Emergency fund vs. Debt payoff

phizzimum

I think you will find doing a SOA to be helpful. Calling your spending Pocket Money is vague, once you’ve broken it down into haircuts, presents, parking, eating out youll see better where the money is going.

You definitely need an emergency fund, otherwise you will have to increase your debt when something crops up - and something unexpected always crops up!

Well done for facing up to things and making a good start

I would also recommend you put aside money for expected expenses like car maintenance, insurance, gifts etc

If you are just paying the minimum on your cards they wont be cleared before the interest free period ends. You will need to start over paying using the savings you make from other areas, or the money you make from selling your stuff.

If the therapy and trainer is helping you address the underlying issues that caused you to overspend then I would say they are money well spent. However until you’ve made a proper budget you just dont know how much you have left over for your non essentials

TheR3ader

So here's my SOA, finally figured out how to post it (it's been a very long week....)

Statement of Affairs and Personal Balance Sheet

Monthly Income Details
Monthly income after tax................ 1818.03
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 1818.03

Monthly Expense Details
Mortgage................................ 0
Secured/HP loan repayments.............. 0
Rent.................................... 375
Management charge (leasehold property).. 0
Council tax............................. 0
Electricity............................. 0
Gas..................................... 0
Oil..................................... 0
Water rates............................. 0
Telephone (land line)................... 0
Mobile phone............................ 22
TV Licence.............................. 0
Satellite/Cable TV...................... 0
Internet Services....................... 9.99
Groceries etc. ......................... 175
Clothing................................ 30
Petrol/diesel........................... 180
Road tax................................ 24.5
Car Insurance........................... 110
Car maintenance (including MOT)......... 70
Car parking............................. 5
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 10.4
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 0
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 80
Haircuts................................ 15
Entertainment........................... 15
Holiday................................. 0
Emergency fund.......................... 0
Personal Trainer........................ 175
Therapy................................. 200
Total monthly expenses.................. 1496.89


Assets
Cash.................................... 900
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 640
Other assets............................ 0
Total Assets............................ 1540

No Secured nor Hire Purchase Debts

Unsecured Debts
Description....................Debt......Monthly...APR
MBNA...........................2485.56...30........0
Barclaycard....................2740.32...62........0
Loan...........................12000.....150.......0
Total unsecured debts..........17225.88..242.......-


Monthly Budget Summary
Total monthly income.................... 1,818.03
Expenses (including HP & secured debts). 1,496.89
Available for debt repayments........... 321.14
Monthly UNsecured debt repayments....... 242
Amount left after debt repayments....... 79.14

Personal Balance Sheet Summary
Total assets (things you own)........... 1,540
Total HP & Secured debt................. -0
Total Unsecured debt.................... -17,225.88
Net Assets.............................. -15,685.88

anna_1977

TheR3ader wrote: »

So here's my SOA, finally figured out how to post it (it's been a very long week....)

Statement of Affairs and Personal Balance Sheet

Monthly Income Details
Monthly income after tax................ 1818.03
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 1818.03

Monthly Expense Details
Mortgage................................ 0
Secured/HP loan repayments.............. 0
Rent.................................... 375
Management charge (leasehold property).. 0
Council tax............................. 0
Electricity............................. 0
Gas..................................... 0
Oil..................................... 0
Water rates............................. 0
Telephone (land line)................... 0
Mobile phone............................ 22
TV Licence.............................. 0
Satellite/Cable TV...................... 0
Internet Services....................... 9.99
Groceries etc. ......................... 175
Clothing................................ 30
Petrol/diesel........................... 180 - the car is costing you a whopping £380 a month!!
Road tax................................ 24.5
Car Insurance........................... 110as above
Car maintenance (including MOT)......... 70as above
Car parking............................. 5
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 10.4
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 0
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 80
Haircuts................................ 15
Entertainment........................... 15
Holiday................................. 0
Emergency fund.......................... 0
Total monthly expenses.................. 1121.89


Assets
Cash.................................... 900
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 640
Other assets............................ 0
Total Assets............................ 1540

No Secured nor Hire Purchase Debts

Unsecured Debts
Description....................Debt......Monthly...APR
MBNA...........................2485.56...30........0
Barclaycard....................2740.32...62........0
Loan...........................12000.....150.......0
Total unsecured debts..........17225.88..242.......-


Monthly Budget Summary
Total monthly income.................... 1,818.03
Expenses (including HP & secured debts). 1,121.89
Available for debt repayments........... 696.14
Monthly UNsecured debt repayments....... 242
Amount left after debt repayments....... 454.14

Personal Balance Sheet Summary
Total assets (things you own)........... 1,540
Total HP & Secured debt................. -0
Total Unsecured debt.................... -17,225.88
Net Assets.............................. -15,685.88

Well done on posting

So with that amount left over you can focus on paying an extra £400 a month at the debts and £50 into your emergency pot monthly.

Good luck

TheR3ader

Hi Anna_1977,
I forgot to add my Therapy and Personal Trainer in as expenses (corrected now). If I move the Personal Trainer to every other week this brings my Amount Left to £167 left over.

