Untangling our financial disaster

tlc678910

Hi,

Firstly we do have debts so I’m not trying to be holier than though but I hope I still have some useful advice.

As you have a good income but spend a lot you can make good progress if you change your ways.

You need to think about every purchase. My husband recently wanted a new bike. He chose one from the high street that he felt was good value. He was adamant that the best way to buy it was monthly because it was “only £11 each month and we wouldn’t notice”. The store had an online calculator that showed he would be paying £600 over time for a £400 bike (18%) which I was not prepared to do. We aren’t in a position to buy a £400 bike outright so he changed his mindset and looked for the bike he wanted second hand. When he thought about it he thinks people that are into biking upgrade their bikes all the time and he was perfectly chuffed with the bike he got for £120. Good result.

You can involve your children in a very gentle way. My son has decided he wants a DJ deck - it is £220. I have told him if he saves half the money by his birthday in October I will match it for him (he gets £5 a week). When he wanted some credits on his xbox the other day I warned him it was a months pocket money and he said “no cause I want my dj decks”.

You definitely need to stay away from shops at the weekend. Simple but so true advice: if you don’t want to spend money ...don’t go to the shops. We have national trust membership at £10 a month (also English Heritage at around £100 a year) but you could go for what you have most of near you. We went with friends the other day and a flask of hot chocolate, penguins and wotsits for a midpoint break probably saved us over £30 in the cafe between both families. Make sure you have something easy and ready to heat up in for tea afterwards so you aren’t tempted to eat out after you have worked up an appetite. It was lovely to see the boys racing round the fields and I would say a nicer day for kids than a shopping mall. Save your entertainment budget for swimming/soft play/ bowling if it is chucking it down.

Some debt free wannabes would say we shouldn’t be buying bikes and memberships if we have debt but I think you have got to be realistic and unless you live in a part of the country with great outdoors you probably aren’t going to get away with the local park every saturday and Sunday . When you have been heavily over spending you are looking for improvement rather than perfection.

You can make cheap activities fun. I remember the day my son was upset with me because we went to the pub for tea when he had been promised a picnic in the park (but it was raining). A movie night with popcorn and sweets at home could easily save you £20 over the cinema and snacks. I’d say one thing kids like best is just having a friend round to play.

Good luck
Tlc

getmore4less

Amount left after debt repayments....... 391

I would do a full review of 2018 to try and work out where all your income went for that year

This might find the hole sooner than a spending diary as that tends to stop the spending anyway.

Ashamed to say that it isn't a mistake, however it will not be happening any more. We got into terrible habits of buying clothes for ourselves and the kids practically every weekend.

You can't get away with Zero so need to plan how much you want to spend this year

Do a clothes audit and see where you will have gaps during the year, for kids that is they grow out of stuff for adults might be nothing but some new knickers.
Make stuff last, I change out of anything decent into what are becoming rags around the house even if something is stained it is fine to sit and watch TV etc. make stuff last.


That is the first step in an annual budget, far better to do a full years worth so you get a better normalization on where the money goes and can prioritize

go through the £61k income for this year and decide where you want it to go prioritize everything.

The first step is to pay the minimums on all the debts and make it balance and track it is working as you cut back in other areas.

If you can make it balance and cover everything that will crop up over the next 12 months you have a good start.

personally untill you nail the high rates I would pay off those debts before saving but try to make sure the budget is well populated and have a line of credit on a card that you can use to assist cash flow.
Either a 0% spend card or a pay off in full card, you can generate a lot of free cash if you just stop spending for a month or two.

On the debt front there are 2 things that need to happen,
1. As much money as possible needs to start going towards the debt
2. Address the interest rates ASAP.

