Budget overhaul advice

megwump

My situation:
Household income of about £80k (dual income, no kids)
Personal credit card debt of £8k
Shared credit card debt of £10k
Husband overdraft of £1k
Savings in a crap rate ISA of about £1200
Homeowner with 16 years left on a lower than overage sized mortgage
There's plenty more but I think those are the main points.

We pay over the minimum on everything and the joint debt will be gone in eighteen months. I'm not worried about our level of debt but naturally want to pay it off (it's not growing).

How would we go about getting advice for a drains up budget overhaul? I'm not sure an IFA is what we need as we're not after new products, though we'd move to new bank accounts and cards if it was shown to be beneficial.

I know a lot of this sub focuses on the banking side of the title, but I'm hoping for some budgeting advice too

bigadaj

It should be a fairly simple staged process, though there's no reason why the stages can't be completed at the same time.

So download a statement of affairs from the dfw forum and go through your spending, assuming your income is fairly fixed then reducing spending is about teh only way of freeing up money for debt repayment and ultimately saving and investing.

Is the credit card debt on 0%, if not then try some eligibility checkers and transfer it if possible, reducing interest payments and the time to clear the debt.

Plenty of current and regular savers account options to increase saving returns, and a few transfer incentives that can be taken, details on the main site and ongoing threads on this forum and the saving and investing one.

Little point in having a small amount of savings in a cash isa, look at the accounts mentioned above.

What rate are you paying in your mortgage, there may be cheaper deals available.

Finally are you saving into pensions, as basic rate taxpayers then worth paying to get maximum employer contributions, if one of you pays higher rate tax then worth paying additional to get more tax relief.

That sort of covers most things, generally worth doing things yourself as paying someone else not only costs you money better saved or spent elsewhere but is the only way you are confident that it's definitely in your best interest.

megwump

Thanks for the reply. I should stress that speeding up debt free status isn't a priority, it's more the drains up thing - are we using the best bank accounts to get benefits that match our spending habits, what are we missing (life insurance!) or doing unnecessarily etc

bigadaj wrote: »

So download a statement of affairs from the dfw forum and go through your spending, assuming your income is fairly fixed then reducing spending is about teh only way of freeing up money for debt repayment and ultimately saving and investing.

Agreed!

Is the credit card debt on 0%, if not then try some eligibility checkers and transfer it if possible, reducing interest payments and the time to clear the debt.

Yep, absolutely. I put a reminder in three months before the rate expires so there's time to apply and transfer if needed.

Plenty of current and regular savers account options to increase saving returns, and a few transfer incentives that can be taken, details on the main site and ongoing threads on this forum and the saving and investing one.

Just not sure that focussing on savings should be the priority right now. I want to get a six month emergency fund saved up but I don't think it's as important as being debt free.

Little point in having a small amount of savings in a cash isa, look at the accounts mentioned above.

I agree, but also little point in getting rid of it - just in case money is better than no money.

What rate are you paying in your mortgage, there may be cheaper deals available.

2.09. Would have been 1.94 but our valuation came in a little lower than we hoped affecting our LTV when we remortgaged. The great thing there is that we had a much worse rate, so when we remortgaged and the rate come down, we kept the payment the same and knocked six years off!

Finally are you saving into pensions, as basic rate taxpayers then worth paying to get maximum employer contributions, if one of you pays higher rate tax then worth paying additional to get more tax relief.

I contribute about 7% and my employer contributes 26%. No additional payments. It's an average salary scheme. Happy with that side of things without needing to make extra payments.

That sort of covers most things, generally worth doing things yourself as paying someone else not only costs you money better saved or spent elsewhere but is the only way you are confident that it's definitely in your best interest.

I'd normally agree, but I'm wondering if I'm missing some opportunities to be smarter with our income.

Welshlassie

Having a budget is the best thing you can do it overhaul it. Have a look at Martins guide to doing this Do you know where all your money actually goes each month? You have a good income and no children so should be able to comfortably save unless you are living beyond your means eg new cars every few years, big holidays, expensive appliances etc (if that is what you want to do, those are your priorities, no judgement intended).

Having all your incoming and outgoings written down is the best start. You can then go through each expense systematically and work out if you have the best deal. Huge savings can be made on everything from home insurance to utilities (especially if you have never reviewed them before). Once you know what all your outgoings are you'll know how much disposable income you have and that point would be a good time to go to a IFA so they can objectively look at everything pensions and retirement planning, investments and insurances (life, critical illness etc).

Our IFA we pay a monthly fee too and they regularly monitor our financial products making changes in the back to improve things, we have a yearly review where we discuss future plans and they advise our our finances can be adjusted to cope. For example we're looking to extend our house next year, they advised how much we'd need to save to ensure when we extend our mortgage to cover the balance we can afford it all.

