Debt payments vs upcoming expenses 29 December 2018 at 1:21PM in Debt-free wannabe 8 replies 1.5K views

ChasingtheWelshdream

Hi all,

LBM has well and truly happened! :eek: and the following days will be spent on sorting out our budget/plan of action/cc repayments etc.

I am feeling a little overwhelmed with everything, so taking baby steps and sorting a bit each day.

But I have a question that probably has a simple answer staring me in the face - but I just can't see it at the moment. I'm also not entirely sure if it should be in this section, or budgeting, so apologies if it should be moved.

Apart from CC repayments (which I need to prioritise as I'm trying to avoid interest payments), there are some big expenses coming up in the near future - car services/insurance etc, which I really want to pay for up-front instead of using CCs again otherwise we'll never get out of the cycle.

I am in the middle of budgeting across the entire year, and dividing by 12 so that I put the correct amount of money aside in money pots to cover everything when it arrives. This all makes perfect sense. But, what do you do if the big expense is coming up before there has been time to save for it? EG - if car insurance is due in Feb, and house insurance in April how do you budget in that short period?

Is it a case of prioritising only for the big expenses at the moment, (and forget other money pots - emergency fund etc), and then start a money pot for the next year once it's been paid this time? (Eg - insurance £300 - save up for this only, then once that's paid, start a moneypot for £300/12 straight away. And so-on for all expenses over the next year so that everything is on track come next January.

Or am I overcomplicating things?

I'm not great at explaining things - so I hope that makes sense!

I've been avidly lurking for ages and think starting a debt-free diary will be a good idea to keep me on track (I love reading the ones on here), but I need to sort everything out first!:money:

DD265

Welcome out of lurkdom

I've been in exactly this situation and my budget is a constant work in progress.

I bust my backside to pay the big bill in full, in cash. This might've meant selling things or lower credit card repayments (I always pay well over minimum, so I have wriggle room) for example. Then like you said, if car insurance is paid in March, from April I'm setting aside 1/12 of the next anticipated bill.

Sometimes it was actually better to go down the monthly direct debit route; it might have cost a little in interest but timing wise it wasn't achievable to pay in full. Then you want to try and put away 2x payments a month though, ready to pay in full the following year. It's not that you have to shift from monthly payments to annual on everything overnight. I've focused on one area at a time to 'tidy up' as it were.

If you post up a statement of affairs (http://www.stoozing.com/calculator/soa.php, format for MSE), people should be along with some great advice.

ChasingtheWelshdream

Thank you DD265 - so I'm on sort of the right lines then. :-)

I've never thought about paying insurance in monthly installments before, but something I can look into. It may well be easier to suck up the extra interest on that, alongside a double payment, than potentially getting in a pickle elsewhere by trying to save up the whole lot. Mmmm, food for thought....

I'm currently sorting through a whole load of stuff that I could potentially sell, even for small amounts, rather than cluttering up the house. (Well, I was, until I started procrastinating......!) I've got lots of ideas from diaries and am now looking at books/cds/dvds that might make a few pennies - I've honestly never even thought of it before. Anything I do make will be put to use either as CC payments or towards the next big bill - rather than be frittered away.

I will definitely be doing an SOA, and all day I've been suddenly thinking of things that I need to include - like Scout fees, haircuts, school trips etc. Unfortunately my 'filing' is basically non-existent, so I need to find everything before I can make sure everything is included (and when - like when is our breakdown cover up for renewal - I have no idea!!) As I say, very overwhelming so I expect it will take me a good couple of weeks to get organised.

CC-wise, we are not too bad compared to others on here. But compared to where we were a couple of years ago, it's not great and we need to get a handle on things fast. Fortunately, both me and OH have had a LBM at the same time, rather than our solo half-hearted attempts in the past, so we can forge ahead together.

enthusiasticsaver

Working out the best way to sort out insurances is a mathematical exercise and the first year is a learning curve especially if they fall due in the early part of the year. Getting a quote for both to pay annually and monthly instalments is a good plan. If you are paying off debt putting it on a credit card is not ideal but if 0% and the monthly instalment way works out much more expensive you may have to do that. You will then have to put double the money aside though for this year. Once to repay the credit card payment for this year and once to save for next years insurance premium. Ideally you would scratch around for the next three months trying to get the cash together for this years payment.

ChasingtheWelshdream

Thanks enthusiasticsaver, that makes a lot of sense. :-) I can see a year of constant juggling ahead!

At the moment we don’t have a 0% spending CC as we didn’t want to be tempted. But we do keep getting offers from our existing cards, so it may well make sense to look into.

But, we’d rather not unless it would save a significant amount in case the temptation to ‘stick it on the card’ gets too much. We are going to budget and save like the clappers before we go down that route I think. I’m going to get quotes now for upcoming premiums to give us figures to aim for.

