Savings vs debts - while on maternity leave

bluemeany_2

Hello!

I think I know the answer to this, but I've tied myself in knots so much I'm confused now and would like it pointed out to me very obviously please!

I'm currently on maternity leave, just started in May. I get a very good Mat leave package from my company - three months full pay, three months half pay, three months statutory pay and three months unpaid. I probably won't be able to do the final three months, so will likely be back at work after 9 months (give or take a bit of annual leave etc).

I've saved some money to help supplement the later parts of mat leave when my pay is reduced. However due to some unavoidable expenses I could only start saving in January of this year. I managed to put aside £4K though, by being scrupulous with every penny.

My monthly expenses, which I track obsessively on a spreadsheet, are £2190. My full monthly income after tax is £2690. So I could save £500 a month when on full pay.

I have two credit cards, both on 0% deals. I have £4900 on a Barclaycard which is 0% until August. I have £7500 on MBNA which is 0% until March 2017. I pay minimum £200 per month on these, which is included in my unavoidable monthly expenses. (I would pay more off these when I wasn't planning for my mat leave).

A family member wishes to give me £6k. I will pay off the whole Barclaycard with that and add just over £1k to my mat leave supplement pot. I'll then direct all £200 per month to the MBNA card and can switch it over to the empty Barclaycard when the 0% runs out, by which time I'll be back at work.

The £5k I'll have in my supplement pot should mean that I can continue to pay all my monthly expenses until February 2017, without any interruption. So I could finish the mat leave without any extra debt.

However this mantra about not having savings if you have debt is going round my head. Am I missing something? If I used that £5k to pay the MBNA card to bring the balance down to £2.5k, my monthly expenses would be reduced but not by enough to keep on as normal without getting in to debt again, and it wouldn't necessarily have the same 0% conditions, so it's not favourable to do that, is it??

(I've made some great cuts to get my monthly expenses down. I saved on the elec bill, mobile bill, we don't have Sky or gym membership, my work has a cashback rewards scheme so if I have shopping to do I save money on reloadable cards eg I always save 5% at Sainsbury's which is our local supermarket, I've sold things on Gumtree and eBay etc. Plus I'm walking everywhere now to lose the baby weight!!).

nkkingston

It's always worth having enough savings on hand to cover emergencies. I think you want to keep that £5k in case something happens that prevents you from going back to work when you expect to. Put it in a nice, high interest account if you can, especially while the cards are 0%, and you'll end the period with more than you started with anyway.

walletmoths

Personally, I'd say do you level best right now to cut your outgoings down to the bone and get those cards paid off and cut up.

When I was on maternity leave (with just the stingy 6 weeks on 90% for my premature twins - grrr), I kept a credit card active 'just in case'. It led me down a rocky road as I struggled to spend more time with the kids as I just wasn't ready to go back to work so soon. I ended up with over £20k of debt, and I've needed the advice of CAP to help me deal with it.

If you're getting 5k in cash, maybe use the philosophy of "spend half, save half" - putting half of it away so you can budget for stuff that'll always need paying for - Christmas, birthdays, all sorts of things. Then, use the other half of the cash to pay something off a credit card.

Aim to get those cards to zero before even thinking about spending on holidays or clothes or anything that's not needed right now.

And, good luck with the babyweight hun. 5yrs on and I'm still trying

bluemeany_2

Thanks both!

Here's the upside to some things that seem a bit negative - I'm a first time mum and totally neurotic. So even if we could afford it I wouldn't take the baby on holiday any time soon because I'd be too nervous! And I don't want to be buying clothes for myself while I've three stone to lose!

Also he's the first baby in the family for years and years, and we have been utterly spoiled. We were given secondhand a cot, pushchair, loads of clothes, blankets and books. Then friends and family bought us oodles of new clothes and towels and even a car seat... He'll want for nothing until he's about a year old. The only regular expense is nappies.

The 5k will get used to supplement my monthly income when it drops. So for the last three months I'll receive around £500 per month SMP but I'll need to still spend £2160 per month. 5k doesn't go that far. I've got two more full pay packets so will try squirrel away another 1k before September.

Sanctioned_Parts_List

Congratulations on your upcoming arrival!

I think it would be a mistake to commit all your savings and gifts to paying off your CCs right off the bat. Not a common view around here I know. The reason is that you'll need cash to cover your living costs - your rent/mortgage, council tax, utilities etc. all get paid from your current account, not a credit card, and if you go paying off the CC to the exclusion of all else, you'll find yourself taking expensive cash advances later to cover living costs, rather than benefiting from interest-free debt.

If you do absolutely nothing to the credit cards, this is what might happen assuming the above is your total household income and there are no other surprises:

1) in the first 3 months, you're on full pay - you could potentially consider continuing to save in these 3 months, putting £1500 away for the latter part of the year.

£2690/month corresponds to just under £43000 per year income, so assuming that's your complete household income, you should be able to claim the full child benefit package, about £80/month give or take. Do this as soon as you can.

2) In the second 3 months, you're short £845/month based on previous expenses and income. That £1500, plus £240 worth of child benefit over 3 months means you'll need approx £800 from your savings to keep afloat.

3) In the third quarter, you'll receive only £680/month (statutory maternity pay plus child benefit). That 3 months will leave a deficit of £4,530. (Total used from savings, £5,330 - so that £6,000 from your family is a godsend).

4) In the 4th quarter, you will have £5,000 in savings, a large chunk of which will be consumed paying the deposit to get baby into daycare so you can go back to work.

Some things I noticed when my brood arrived:
* Your electricity/gas bill will go up 50%
* Your water bill will double
* Your washing machine will break down

Good luck!

bluemeany_2

Thanks for the advice Sanctioned Parts List, I'm sorry but that last line did make me laugh!! I live in fear of the washing machine conking out. Luckily we live about five minutes from a laundrette.

In fact our sproglet arrived at the beginning of June; he's four weeks old today and absolutely smashing.

I have sent off my child benefit form. My salary is £48k; I have a student loan and pension coming out so that's why it's a little higher than your estimate. I don't know if I will qualify for the child benefit, because if they base it on the previous tax year's earnings I will be above the threshold as I was running a self-employed business until December 2015, it was not very profitable but it might have an impact.

Although I moan about living in a tiny crummy little flat, it does mean it doesn't cost much to heat it (switched heating off in March/April) and the council tax isn't too horrible for London zone 2.

As for daycare, we have another plan. My husband's family live abroad and when my mat leave finishes, it will be cheaper for us to fly his parents in on a six month visa, find them bed and board somewhere and have them care for the baby, than it would be to have him in nursery full time. They are well up for it. My husband's main task with his income is to save the money for their flights and a bit for their expenses when they are here - he earns about half what I do and will be saving 400-500 per month from now until early next year.

I feel much more now that it's all doable!