4 years ago we found YNAB (You Need A Budget) which revolutionised our budget and financial life. It's a great way of keeping track of all our finances and knowing exactly what we are spending.

good luck

getmore4less

What are you trying to achieve?
having goals can give clarity.

You don't need a IFA or the like what you need is a budget and goals.

once you have a budget you will see what needs changing to achieve your goals(when you have some)

A budged is an advanced plan of what YOU want to do with your money.

You estimate the total income for the period you want to plan(Year is a good start) then allocate every penny to a task/category, the SOA template is a good start if you are not sure of categories.

Then just track you are on plan.

if you have no idea where your money goes(many don't) start with the last 12 months(or 2016 or financial 16/17) any recent 12 month period will do and work out where all your money has gone.

chances are you won't know and have some gaps, most people have the lost £category.

Start a spending diary so you capture where your money goes, things not on your first plan get added and the totals adjusted to balance again.

You can then look at your plan and can start to look at each category, can I make it smaller, can I just not spend it, is there something more important that it could be spent on etc.

eg if you want a better/another holiday what has to give to make that happen.

If you do annual total you get a better picture,
eg a £2 coffee every work days is £500 a year, a holiday for 2.


With £80k salaries you are looking at where £55k a year is going each year over 1/4 million over 5 years.

It is all about priorities and planning what you want to do with the next 1/4 million over the next 5 years.


sometime setting goals and working back can give a bit of clarity
what about debt free in 2y, mortgage free in 10 years
Try to make a plan that makes that happen, do you have to cut things out that you want to keep, if you do make it 3 and 11 years.

What did you use the debt for?
analyzing that can often throw up goals

eg if a car then you need to have a plan that before you need a new car has the debt paid off paid off and the money saved up for the next car.
that way you break the cycle of using debt to buy cars. if you can do both then pay the debt off and save 1/2 then you break the cycle next time.

if it was smaller items because you just did not have the free cash then you need to throw more at debt/savings.


why not do a SOA and get people to look at it.

if you want hard core suggestions post on the debtfreewanabee board
http://forums.moneysavingexpert.com/forumdisplay.php?f=76

if you think about it you are in debt by your real debts, your mortgage and you 6 month emergency fund, you need a plan that sort that out.

getmore4less

Picking up on this point.

Thanks for the reply. I should stress that speeding up debt free status isn't a priority, it's more the drains up thing

if you mean money just wasted then the first thing to do is work out where every penny goes.

The small drains all add up but I bet there are some howlers in the real spend list.

I also suspect you have fallen into the we have more money than we need trap and have lost sight of the bigger picture. money just dribbles out and you fall back on the CC when you want something rather than save up for things.

megwump

Thanks all. We have a monthly budget which I keep track of, loosely - I always know to within £50ish how much is in the bank less any bills due to come out before he next payday.

I don't track to the penny, but I know we spend more than is in our budget on food & entertainment. I think I will give YNAB a try for tracking - I didn't know it was UK friendly in terms of the accounts it tracked, so that's good news.

I think we will also go to an IFA to check things like whether or not we're using the best current account that matches what we do. Sometimes this stuff is just easier when someone else asks you to spell it all out, isn't it. It also means that my husband and I won't get stressy with each other as a neutral party is doing the legwork rather than me.

Goals:
1. Joint debt to zero in 2018
2. Husband out of overdraft in 2018 (He is fairly stressed by this, so I'm prepared to use some of our joint income to clear it)
3. My debt to zero in 2019 (I use a portion of my disposable income to pay this off- it's my debt not 'our' debt so it gets treated separately)
4. Rainy day fund of six months salary by 2019

I love the 5 years, 1/4 million reference. It's pretty staggering when you think forwards like that.

megwump

getmore4less wrote: »

I also suspect you have fallen into the we have more money than we need trap and have lost sight of the bigger picture. money just dribbles out and you fall back on the CC when you want something rather than save up for things.

This is too true! Because we can 'afford' our debt, we sometimes spend on the cc on the basis that it nets off that month. It's rubbish though, because every time we do that we're extending our period of being in debt by a month

getmore4less

megwump wrote: »

Thanks all. We have a monthly budget which I keep track of, loosely - I always know to within £50ish how much is in the bank less any bills due to come out before he next payday.

budget means plan for all the money is allocated to a task.

Monthly is no good you need annual budget for planned spend/saving/goals. you probably need a big chunk of the monthly income to cover the stuff that occurs less often than a month.

eg how do you budget for holidays?



