Tidying up the mess

GlendaSugarbean

Duh - of course you have a mortgage as you've just renegotiated it!

BabyStepper

Thank you so much Moneywhizz, enthusiasticsaver and GlendaSugarbean. I appreciate your input and you have given me more confidence about this. Me and OH have had a couple of days skipping around excitedly, knowing there is an end in sight to the debt repayments and it's much sooner than we thought.

Now back to reality and the steps we have to take right now to get this new plan on track. Stick to the budget in February, get the house repairs to come in on/under budget (yes, the house maintenance fund needs to become a priority for building up), check the late invoice payer's cheque has arrived then pay off BC2. I am also number crunching my business account to look for ways to reduce expenses.

For today, everything is on track.

BabyStepper

GlendaSugarbean wrote: »

I can't remember if you have a mortgage - if so you may also want to think about mortgage OPs next year to start bringing the term down (and saving on interest).

Paying off the mortgage faster is definitely in the long term plan but given we're following the Dave R baby steps, once we have paid off the debt we will be doing baby step 3, saving 3-6 months emergency fund. Then 4, 5 and 6 together, 15% to pensions, paying down the mortgage and saving for the kids' college (not so relevant when you don't have kids!)

But before all that, once the debt is gone we will be taking a summer holiday. Paid for cash, possibly for the first time in our lives! The thought of that holiday is our inspiration lately.

warby68

This sounds really positive and you sound thrilled - compare that to 6m ago. Despite the stress, you've built your business and sorted everything else in just a few months. I agree with personal spends - it allows for different patterns and preferences and a bit of privacy (for good reasons) too.

The only thing I can think to add is perhaps building a salary buffer into your business account (and you may be doing this already) so that if you get a quiet month or some slow payers for example your salary is already there while things catch up. Just from seeing how you worry, I'd imagine a 'bad' month would be quite stressful for you. This would be the shock absorber for such months. A trade off I know when you want to maximize debt repayments but avoiding worries and bumps in the road seems like it would be of high value to you.

BabyStepper

Thanks warby68, yes there should be a small amount accruing in my business account. I won't know how much until it happens, but I have a plan for that account, just not quite ready to get it going yet.

There are also a few other cushions built into the plan. The joint/bills account will have a small excess accruing, and the final payment on the 12 month plan will only be around £400 so we can pay slightly less in the previous 11 months if need be and still finish on time.

dottydebts

I’ve read through your diary this morning and it has really inspired me to take control of my money and try to get OH on board too. Thank-you!

enthusiasticsaver

BabyStepper wrote: »

Paying off the mortgage faster is definitely in the long term plan but given we're following the Dave R baby steps, once we have paid off the debt we will be doing baby step 3, saving 3-6 months emergency fund. Then 4, 5 and 6 together, 15% to pensions, paying down the mortgage and saving for the kids' college (not so relevant when you don't have kids!)

But before all that, once the debt is gone we will be taking a summer holiday. Paid for cash, possibly for the first time in our lives! The thought of that holiday is our inspiration lately.

Great plan to build up the emergency savings after then attack mortgage, pensions and saving for kids. How old are you and do you both have pensions now? I know you are self employed now and I think you pay NI contributions from memory but do you have a previous one from your old employer? That might be something to look at next year when you are debt free. I am a massive believer in pensions as they are the only reason we have been able to retire 8 years earlier than many of our friends who are retiring on state pensions and very small occupational pensions only.

Giving yourself a holiday as a treat paid for outright with no borrowing is definitely something to look forward to.

DD265

That plan sounds fantastic Babystepper, I'm really pleased for you!

BabyStepper

Thanks everyone. dottydebts, glad I insired you.

enthusiasticsaver, we're in our 30s. OH is a few years younger than me and has a much better pension, or did have, we stopped payments in August last year to try and get the debt paid down as Dave R advised. It will be the first thing to be reinstated once the debt's gone. I have 4 different pensions across different organisations (I know, it's a shambles) and now that I'm self-employed I'll need to make a private arrangement. I do pay NI so should get the full state pension too. I'm not ready to start looking for a private pension, early next year will be the time. Neither if us aspire to retire early, we both get a real kick out of our jobs, but no harm in being prepared.

I've already been playing with the mortgage calculator and realised that if we overpay by £400 per month the mortgage will be paid off more than 10 years early. Inspiring, but as always we will be looking for some balance and having a comfortable lifestyle in the meantime.

We've also been bickering about how big the fully funded emergency fund should be. 3 months of expenses if your job is 100% secure (OH's is) and 6 months if it's not (like mine). I thought a good compromise would be 4.5 months expenses but OH wants 6 months so we'll be aiming for somewhere between £8k - £10.5k (depends who wins that disagreement). Dave advises not reinstating your pension until your emergency fund is complete but we have decided not to wait that long. Combining these things, I also wondered about keeping OH's half in the emergency fund pot and keeping my half in my business account to help with the cash flow from month to month. Or should we keep the emergency fund separate? Maybe it doesn't matter?

But back to today and what needs to happen now. I have someone coming out to quote for the work on the house this week. We have a good budget that should cover it. Everything is in place to start with the massive overpayments at the end of next month. Hopefully nothing else goes wrong in the meantime.

DrSpendLittle

I think EF should be kept separate and never used to help with cashflow. You should have an additional buffer in both accounts to deal with any cash flow issues, especially yours. There's no reason why this couldn't be a proportion of your EF whilst you build it up. It would make sense. But the rest (and most) of the EF should be sat in a separate account out of sight out of mind. There should be no risk to that EF being brought into every day financial decision making. It would be very easy to see it as a comfort blanket and that might tempt you to into using it.

Sounds like you've thought through all your mortgage / pension plans very well. I can see why your OH wants a 6 month EF. I want 6 months too. I think it's the fear of being back where we are now and not ever wanting that to happen - 6 months is super safe.