If everything stays as is and you manage the current payments and the budget works this is how long each debt will take,


Description....................Debt......Monthly..APR time
loan...........................25000......410........7.9......6y 7m
credit card 1...............10400......230.........6.9.....4y 5m
credit card 2.................4800.......98.........6.9.....4y 10m
very............................1800.......97...........0......1y 7m
Argos............................500.......18.........20......3y 2m
credit card 6.................4800.......48...........0......8y 4m
credit card 5.................3000.......30...........0......8y 4m
credit card 4.................6000......197.......19.9......3y 7m
credit card 3.................7200......247.......22.9......3y 7m

if you stick this in the snowball it will come in much sooner than the dates there as each one get cleared the amount snowballs onto the next.
http://www.stoozing.com/calculator/snowball-calculator.php
http://www.whatsthecost.com/snowball.aspx


Once the snowball calc is loaded you can play around with overpayments and see how quick you can do this.

With just the current payments debt free in <5years

Find £250pm you will knock 1 year off
Make the total for debt £2000 done in 3 years
(sooner if you get the rates down during that time.

Currently £500pm is going on interest on these debts that's your biggest single outgoing after the mortgage.

getmore4less

Groceries etc. ......................... 480

On this I think it is a good idea to split it into 3 to help identify where the savings are

food : just so you have a clear idea what you are spending.

household : most of this stuff can be bulk buy when on sale paying full price for stuff if often a higher APR than your highest rate debt.

Alcohol : pure discretion spend either have a separate category or lump in with entertainment.

Another discretionary spend is convenience food like snacks and take away having a category for those can help identify where the money goes, might be you can cut back but still have some.
We cut right back as many were habit(curry Friday night) we now enjoy them more when we do have them.

I also think that when a category gets a high allocation of funds it need breaking down(when possible)

Entertainment........................... 500

£6k a year

I would split this into multiple groups, is it taking the kids out, meals, pub cinema etc.

It will be easier to see where you can prioritize what you do decide to allocate for this.

stingey

tlc678910 wrote: »

Hi,

We have national trust membership at £10 a month (also English Heritage at around £100 a year) but you could go for what you have most of near you. We went with friends the other day and a flask of hot chocolate, penguins and wotsits for a midpoint break probably saved us over £30 in the cafe between both families. Make sure you have something easy and ready to heat up in for tea afterwards so you aren’t tempted to eat out after you have worked up an appetite. It was lovely to see the boys racing round the fields and I would say a nicer day for kids than a shopping mall. Save your entertainment budget for swimming/soft play/ bowling if it is chucking it down.

Some debt free wannabes would say we shouldn’t be buying bikes and memberships if we have debt but I think you have got to be realistic and unless you live in a part of the country with great outdoors you probably aren’t going to get away with the local park every saturday and Sunday . When you have been heavily over spending you are looking for improvement rather than perfection.

You can make cheap activities fun.
Tlc

This.

We're the same, we've got a Historic Scotland membership at £8 p.m, it gives us great days out.

We've got up to 20 years to pay down our debt. We can either, pull right back and have no entertainment for 10 years or have some, but frugal entertainment/holidays for the 20. I've got 2 young kids and it's not fair on them having no days out and this impacts on their lives. It's about finding balance, living and paying down the debt.

EssexHebridean

Comments in red below as usual

Readytochange wrote: »

<snip>
I have put together a SOA based on our recent spending. I have tried to be as accurate as possible but I know that there are errors as apparently we have money left over but we dont! I bet you do, it;'s just currently, you're frittering it away!

I have considered all of our options. -

1. Sell the house and pay off the debts - don't really want to do that. Do NOT do this - it's not suitable for your circumstances in the least
2. DMP or IVA - I have take advice and apparently this is not appropriate for us as we can afford our repayments
3. Knu

ckle down and sort out our spending - I think that this is the only way. That's the first step taken - good start!


Here is the SOA. Please be gentle.

Household Information[/b]
Number of adults in household........... 2
Number of children in household......... 2
Number of cars owned.................... 2 Do you need both cars? Could you manage with sharing one?