Glasses! Both of us wear glasses and generally need a new pair every couple of years.... Another thing to budget.

enthusiasticsaver

Yes I can see your thinking about not wanting to take out a new card. If you do then use it for insurance only this one year and divide total by 12 so you clear within one year. Budgeting is an evolving process. You won't get it right first time. You will forget things and add things in. If you need glasses changed regularly then yes budget for those, vet bills if you have pets or dental treatment are other expenses people often forget. Car maintenance and white good replacement or essential home maintenance.

DD265

enthusiasticsaver wrote: »

Budgeting is an evolving process. You won't get it right first time. You will forget things and add things in. If you need glasses changed regularly then yes budget for those, vet bills if you have pets or dental treatment are other expenses people often forget. Car maintenance and white good replacement or essential home maintenance.

Definitely. I have a 'health' category which I was maintaining a £100 balance for. Enter a not insignificant amount of dental work, and I'm revising that category to maintain a balance of £300!

It does cost money - an annual subscription around the £70 mark - but I really like You Need A Budget. You can set goals like a category balance (£1000 for an emergency fund) or a monthly funding goal (£50 a month for gifts/parties) or a balance by X date (£600 by November for car insurance). All things you could work out on a spreadsheet, but in YNAB it's easy to track transactions and update the budget as you go.

getmore4less

AS you have found when starting from scratch the 12 month budget can balance but the cash flow can be a problem.

There are a number of ways to tackle this and there are tools that can help.

MSMoney is very good for the cash flow problem.

But you can do it manually.

The starting point is to get a annual plan(budget) to balance so you know you have the year covered.

If you then plot the income against outgoings for the year you will see where the high and low points are(MSmoney does this for you).
if any low point is negative then that requires borrowing or moving an expense to later(after an income point) in the cycle.

If using the pots method you borrow from the pots with positive balance to pay the one that will go negative because they are too early.

one way to do this is to get all the irregular but bigger spends together in one master pot and see if that can manage the cash flow.

Sometimes when you have the full picture it can be a case of moving one expense to another point in the year


There really are two problems one is getting the year to balance and the other is getting the cash flow to work, often it means some of the discretionary spends have to get delayed till the money is available.

If trying to build up an emergency fund that can be a good place to manage the cashflow.

The important thing is by the end of the year the spending matched the plan and the savings/debt goals were met.

It does not matter if the savings happened every month but as long as the total was achieved, month with bills savings lower, month with no bills savings higher.

IF you have your council tax on 10 months you will have the 2 free months to help with the cashflow make the council tax monthly payment annual/10 rather than 12 on the budget you have 2 free months in the bag to kick start the cashflow problem.


Most people that try to do the monthly thing have some cashflow they can adjust by delaying expenses, it may take a while to get out of the cycle but that does not matter as longs as the totals for the year(s) are balancing and the net worth is going up(debt going down).

Often monthly payments are much higher interest rate than just borrowing elsewhere.

eg. monthly car tax is over 9%.

if you have any cards that are paying interest then getting a zero% spend card is a good way to move debt to a lower rate, you just put the everyday spends on the 0% card and pay off the high rate debt with the cash(or pay that bill that was to early)

Glasses! Both of us wear glasses and generally need a new pair every couple of years.... Another thing to budget.

if you don't already look at online options, you can go real cheap(<£30) or expensive(£150ish gets vari, photo, titanium, thin, rimless)

ChasingtheWelshdream

Thank you all. :-)

Apologies for not replying for a little while, but I have been looking at your replies and taking your suggestions on board.

EnthusiasticSaver: I am reluctant to take out a new credit card for spending, but looking at some offers that have come through from our existing cards, we may be able to juggle balance transfers around to get all our existing balances on 0%. This would then give us some breathing space to save up for the upcoming bills without worrying we are wasting money on interest payments. I am looking into this to see if it's possible. I think it might be, if I can clear our smallest balance, highest APR this month.

DD265: I really like the look of YNAB and have been tempted before, but DH isn't really keen on the fee so we are going down the spreadsheet route at the moment. It's just trying to compromise on a format we agree on! :rotfl:

I think the categories will need to be constantly looked at and re-balanced, and it will be interesting to see how our estimates differ from reality at the end of the year!

getmore4less: Thank you, that is a really helpful answer and makes a lot of sense. I think I've been getting stuck on the principle of 'everything divided by 12', but looking at things annually, I can see where we will need to have lean months elsewhere. We've nearly got figures together for everything, which is proving helpful, but I keep remembering other things to add!

The good thing is, despite our current situation, on paper our income vs outgoings should be leaving a good surplus each year. Which just goes to show how wasteful we have been with our spending, and will definitely help keep our focus this year. We want to do some home improvements, which we are not even going to consider until the CC debt has gone.

We pay council tax over 12 months, so unfortunately won't be able to get the cashflow up that way.

I am looking at MS money, but it doesn't look like it works on Apple OS - I like the idea of it though so I'm going to see if there is a free mac equivalent. In the meantime, DH is in charge of spreadsheets.

Thanks all! :-)