Passenger in life

Poniesatemymoney

Thank you that is good advice. I have taken Tuesday off to do all the calls etc but will gather the information over the long weekend.

Feel so much better now that I have some kind of action list (not quite a cunning plan but getting there!)

enthusiasticsaver

Debt can build up so easily if you don't check bank statements, credit card statements and don't budget. If the balance is higher now than it was last year then yes you are overspending and if you do not get a grip on it now then it will be worse in another years time and so on. If you throw a major life event like redundancy, sickness etc into the mix then very quickly a manageable situation becomes a critical situation so you are doing the right thing by sorting this now.

I am interested as to what you mean by dependants using your credit card? I manage the finances in our household so my husband is an additional account holder but I would never in a million years have given my adult children one as this teaches them all sorts of bad lessons. The first one being they can spend what they like as someone else will pick up the tab. Not a good lesson to learn in early adulthood so I would cancel these immediately and get your husband/wife on board with budgeting and recording your spending.

enthusiasticsaver

Poniesatemymoney wrote: »

The obvious first step is to locate and quantify credit card debt. It's going to be a scary number. I'm not really sure how I have managed to lose track, but I guess with moving house and having lots of bills to pay, buying stuff on finance etc it all sort of mounts up. Looking at my direct debit list I cannot identify about 3 payments �� That's bad. I really need to do a proper review of all expenditure and set a budget.

All obvious steps �� its just such a daunting task.

I thought about cutting up my credit cards but so many household expenses are charged and also I get cash back. Not sure yet what to do on that front but my monthly credit card bill is between 60-80% of my monthly salary ������

Do you mean your monthly spend is between 60-80% of your salary or the monthly payment. Do you pay the minimum or more? The good thing is they are on 0% for now but if you are not pro active then very quickly you can miss the end of the free deal and move into interest being charged which will seriously impact your efforts to pay this debt off. Many people on this forum (high earners included) can get into debt and in fact it is usually high earners who can end up with £100k unsecured debt by just continuing to spend and using consolidation loans. Addressing this now while the debt is at a manageable level is very sensible.

Poniesatemymoney

Thanks; sorry I don't think I explained it very clearly.

I have a credit card which is a cash back card; all household expenditure (such as food, petrol etc) are put on this card. House things like mortgage, insurance, electricity, council tax are DD. The card is cleared every month.

I also have two CC; total balance is 17k and these are currently on 0%. I am aiming to pay these off rather than shift the balance.

CC bill is on average 60-80% of income. The other 20% covers mortgage and bills. This leaves no savings.

I probably overspend by 20% each month for the last 6 months. This is being funded by savings/overdraft. I need this bit to stop and to start "repaying" my savings.

I earn a good (for me) salary and have 3 dependents so we are a family of 4.

I guess I am not very good about being frugal and but whatever I want/like so it's hard to say to the rest of the household not to? Makes me feel mean.

I guess I will need to be the grown up and lead by example.

Why does adulting have to be so hard?

On the plus side this week I avoided 2 sets of work drinks so saved about £200!

enthusiasticsaver

Ok I think I understand that. I have a cash back card too, Santander 123 which pays cash back on food and petrol so both my husband and I put all supermarket and petrol on there but nothing else. We have personal spend accounts each with a fixed amount every month and separate budgets for house diy/home improvements, holidays/entertainment and meals out and other car expenses and gifts/Xmas.

Budgeting a certain amount for each category means we stay in budget and have sufficient to save for large items etc. It also enabled us to pay off the mortgage early, help our daughters with house deposits and retire early at 58. Could this work for you?

How old are you and how old are your children? If you earn a good salary then you can easily sort this if you tackle it right.

Poniesatemymoney

I think this is the problem; I don't have a budget for anything. Particularly not things like home expenses.

I think instead of one overall budget I need to break it down and get more granular. Thanks for the tip.

Is there a specific % of salary that I should be allocating to savings? This is what I normally do; get paid on the 25th. Put all salary into savings account. Leave enough behind for mortgage and cc bill )which is paid the following week). Then I just periodically put more money into account to deal with outgoings. It means some months my savings balance is higher and others lower. Mostly lower.

I started the year with £16k of savings (which effectively should have cleared the 0% cards) but now have £12k �� So clearly this system is not working for me.

