need to start living within my means

licsa

Hi everyone, I've changed this thread to be my diary - as it has all the information on income and debts. Basically I'm aiming to get rid of all my credit card debt in no more than two years, before the 0% promo interest rate ends. Total debt as of right now Jan 4th 2015 is a whooping £7800 and I'm aiming to pay at least £300 per month towards this.

Also I need to:
- stop using credit cards completely!
- start saving for emergencies, holidays, and presents
- stop (or significantly reduce) spending with eating out/work meals/coffee etc.
- use at least 50% of my end of the year annual bonus to overpay mortgage

Thanks for reading and for any encouragement and/or advice you can provide!

A.


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Original Message:
Long story short: I became single a couple of years ago and I'm finding it very difficult to adjust financially. I'm spending too much money on eating out, clothing, vacations, entertainment, and possibly on some of the other household expenses. I don't have any savings whatsoever and my credit card debt is almost £8000, accumulated in the past three years or so.

My immediate goal is to stop using credit cards to purchase everything - clothing, groceries, holidays etc - this is how I've been doing it, put it on cards and trying to pay back afterwards. My credit history is good and all credit card debt is at 0% for another two years or so, but still, I think £8K debt and £0 savings is not something that I want to live with going forward.

I've done a SOA, I deleted expenses that don't apply (e.g. car, pets) but so far I've only listed direct debits, grocery and other regular expenses such as gym or childcare and activities.

I'd like to start budgeting for all the items in red, and start paying as much as I can towards the CC debt. These items below is where I need help with, I'm not sure how much I should budget for each.

Other than budgeting for these things and putting credit cards away, I'd like to stop eating out, work meals included. Or at least reduce spending on eating out.

Any other suggestions, where I could possibly cut? Thank you!

Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 1
Number of children in household......... 1

Monthly Income Details
Monthly income after tax................ 2323
Child benefit........................... 89
Other income............................ 500
Total monthly income.................... 2912

Monthly Expense Details
Mortgage................................ 1020
Service charge, ground rent, bldg insurance.. 80
Council tax............................. 100
Electricity............................. 25
Gas..................................... 40
Water rates............................. 20
Telephone (land line)................... 25
Mobile phone............................ 25
TV Licence.............................. 12
Satellite/Cable TV...................... 30
Internet Services....................... 10
Groceries Tesco......................... 200
Travelcard ............................. 125
Childcare............................... 225
Swimming, piano, French ................ 50
Contents insurance & home emergency cover.. 10
Unemployment insurance**................ 35
Gym membership.......................... 50
Medical** (prescriptions, dentist etc).. 0
Clothing................................ 0
Presents (birthday, Christmas etc)...... 0
Haircuts................................ 0
Eating Out.............................. 0
Entertainment........................... 0
Holiday................................. 0
Emergency fund.......................... 0
Total monthly expenses.................. 2082

Unsecured Debts
Description....................Debt......Monthly...APR
Tesco..........................6600......66........0
Santander......................1200......12........0
Total unsecured debts..........7800......78........-

Monthly Budget Summary
Total monthly income.................... 2,912
Expenses (including HP & secured debts). 2,082
Available for debt repayments........... 830
Monthly UNsecured debt repayments....... 78
Amount left after debt repayments....... 752


**Work perks include medical, dental insurance, life assurance, and accident & sickness insurance. I don't pay for prescriptions as I have a medical exemption (chronic condition). So the only medical expenses are dental ones (25% of it, as dental insurance covers 75%).

enthusiasticsaver

Well done for calling a halt on the debt rising any further and yes I definitely think you are right to call time on using credit cards for essentials as that is a sign that you are living beyond your means. Also a great plus point in your favour is you still have a good credit rating and your credit cards are on 0%


What you spend on probably what you would call the non essentials (presents, holiday,entertainment etc) is very much a personal choice on what will keep you motivated. I would also include your gym membership in that unless you use it a lot. I have always taken our monthly disposable income after all essentials have been paid and divided it into 3 and saved 1/3 in an instant access fund for emergencies, 1/3 has gone into debt repayment (in my case I overpaid on my mortgage but you could use it for repaying your unsecured lending and spent 1/3 on non essential. So the case for your soa assuming it is accurate is that you divide the £752 up and use £250 per month in addition to the £78 you already pay to reduce your debt exposure, save £250 for emergency funds, Christmas, holidays etc and have £250 for monthly expenditure on non essentials - ie gym membership, entertainment, days out, clothing etc. If you have money left at the end of the month pay that off the debt as well.

