Emergency funds / Savings / Monthly income & living

sysadmin

Hi All,

Just after a bit of advice with regards to savings, outgoings etc.

For the first time in my adult life we have a bit of cash that were spending on house improvements but also keeping aside for emergency's etc.

So, we are a family of 5 and in February I got a new job which in turn got me a £15,000 pay rise. My partner also gor a £1200 pay rise in her current job.

Between us, take home £3,500 per month.

The only debts (aside from our mortgage) we have is a small car loan with the mother in law which is interest free and costs £100 per month until May 17 and I have a bike that Im paying £40 a month for until October 17

Our monthly bills / standing orders come to £2200 but this includes roughly £750 worth of savings into different pots (holiday, Christmas, car, birthdays, kids)

so, after all the home improvements have been done (circa £50k) I will have / owe the following

£155k mortgage (house is currently worth £185k, but possibly up to £210k/£220k after renovation)

£10k in cash in savings (santander 123 account)

Paid for car (low mileage, good condition. serviced every year)

In terms of job security, my partner is very secure but low paid (doesn't pay any tax) My job is secure and I have no worries about being made redundant but you never know.

So, I suppose my question is with our monthly income, we have around £1100 left to spend on entertainment, clothing, food, diesel (of which is only £50 max) Do we have enough cash / assets behind us should things go wrong . . .

Up until this year things have been very tight for us with little to no savings and only 600-£700 per month to feed, clothe, and entertain us (of which me and my partner rarely went / go out)

chockydavid1983

The general rule of thumb is to have 3-6 months in cash of monthly expenditure in case of emergencies like losing jobs etc.
So you would need to take your standing order total plus any other things you definitely need in a month and times that by 3-6.
When you have that total, you should then start thinking about investing for any longer term goals you may have.
Also, if you open up a few accounts you can do better than 3% on your 10k like 5% at TSB on 2k and 5% at Nationwide on 2.5k. Between you and your partner you could have up to 3 of each.

jimjames

sysadmin wrote: »

So, I suppose my question is with our monthly income, we have around £1100 left to spend on entertainment, clothing, food, diesel (of which is only £50 max) Do we have enough cash / assets behind us should things go wrong . . .

I guess it depends how you look at it. Thinking about the money you have left being available to spend might encourage you to do that. If you put amounts into investments or savings as soon as you're paid then that reduces the temptation to spend what's left in the account at the end of the month.
The one element missing from your details is pension, if you're not paying into that or are paying insufficient then that could be something to increase. Also if you have built up sufficient cash emergency funds then looking at S&S ISAs would give you investments for the longer term.

eskbanker

sysadmin wrote: »

Our monthly bills / standing orders come to £2200 but this includes roughly £750 worth of savings into different pots (holiday, Christmas, car, birthdays, kids)

[...]

So, I suppose my question is with our monthly income, we have around £1100 left to spend on entertainment, clothing, food, diesel (of which is only £50 max) Do we have enough cash / assets behind us should things go wrong . . .

Up until this year things have been very tight for us with little to no savings and only 600-£700 per month to feed, clothe, and entertain us (of which me and my partner rarely went / go out)

I think that for the purposes of planning an emergency fund, you need to look closely at how much you actually need to live on and how many spend items would be considered as discretionary luxuries in the event of the worst happening and no money coming in. For example, obviously you'd still need to buy food but you may choose to cut back on, say, holidays, so splitting spend into necessary versus optional is probably more relevant than fixed and variable.

Have you started pouring the £50K into home improvements yet or is this coming to an end? A massive figure like that obviously distorts any meaningful analysis of monthly expenditure, so it would help to understand how that's being funded, i.e. how much of a surplus you should really end up with when you're not paying for that. I know there's often more to it than simple numbers but if spending £50K only increases the property value by £25-35K, is it worth doing it all?

sysadmin

Thanks for the replies so far, I'll go into a bit more detail.

We both pay into a pension and our employers match what we put in. for example, mine contribution is £175 a month before tax and my employer matches that (this is their maximum). This has been taken into account when providing our take home pay.

In terms of the house improvements, they are going to start around November time. The figures ive provided above are indicative of the situation we'll be in AFTER the renovations have taken place. At the moment we have £250 more per month to spend than the £1300 in my first post

We live in a 3 bed semi. With 3 children we really want them to have their own room so have decided and started the ball rolling on a loft conversion which will provide us with another bedroom and en suite. We did seriously consider moving to a 4 bed property but to buy one in the area we live we were looking at £260k plus and they dont come up very often.

In terms of our finances. We were very fortunate that we received a £30k lump sum at the start of the year, along with my £15k payrise (new job) and my partners £1200 pay rise.

With the £30k we paid off all existing debts of which we had about £6k (apart form the car & bike as they were both interest free) and we also took our daughters to euro disney for a weekend.

At the moment in cash savings we have £23k.

Our house is valued at £185k and we currently own in the region of £117k. Ware just in the process of extending our mortgage to release £40k of the equity in the house. This puts our mortgage payments up from £500 per month to £750 per month. This has been accounted for in the figures in my first post.

The plan is to use the £40k from the bank and up to £13k of our own cash on the home improvements. Whilst our house is not in a bad condition there are some areas that need work. Here's the list of the work that we are planning to complete

Loft conversion / new roof / sofits / facias / guttering - £35k

Bathroom floor and tiling work as water has got under the laminate - £1k

Garage at end of garden (shed is rammed and falling down) - £5k

Porch (current porch is not fit for purpose and often leaks) - £5k

Side passage bulding works - £3k

New drive (although this may not happen as the current drive is functional but just doesnt look particulary good) - £3k

House decoration after building works - £1k

This totals £53k which will then leave me with £10k in cash which is what i would need to use as an emergency fund.

In terms of our essential bills should the worse happen and I loose my job, here's where we would be

Mortgage - £750
TV Licence - £12
Car Tax - £16
Mobile phones x 3 - £40
Phone / TV / BB - £48
Council Tax - £116
Gas / Electric - £140
Water - £40
Car Insurance - £40
Diesel - £50
Food - £200
Life Insurance - £18
House Insurance - £22

Total = £1492

If we did only have to rely on my partners income, then we would get her wage £750 + Child benefit £137 = £887

So a potential deficit to find of £605 per month.
Now, i know and would reduce the above bills even further if i lost my job, mobile phones would be cut right back, as would Phone / TV / Broadband

But none of the above includes saving for the car MOT etc...

At the moment we do save quite a bit into various pots for example

Holiday - £400 (In a few weeks my children will be going on a plane for the first time. Previous holidays have been camping etc)

Car MOT / service - £80 (this is probably too much but id rather have too much than not enough)

Christmas - £60

Children savings get £30 each (x2)

Birthdays - £40

Our biggest expense probably come with all the clubs that the kids do
Rainbows / Brownies / Swimming / Dancing / Cycling / Tennis - these would obviously stop should i loose my job