Yes my car does appear to cost me a small fortune!! Hopefully the insurance comes down in May as I will be over the 25 age limit then. I did look into getting a newer car more recently however when I worked out the numbers (incl. Fuel, tax and maintenance) it ended up being more expensive than keeping my current car.

phizzimum

Well done for putting together your SOA. Remember its not just about getting rid of debt, you are developing the money management skills that you will need if you want to get your own place

Dont be tempted to go crazy buying another car. It does seem that youve got to the point where the car is costing more to run than it’s worth, but you don’t have to spend loads to replace it. My daughter paid £1400 for her car (Toyota Yaris) - only £30 to tax for the year and although she’s only 19 the insurance is about £750

enthusiasticsaver

I think you should put £50 of your surplus into your emergency fund. When do the 0% deals on MBNA and Barclaycard finish? Any extra money you have put to the card with the shortest deal.

MEM62

TheR3ader wrote: »

We think we can now cut it down to £175 per person for a month which should be more than enough to cover our food and the odd date night.

Still way too much. We feed a family of four on less than £250 per month and are far from frugal in our food shopping.

System

TheR3ader wrote: »

I did look into getting a newer car more recently however when I worked out the numbers (incl. Fuel, tax and maintenance) it ended up being more expensive than keeping my current car.

It always does every single time. Lots of people also make the mistake of thinking that buying a more economical car saves them money as well. I did the maths on the two cars I have which have a 20MPG difference in economy and over 17,000 miles I do it was a saving of just £781 a year. For most people to get that difference over their current car they're going to be buying a newer one and that saving would be more than wiped out by the increased depreciation. In fact if they'd got a new car year 1 depreciation on many cars would be equivalent to almost half a decade's worth of savings on fuel.

To add...

Is it possible for your partner to get work, even if its just a part time job? 10hrs a week would give you both an extra £3500 a year.

£175 per month per person is absolutely ridiculous for food. The Office For National Statistics states that the average FAMILY in the UK spends a total of £56 a week on grocery shopping and that includes £4 a week on alcohol.

Music subscription can be binned, use Spotify free and put up with the odd advert. Mobile phone can be seriously slashed with a SIM only deal. Use billmonitor.com to check your bills and work out what your actual usage is, not what you think it is. Many people pay for unlimited calls, texts and data and actually use far far less than they think they do.

System

phizzimum wrote: »

It does seem that youve got to the point where the car is costing more to run than it's worth, but you don't have to spend loads to replace it. My daughter paid £1400 for her car (Toyota Yaris) - only £30 to tax for the year and although she's only 19 the insurance is about £750

It is almost NEVER cheaper to replace your current car than repair it even if you're spending several hundred quid or more. Say that other than servicing your car needs £1,000 of repairs a year and your car is maybe not even worth that. Most people would balk at the idea of spending £1000 a year on a car to fix it so will go buy another. So what would your options be?

1) You spend £1000 on a replacement car. You end up buying a car which will have problems but unlike the car you currently own you'll not know what they are because you don't know anything about the car. So that £1000 car will most likely need repairing. At least when you spend £1000 on repairing the car you currently have those repairs are unlikely to ever need to be done again before the car needs to go to the scrapyard.

2) You get a much newer one on finance to stand a quite good chance it won't need repairs. If the interest on the finance doesn't cost you more than the £1000 repair the ANNUAL depreciation will. I bought a 2 year old car for just 1/3 of its new value and even though I've owned it over 5 years the depreciation has worked out at over £1000 a year. The person who owned it for the first two years paid at least an average of £8000 a year in depreciation going on what I paid for it.

My sister in law made this mistake a couple of weeks ago. She had an old W reg Astra worth maybe £150-£200 when running OK but with a slipping clutch and only a month or so MOT. I told her to put it through its test, see what it failed on and make a decision after that. Well it passed straight through the MOT and the clutch was going to be £300 to fix. So she fixed the clutch right? Wrong. She went out and paid £300 for a Corsa and then after a week found out why it was £300 and had to take it into the garage to have £250 of suspension and brake work done.

TheR3ader

I want to say thank you to everyone who has commented - you have given some great advice and thought I would update you on the actions I have taken.

1) We have reduced our food bill to £35 per week for the two of us. We will still be putting £100 each into our joint account for food and at the end of the month, split the difference for it to go into savings (we like to have buffer room in our account)

2) I am keeping my car and making sure that I have appx £1000 in the back for repairs. It definitely works out cheaper this way than buying and new car (and I absolutely love my little convertible)

3) I've cancelled my music subscription and audible. As someone rightly pointed out, the odd advert isn't too bad and I have a surplus of audiobooks in my library I haven't yet listened too. This should keep me going for a while on long car journeys.

4) Let go of my personal trainer. It's not an absolute need and it means I can focus even more money on my debt which is great. I have some old workout DVDs that were gathering dust - I figure these will be good enough to temporarily replace my personal trainer until my finances are under better control.

5) I've cut through the chips on my credit cards and asked the bank to put a stop on the spending so the debt cannot get any higher.

6) I've started a Shopping Ban. I've made a list of Essentials (groceries, etc), Approved Items and Denied Items (books, etc). I recently read The Year of Less by Cait Flanders and found it so inspiring I'm beginning a challenge of my own. I've started the de-cluttering process and was amazed by how much stuff I have that I don't use (or have never used). So far I've made £200 from selling items I have kept stored for years.

So, so far so good. I'm sure I will keep updating this thread as I progress with my debt, it helps to be kept accountable (even if it's my own imagination). It was absolutely terrifying facing up to my debt, thank you to everyone who was supportive!!