licsa

Thanks, the SOA is accurate but it's missing all those non-essentials in red. It's also missing childcare costs for August - which is essentially me paying for plane tickets for my mother to come and look after my child, plus some extra costs such as food and other mum-related expenses for that month. I've also excluded my annual bonus from the SOA as it isn't guaranteed and so far I've been using it to pay off credit card debt anyway.

It's an interesting idea to divide that income in 3 but wouldn't be better to pay off credit card first and then start building savings? So pay £500-ish towards debt and make sure I don't exceed £250 for the other monthly expenditure.

enthusiasticsaver

Yes, certainly that is an option but I am a big believer in having emergency savings for any unusually large expenses and large ticket items like replacing white goods, birthdays, Christmas etc just so you have an alternative place to go rather than put these on credit cards but that is just me and we did not have unsecured debt but were just overpaying on the mortgage so perhaps not such a priority. If you can afford to put £500 towards the debt and not be tempted to use the cards for anything then yes you could just do that and would clear the debt much quicker. However if you end up with an unusually large bill one month and have no savings to cover it then if you use the credit card again you are back to square one. As I said it is a personal choice so if you are highly motivated and wish to clear the debt asap then you could even put the whole £750 towards clearing it in a little over 10 months! That would mean though no spare money at all each month so that would be tough especially as you have a child.

enthusiasticsaver

Also of course bear in mind that if you are being charged 0% on your debt then you could save up any extra money in a high interest paying current account to gain the interest and use the lump sum at the end of the 0% deal to pay off the credit cards in full. You then also get the benefit of the interest as well.

licsa

enthusiasticsaver wrote: »

If you can afford to put £500 towards the debt and not be tempted to use the cards for anything then yes you could just do that and would clear the debt much quicker. However if you end up with an unusually large bill one month and have no savings to cover it then if you use the credit card again you are back to square one.

You're right... since all debt is on 0% for another 2+ years I could actually try this scenario to build some decent savings, and revisit at the end of each year at bonus time, perhaps use some portion of the unused savings to pay credit cards. Yes I think it will be hard to leave the credit cards in a drawer, I'm so used to spending on credit cards.

DCFC79

Have you thought of swapping Tesco for Aldi, could save you a bit.

licsa

How much should I allocate for presents and for the emergency fund? I've never budgeted for these before. I do have home emergency cover and all my appliances are new (bought in the past couple of years ago when I bought my flat) -- except the washer/dryer, which will probably need replacing at some point, but I intend to use it until it breaks.

For holidays I figured £200 per month should be enough.

licsa

DCFC79 wrote: »

Have you thought of swapping Tesco for Aldi, could save you a bit.

I'm doing online grocery shopping as I don't drive (also to free up time on Sat mornings), do they deliver? I was considering ASDA but not sure it's much cheaper, have to try it.

DCFC79

licsa wrote: »

I'm doing online grocery shopping as I don't drive (also to free up time on Sat mornings), do they deliver? I was considering ASDA but not sure it's much cheaper, have to try it.

No Aldi don't deliver, you got an Iceland nearby who deliver or you by own brand/basics instead of the brands.

dancingfairy

I would start by putting what you think you spend (not what you think you should spend) in for presents. Christmas has just gone so hopefully you will have a rough idea of what it cost. How many birthdays do you think you will buy for this year and how much do you think each one will cost? The thing with this board is that some people will quite happily spend £50 on presents while some will spend 50p. It is a matter of priorities, how many people you need to buy for, how close you are to them etc etc.
A lot of things on the SOA will be guesstimates to start with but you will refine it as you go along or find ways to make savings.
Your SOA is showing that you have a surplus of £752 so you must be spending at least that much on clothes/holidays, food out/presents/entertainment etc unless your income/outgoings have dramatically changed recently as you must have been overspending to get into debt.
A spending diary can be really handy to identify where the money is going.
Best of Luck

df