Monthly Income Details[/b]
Monthly income after tax................ 1800
Partners monthly income after tax....... 3324
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 5124

Monthly Expense Details[/b]
Mortgage................................ 519
Secured/HP loan repayments.............. 0
Rent.................................... 0
Management charge (leasehold property).. 0
Council tax............................. 130 Is this paid over 10 months? If so you have this month and next where that figure can be thrown at the debt remember, as no payment will be taken. Think about changing to paying over 12 months from the new financial year as this makes it easier to budget.
Electricity............................. 50
Gas..................................... 90 Check the comparison sites for both this and the electric as that's pretty high,. Also read the guide on the main MSE site to cutting down on use.
Oil..................................... 0
Water rates............................. 33
Telephone (land line)................... 26
Mobile phone............................ 60 How close are you to the end of contracts? This can reduce by switching to SIM only deals
TV Licence.............................. 12 Sure? I'd expect to see some odd pennies on this as well, rather than a straight £12
Satellite/Cable TV...................... 38 Check the total price you're paying for TV, Phone line & internet - then ring your provider and haggle them down
Internet Services....................... 27
Groceries etc. ......................... 480 You can reduce this a good bit with savvy shopping, meal planning and making sure you cook from scratch rather than buying convenience foods.
Clothing................................ 215 HOW much? that's over £600 each on clothing per year for the family - that's a lot.
Petrol/diesel........................... 210 Read the guide on the main site on keeping costs down, use price checker websites to familiarise yourself with your local cheapest petrol stations etc.
Road tax................................ 5 Are you paying this monthly? If so switch to annual as you pay a premium for monthly DD.
Car Insurance........................... 70
Car maintenance (including MOT)......... 0 2 cars are going to need around £70 a month saved to cover servicing, tyres, moT test and other odds and ends
Car parking............................. 0 You never pay to park anywhere at all?
Other travel............................ 0
Childcare/nursery....................... 320
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 10
Pet insurance/vet bills................. 0
Buildings insurance..................... 30 Have you checked that this and the contents cover are the best deals you can get?
Contents insurance...................... 21
Life assurance ......................... 32
Other insurance......................... 0
Presents (birthday, christmas etc)...... 200 £2400 a year on presents is just too much I'm afraid.
Haircuts................................ 30
Entertainment........................... 500 Too much by far for a family in £63,500 of debt. Start learning about all the things you can do for free or very cheap in your local area - and remember that time spent together makes the best memories, not money spent together.
Holiday................................. 250 Are you committed to this spend or can it be reduced?
Emergency fund.......................... 0 You're prepared to spend over 11,000 per year on presents, entertainment and going on holiday, but you're not budgeting anything for "what happens when things go wrong" - that's not smart, I'm afraid.
Total monthly expenses.................. 3358


Assets
Cash.................................... 0 This can't be correct - you're saving for both presents and holiday costs monthly yet you have no cash to show for it?
House value (Gross)..................... 250000
Shares and bonds........................ 0
Car(s).................................. 7000
Other assets............................ 0
Total Assets............................ 257000 Ignore this figure - it's meaningless I'm afraid!


Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 84000....(519)......1.79
Total secured & HP debts...... 84000.....-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
loan...........................25000.....410.......7.9
credit card 1..................10400.....230.......6.9
credit card 2..................4800......98........6.9
very...........................1800......97........0 When does 0% finish?
Argos..........................500.......18........20 Ouch to that rate!
credit card 6..................4800......48........0 When does 0% finish?
credit card 5..................3000......30........0When does 0% finish?
credit card 4..................6000......197.......19.9 Ouch to that rate, too
credit card 3..................7200......247.......22.9 Bigger ouch to that rate
Total unsecured debts..........63500.....1375......-


Monthly Budget Summary
Total monthly income.................... 5,124
Expenses (including HP & secured debts). 3,325
Available for debt repayments........... 1,766
Monthly UNsecured debt repayments....... 1,375
Amount left after debt repayments....... 391 This is good - and now you need to work out where it's all going - to give you some perspective that is £4692 a year that you're currently "losing".

Personal Balance Sheet Summary
Total assets (things you own)........... 257,000
Total HP & Secured debt................. -84,000
Total Unsecured debt.................... -63,500
Net Assets.............................. 109,500

The excellent news here is that you can fix it - it sounds like you've both woken up to the situation, and that's such a good starting point.

