Ynab

anotherway001

I've read through these forums for years, and have been inspired by the bravery of all those tackling debt. Now I feel it's my turn to share my story in the hope that key lessons I've learnt /learning still will help others...

November 2014... £34,000 in debt (loans, credit cards and overdrafts). My finances were spiralling out of control, I was constantly using more and more of my available credit. The amount and my lack of any financial skills made it feel an impossible task to bring financial stability to our home. In a quick fix to end the overbearing stress of debt, I made the decision to sell our home (there were other factors behind the sale).

£30,000 was left after the mortgage repayment, I immediately begun to pay off what was owed. We were left with £4,000 of debt, this felt amazing!

It didn't last, fast forward to November 2014 (1 year later) and we were already £16,313.60 in debt. SoA from then below:

MBNA Credit Card - £3,297.43 (MAXED OUT) (£94.46 month | £75.46 was interest)
Barclaycard - £6,699.90 (MAXED OUT) (£130.43 month)
Halifax Credit Card - £950 (MAXED OUT) (£27.53 month | £17.98 was interest)
Natwest Overdraft - £1749.99 (MAXED OUT) (£32 month)
Shawbrook Loan - £376.02 (£94.33 month)
Laptop Purchase Loan - £954.10 (£27.26 month)
Tax Credits Overpayment - £1,975.63 (£200 month)
Tax Underpayment - £310.80
TOTAL - £16,313.60

A lack of financial awareness and skill had brought us back onto the debt carousel.

When I look back the straw that broke the camels back was receiving the Tax Credits Demand notice. The complexity of the Tax Credits system, had previously led us to bury our head in the sand when it came to the Awards, Statements etc., leaving things until last minute and missing the Tax Credits deadline was a regular occurrence for us.

This issue spanned 3 tax years from 2011 (overpayment first brought to our attention in 2013). This issue resulted in arguments between me and my partner, which forced us to address the issue... we spent 6 hours one evening going over all of the paperwork and figures for the Tax Credits Overpayment and my partners Tax Underpayment. The overpayment was our fault, a delay (unintentional, just lazy) in informing HMRC seemed to be a regular reason for overpayments. The reason behind the tax underpayment was from my partners employer making mistakes with a P45 from a previous employment. Nevertheless tax had been underpaid so it was our responsibility to pay this.

Spending the time to read through these documents was probably our lightbulb moment. Talking about our finances was something that my partner would avoid at all costs, we both knew that night that things needed to change drastically.

It's not that we'd never tried to work to a certain 'methodology' with our finances before, we'd previously tried Money in Envelopes, Personal Allowances, Take Control of Our Own Income etc. None of these ever worked the Personal Allowance method was never able to give us enough of an allowance to live on. Take Control of Our Own Income was doomed to fail as our incomes were so unevenly split. The Money in Envelopes was a nightmare from an accountability perspective (withdrawing money, getting change etc).

Back in the Summer I'd trialled and purchased YNAB, which stands for You Need A Budget. This is budgeting software, which also allows you to track and assign your spending to the budgets. In essence it's a virtual Money in Envelope application.

Unfortunately this didn't get adopted, the appetite/motivation wasn't there at the time...

Moving forward to November 2015 and the motivation is definitely there, this resulted in me spending the time to go through the classes and YNAB blogs. These education materials are an invaluable tool in not only learning how to use YNAB but for household financial management in general.

We took what we learnt and applied it to December.... Christmas :eek: Amazingly we managed to get everything we needed for Christmas without going into further debt. Over the previous months we were using approx. £1000 of debt to subsidise our income. So this really was amazing and an eye opener for us both.

With Christmas done, and a complete success (not worrying about money makes a big difference) we decided to look at purchasing a new home. Unfortunately for us we found out that our dream home would be built towards the end of 2016 and we would therefore need to raise £10,000 for a deposit by July/August. Our hearts sunk on finding this out but instead of giving up we looked at our finances again. We calculated that we could in fact save approx. £800-£1,000 a month, this wouldn't be easy and would require a big sacrifice from us both.

It's been 4 months since we were £16,313.60 in debt, this is our SoA today:

MBNA Credit Card (Old) - £0 - REPAID
MBNA Credit Card (New) - £4,469.18 (£47 month 0% interest)
Barclaycard - £4,926.06 (£105 month 0% interest)
Halifax Credit Card - £0 - REPAID
New Lloyds Credit Card (Partner) - £378 (£6 month 0% interest)
Natwest Overdraft - £1749.99 (MAXED OUT) (£32 month)
Shawbrook Loan - £0 - REPAID
Laptop Purchase Loan - £818.06 (£27.26 month)
Tax Credits Overpayment - £955.63 (£200 month)
Tax Underpayment - £0 - REPAID
TOTAL - £13,296.92

£3,016.88 Less Debt

We also have £3,836.13 saved towards our new house.

So in total, as YNAB would put it our 'Net Worth' at the moment is £6,853.01 better off than the end of November 2015.

I'm conflicted as having that money saved whilst still owing £13,296.92 goes against most financial advice. Yet the goal of purchasing a home in July/August is keeping both us extremely motivated to stick to our YNAB budget. We're still paying off £385 of debt a month through minimum repayments. The target we've set is difficult and it looks likely we're going to fall a little short with this, not sure what our contingency would be for this at this stage.

What I've Learnt

YNAB is an amazing tool, without it I don't think we'd have turned around £6,853.01 in 4 months. In fact I think we would have likely have given up quite early on and continued on the debt carousel. YNAB has finally put me in control of my money not the other way around. This is the only system I've found that works for me.

Money isn't everything, but debt finds a way of getting into every aspect of your life (family, lifestyle, socialising, health etc) and even if you choose to ignore it (as I've mistakenly done for too long), subconsciously it will always be there pulling you down. Moving in the right direction is so powerful.