those that we've not been tracking, and so they've been the ones that have added up and caught us out when looking at the bank statement.

I'm a bit all over the place at the moment as i've got so much going through my head, but on first review our unsecured debt is somewhere in the region of £17k.
It's this unsecured debt that we want rid of.

With that in mind, here's some goals i've set.

Short term goal - Get to Dec 19th (next pay day) without going in to overdraft.

Slightly longer term goal - Have £1000 'buffer' in current account.

A lot longer term goal - No unsecured debt.

enjoyyourshoes · 24 November 2014 at 12:12PM

Its a 2 stage Excell process

Map & compass analogy

Stage one

the budget (annual strategic overview) + Cash flow to ensure your monthly savings meet the 1/4ly (clothes) 1/2 yearly and annual costs can be met month by month whe they are due

Then the thing that all sites don't talk about , but is critical is the

Monthly bank reconciliation (but done day by day when you spend)
Include all Credit card purchases and colour code with CC you used. Also do DD for full CC amount each month, with the confidence that you have already deducted cost and that you could have afforded it before purchasing
(Excel again)

For all you savings, just have one account, not lots & don't have piggy banks or envelopes (no compound interest there). But have an Excel doc to spilt the one account into subsidiaries (clothes, Road fund, repairs, tyres, holidays, Christmas, birthdays, etc)

Longer term goal additional pensions maybe SIPP (self investing personal pension) but wait until the next Stock market adjustment has occurred and go in at the bottom

DebtFreeDude · 24 November 2014 at 12:16PM

Ok, so here's a mini SOA.

Loan.......................£282.63
PC Finance...............£70.00
Credit Card..............£200.00
Child 1 Savings........£30.00
Child 2 Savings........£30.00
Car Finance..............£226.87
Water......................£43.28
EE - Wife Mobile.......£35.00
Mortgag...................£641.28
Home Insurance.......£33.48
Life Insurance...........£14.25
Broadband................£28.45
Car Insurance...........£26.60
Gas..........................£52.00
Sky..........................£13.97
Electric.....................£65.00
TV License ................£12.12
Wife Union................£11.50
Virgin - My Mobile......£20.00
Council Tax...............£111.00
Netflix.......................£5.99
Web Hosting..............£7.99
Food.........................£400.00
Petrol........................£60.00.

Total ........................£2,421.41

My Income (avg) ......£3500.00
Wife Income (avg).....£750.00

Income is averaged because it changes month to month for me due to being commission based, and also wife as she has different rates of pay depending on when she works etc.

As you can see, our fixed outgoings are reasonable considering income. But somehow we still end up in overdraft every month, and it's getting worse!

GreenQueen · 24 November 2014 at 12:18PM

I've been there - earning a good salary and wondering why there's more month than money. In some ways it's easier to get into that position when you've got "plenty" of money, because you don't think you need to worry about it.

Very good advise from enjoyyourshoes. Start with the basics - spending diary and realistic budget, and monitor, monitor, monitor. It can be easy to think that you've got things under control after a couple of months and let the bad habits creep back in.

Great that you and your wife are on the same page - will make things so much easier. Good luck!

GQ

enjoyyourshoes · 24 November 2014 at 12:40PM

Look thro MSE on savings:-

wife mobile
House insurance (check your not paying monthly for any ins as they charge you credit charges)

Cold turkey (difficult but necessary discussions)

Net flix
Sky
Take a ways
Meals out

Good news
Feb & March will be zero Council tax (most council charge March to Jan) with two months free (well not free but you get the drift)

Look into
paying annual phone line rental up front (generally cheaper)
Interest rate on different loans and if there is early repayment charge (rank them and start overpaying (if applicable) highest first)

As your pay fluctuates need to consider putting peak month money directly into highest earning bank account.
Get online access for all bank accounts allowing you to transfer funds in your own time

Allocate time to do this

Food shopping- get it delivered as you wont be tempted by marketers skills ! Use list in kitchen for items you have run out of. Try value branded items. Attempt not to use pre-prepared meals. Do a cooking day when your food delivery arrives, batch cook, freeze meals for the week. Buy in bulk (Asda do massive tin tuna which is cheaper and we make 4 tuna based dishes and freeze 3) Use dehydrated quorn (Tesco do it ) and rehydrate in tomato and OXO) then extend your mince dishes with it (30% Q to 70% meat), difficult to tell difference in Lasagne etc
Start baking simple cakes for ds (banana cake uses up the black bananas) rock buns etc . Use simple recipes.

fuelprice for cheapest fuel and measure how mpg improves when you drive more fluidly (no over acceleration and gentle braking or no braking (easy with my landrover as it doesn't go fast)

DebtFreeDude · 24 November 2014 at 2:28PM

Thanks once again for the reply.

Wife Mobile - She's got about 9 months left on this contract, but when it ends i'll move her over to a pay monthly deal like my Virgin one.

Insurance- I really do need to shop around more come renewal time, i would also like to be able to pay upfront, but the convenience of DD has been all too easy historically.

Netflix - Won't be ditching Netflix as this is the only source of entertainment in bedrooms - We choose to keep netflix instead of installing Sky Multiroom (which was more expensive).

Sky - I cancelled and renewed a couple months ago, so this has already come down £20 a month by doing that. Can't give it up completely as Freeview just doesn't cater for us (i did try, hence the sky cancellation and renewal).

Fuel - I have a company car and pay fixed tax on my fuel so we use my car where possible.
The wifes car is only used for short journeys so is never going to see great fuel consumption, but realistuically the £60 budgeted would last a bit longer than 1 month.

Food - I have started bulk cooking when i have some spare time. It works well (until i get all Gordon Ramsey and start making my own recipes :rotfl:).

Loan payments and credit card needs looking in to, credit card is 0% at the moment as i do change this around - the one success story of this year has been £2k paid off that credit card.
The loan on the other hand has recently been increased to £9500 to cover house renovation. This is over 4 years. We can over pay in to this loan as and when we please so that will be a focus in the new year.

My income fluctuating so much really isn't the best, but that's the nature of the job so i have to deal with it. I think i'll be using £3500 as my base and then anything above that will go straight to paying something off.