Should I instead be thinking about budgeting expenses and leaving that in bank account and putting balance into savings AND NOT TOUCHING IT?

redpete

You need to break down your spending to understand where the money goes. The SOA is an effective way of doing this. Then you can target problem areas and make a difference in small steps.

nats04

It sounds like you have a healthy income, just that you don't know exactly where all your money goes each month, which can be dangerous. If you've not discovered it yet, there is a fab online tool/app called YNAB (You Need A Budget - I can't post a link but it's easy to find in google). It's a subscription service costing $50 a year (although there is a free trial for 30 days). I find that it more than pays for itself, and since using it to organise my monthly finances I've saved a small emergency fund, increased my pension contributions, am overpaying on my mortgage, I've also paid off my overdraft and credit cards and have just one outstanding car loan which I hope to clear by making overpayments in the next 12 months. It makes you feel so poor when you realise that all your money has already been "spent" on debt payments and I'm looking forward to the day when my money comes in and I can prioritise it in the "fun" categories of my budget.

There are also some similar free tools available that probably work just as well but I ❤️ YNAB. I'm sure some helpful poster can point you at the free versions.

enthusiasticsaver

Poniesatemymoney wrote: »

I think this is the problem; I don't have a budget for anything. Particularly not things like home expenses.

I think instead of one overall budget I need to break it down and get more granular. Thanks for the tip.

Is there a specific % of salary that I should be allocating to savings? This is what I normally do; get paid on the 25th. Put all salary into savings account. Leave enough behind for mortgage and cc bill )which is paid the following week). Then I just periodically put more money into account to deal with outgoings. It means some months my savings balance is higher and others lower. Mostly lower.

I started the year with £16k of savings (which effectively should have cleared the 0% cards) but now have £12k �� So clearly this system is not working for me.

Should I instead be thinking about budgeting expenses and leaving that in bank account and putting balance into savings AND NOT TOUCHING IT?

Yes, that is what I would do. Put a certain amount in your savings account and leave it untouched.

Leave sufficient in your current account to cover the credit card bill as you do now, bills, debt repayments and mortgage etc. Perhaps put another amount into a separate savings account for annual expenses by adding them up for the year and dividing by 12. Obviously if you have lots of annual costs coming up in the next few months you may need to make the monthly payments higher to cover them for this year but if you get in the habit of doing this it means your long term savings are not being depleted by bills which should be budgeted for.

If your savings have decreased over the year (as yours have by £4k) and your credit card debts have increased to £17k which is not insignificant this indicates you need to get a grip on spending now.

On the positive side your net debt (taking savings into consideration) is only £5k and you repay your main credit card monthly so I think this is easily sorted.

How old are you and how large is your mortgage? Do you have a financial plan for the next 10 years - ie Do you intend moving house? Do your children need financial assistance? When do you intend retiring? Does your car need replacing soon?

How much you allocate to savings depends on the answers to all those questions and there is no specific percentage you should save as everyone's circumstances are different.

A rule we had was disposable income after essential bills was divided into three . One third went into spending account to be spent either on specific things or to cover monthly household spending, one third was kept in medium term saving account (holidays, cars, home improvements) and one third was invested for the long term in stocks and shares isas. We have no debt or mortgage now but when we had a mortgage we used the long term savings to do lump sum repayments until it was paid off along with additional lump sums into pension.

armchairexpert

Hi and welcome.

I too run almost everything through a credit card (shared with Mr Expert; our kids are too young to have access to spends) and then pay it off the next month, but I count it as spent when I make each purchase so I can 'see' the income balance going down.

I don't think you should start thinking about what percentage to put to savings before you make yourself a budget. At the moment you have no idea what your expenses are, except for a few fixed bills. Look at budget examples online to get a feel for what sorts of categories people use (it doesn't really matter, but what's important is that you start!) and then get out a year's worth of statements and maybe a large glass of wine. Treat all spends as household for now if everyone spends on the same card. Add them up, divide by 12, put it into a spreadsheet and see whether the remaining number is positive or negative.

So when I did this, I looked at monthly averages for EVERYTHING including things I only pay once a year (school fees), sporadically (birthdays), and which vary wildly (clothing). Every single spend over the last year has to go into a category. Even things that feel like once-offs, like that time you had to replace the washing machine and the dishwasher in the same month. Put it into that SOA up top, or into any spreadsheet that feels comprehensive (remember, if you're not using the SOA link, to also include mandatory debt repayments as an expense line).

Does it show that you're in the black every month or the red? That's your first port of call. You've been wandering along, some months are more expensive than others, it all evens out. But - even it out yourself. Look at the median month. Is it black or red?

If it's black, we start talking about debt repayment and snowballing. If it's red, we start talking about cutting expenses. Either way, I'm afraid 'savings' is not high on the list just yet!

It actually sounds like you're going to be fine. If you've managed to run a free-and-easy spend-what-you-like budget for this long, you've got lots and lots of room to manoeuvre. That's a great place to be in. And it's worth doing.