By my reckoning you can easily - just by stopping to think a bit, and changing some habits - save:
£250 from entertainment - and that can be slashed further over time.
£115 from clothing
£100 from presents
that frees up another £465 per month instantly, all of which can go towards debt. If you can slash the cost of your holiday - or agree to ditch it altogether, that is another saving you could make to throw at the debt.

Then tackle the food budget. Meal plan, shop to a list. Have you audited your fridge/freezer?cupboards recently? How long can you go just spending on fresh stuff and utilising the things you already have in? In the long term you can easily make that food budget £300 a month - I promise you that is really REALLY doable. Rather than initially throwing that saving at debt, I'm going to suggest you split it equally between building an emergency fund and putting aside for car maintenance.

All the things you say you set money aside for monthly - make 100% sure that you definitely do this. If you don't already do it this way consider opening savings account that "piggyback" off your current account and set a standing order for the relevant amount to each account for the day after payday each month.

Again - perspective. At the moment your annual spend on holidays, entertainment, clothes and presents totals to very nearly FOURTEEN THOUSAND POUNDS PER YEAR. That, bluntly, is a lot of dosh leaving your budget for fripperies!

I'd actually ditch best practise slightly on my approach if I were you - I'd just get that Argos account paid off and closed - it's a relatively small amount, and closing the account will stop you being tempted to use it again. The balance of that month's surplus/savings then goes straight to CC3 with it's deeply nasty rate - and from there you concentrate on that one. Remember to alter the DD on that one to include the Argos monthly payment once that one's gone, as well.

You're in such a good position to get this sorted out, I promise you. As you start to pay things down you'll be worth keeping an eye on your options for 0% cards as well - the eligibility checker on the MSE Credit Club site is a good place to look for this.

Good luck!

3011gillian

Loads of advice there and I’m no expert but one way I’ve found which might work for you is the try to live on one of your salaries as much as possible. Given you could cut down the entertainment/presents/holiday amounts as well as smaller amounts on groceries/swapping utility suppliers etc I think you wouldn’t be far off the £1800 one of you earns. I see your childcare costs are £320 so perhaps this could be used from the other salary to ease things a bit but otherwise try and save as much of the other salary as possible and just put chunks on each credit card in turn as advised above. Saving a small amount to build up for emergency fund.

getmore4less

I forgot the mortgage

Mortgage...................... 84000....(519)......1.79

that's 15.5 years.

if we add that to the snowball at £2k per month

Bebt AND Mortgage free in less than 6 years

Even at the current £1375pm less than 7 years.

There are loads of little tweaks to make but the key is to get that plan for the year done ASAP allocate where you want to spend then track you can manage it.

The first years focus is to nail those high rates and plan for the 0% running out.

I would then put together a 5 year plan that has you debt free potentially* overpaying the mortgage and saving for the longer term stuff

*if you can keep the mortgage rate low there are better savings options.

A couple of good goals for 5 years time might help with the motivation.

getmore4less

3011gillian wrote: »

Loads of advice there and I’m no expert but one way I’ve found which might work for you is the try to live on one of your salaries as much as possible....

That's a fairly good way to look at it.

The £1,800 is covering the debts the child care and a little bit left over for the car to get to work.

tallyhoh

If you have been paying for clothes every weekend, you must have loads of good stuff lying about. Try putting it in "job lots" or the really good brands single sales on ebay.

You won't clear your credit cards but you could use the money to buy clothing necessities.

I don't sell a great deal but it pays my grocery bill every month.

Grumpelstiltskin

tallyhoh wrote: »

If you have been paying for clothes every weekend, you must have loads of good stuff lying about. Try putting it in "job lots" or the really good brands single sales on ebay.

You won't clear your credit cards but you could use the money to buy clothing necessities.

I don't sell a great deal but it pays my grocery bill every month.

Or anything bought very recently, unworn and still with tags take back for a refund.