I don't track to the penny, but I know we spend more than is in our budget on food & entertainment. I think I will give YNAB a try for tracking - I didn't know it was UK friendly in terms of the accounts it tracked, so that's good news.

All the pennies add up, it is important to track reasonably close for categories and if going over a lot up the budget for them and take money off something else you can have a catch all to pick up the loose change/cash/slush fund.

With food an entertainment these are best done over a year as some months they will be low(Like when you go away or high if you have family for Xmas, some entertainment might eat a big chunk like a concert.

I think we will also go to an IFA to check things like whether or not we're using the best current account that matches what we do. Sometimes this stuff is just easier when someone else asks you to spell it all out, isn't it. It also means that my husband and I won't get stressy with each other as a neutral party is doing the legwork rather than me.

IFA will they be bothered with trivia of optimizing a current account really not that important when you have far more critical day to day stuff to sort out.
by the time you have sorted out you finances and priorities it will probably look completely different then anyway

Goals:
1. Joint debt to zero in 2018
2. Husband out of overdraft in 2018 (He is fairly stressed by this, so I'm prepared to use some of our joint income to clear it)
3. My debt to zero in 2019 (I use a portion of my disposable income to pay this off- it's my debt not 'our' debt so it gets treated separately)
4. Rainy day fund of six months salary by 2019

I love the 5 years, 1/4 million reference. It's pretty staggering when you think forwards like that.

it is actually closer to £300k depending on how much comes out of gross for pensions(but that is part of the budget as well just preallocated).

I think you need a really hard look at where the best part of £5k a month is going now.

Throw the ISA money at the overdraft and put a budget together that stop him going into it ever again.


DO a SOA.
http://www.stoozing.com/calculator/soa.php

once filled in calculate and Format for MSE
at the bottom will be a line
Amount left after debt repayments :
as you spend all your money that will reflect what you think you spend agains what you do spend

if you want ideas post it

use the last 12 months of real data from your own budgeting system income/outgoings/saving/debt.

if struggling with a full year just do April that should still be fresh in your minds, if that is still a problem May as that will be part from memory and the rest for real by the end of the month if you keep a spending diary.

It can take a while to get the SOA looking like reality, we all tend to underestimate how much we spend on stuff when not tracked against a proper budget(plan)


Remember the budget is a plan that balances income to where you want to use it, if it is not working you can change it but the trick it to make it balance after the changes.

getmore4less

I still believe MSMoney is the best tool out there for budgeting/planning

It is free.

megwump

I think I've done the SOA right. The amount left goes on entertainment, holidays, gifts etc - at the moment we are tending to put a big chunk towards home improvements each month:

Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 2
Number of children in household......... 0
Number of cars owned.................... 1

Monthly Income Details
Monthly income after tax................ 2660.02
Partners monthly income after tax....... 2044.2
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 4704.22

Monthly Expense Details
Mortgage................................ 854.4
Secured/HP loan repayments.............. 0
Rent.................................... 0
Management charge (leasehold property).. 0
Council tax............................. 141
Electricity............................. 40
Gas..................................... 21
Oil..................................... 0
Water rates............................. 21
Telephone (land line)................... 0
Mobile phone............................ 0
TV Licence.............................. 12.12
Satellite/Cable TV...................... 31.96
Internet Services....................... 38.24
Groceries etc. ......................... 350
Clothing................................ 0
Petrol/diesel........................... 50
Road tax................................ 0
Car Insurance........................... 0
Car maintenance (including MOT)......... 0
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 0
Buildings insurance..................... 8
Contents insurance...................... 8
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 0
Haircuts................................ 0
Entertainment........................... 0
Holiday................................. 0
Emergency fund.......................... 0
Total monthly expenses.................. 1575.72


Assets
Cash.................................... 1200
House value (Gross)..................... 215000
Shares and bonds........................ 0
Car(s).................................. 3500
Other assets............................ 0
Total Assets............................ 219700


Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 145000...(854.4)....2.09
Total secured & HP debts...... 145000....-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
Joint credit card..............7410......400.......0
Clarity card...................1980......60........19
Total unsecured debts..........9390......460.......-


Monthly Budget Summary
Total monthly income.................... 4,704.22
Expenses (including HP & secured debts). 1,575.72
Available for debt repayments........... 3,128.5
Monthly UNsecured debt repayments....... 460
Amount left after debt repayments....... 2,668.5

Personal Balance Sheet Summary
Total assets (things you own)........... 219,700
Total HP & Secured debt................. -145,000
Total Unsecured debt.................... -9,390
Net Assets.............................. 65,310

Created using the SOA calculator at https://www.stoozing.com.
Reproduced on Moneysavingexpert with permission, using other browser.