Lightbulb moment after big drop in income....

ktb

Statement of Affairs and Personal Balance Sheet

Household Information

Number of adults in household........... 2

Number of children in household......... 2

Number of cars owned.................... 0

Monthly Income Details

Monthly income after tax................ 1041

Partners monthly income after tax....... 1597 

Benefits................................ 137.6

Other income............................ 0 - Once I can get out and run my business again this will increase

Total monthly income.................... 2775.6

Monthly Expense Details

Mortgage................................ 932

Secured/HP loan repayments.............. 0

Rent.................................... 0

Management charge (leasehold property).. 0

Council tax............................. 223

Electricity............................. 67.5

Gas..................................... 67.5

Oil..................................... 0

Water rates............................. 48

Telephone (land line)................... 0 (this is part of our BB package)

Mobile phones............................ 56.33

TV Licence.............................. 13.2

Satellite/Cable TV...................... 0

Internet Services....................... 39.99

Groceries etc. ......................... 800

Clothing................................ 50

Petrol/diesel........................... 15

Road tax................................ 15.75

Car Insurance........................... 45.59

Car maintenance (including MOT)......... 20

Car parking............................. 0

Other travel............................ 0

Childcare/nursery....................... 0

Other child related expenses............ 0

Medical (prescriptions, dentist etc).... 30 (treatments for poorly daughter)

Pet insurance/vet bills................. 0

Buildings insurance..................... 30.75

Contents insurance...................... 0

Life assurance ......................... 117

Other insurance......................... 0

Presents (birthday, christmas etc)...... 20

Haircuts................................ 20

Entertainment........................... 60

Holiday................................. 0

Emergency fund.......................... 0

Total monthly expenses.................. 2671.61

Assets

Cash.................................... 0

House value (Gross)..................... 405000

Shares and bonds........................ 0

Car(s).................................. 0

Other assets............................ 0[b]

Total Assets............................ 405000

Secured & HP Debts

Description....................Debt......Monthly...APR

Mortgage...................... 250000...(932)......1.9

Total secured & HP debts...... 250000....-.........-   

Unsecured Debts

Description....................Debt......Monthly...APR

Loan...........................25000.....450.......3  (just about to consolidate numerous debts costing £660 a month, to this)

Sofa 1.........................1416......41.66.....0

Sofa 2.........................507.......13........0

We have been living beyond our means for a while now whilst I have been taking care of our young kids and trying to start a business but this week my husband found out his whole company are being moved to part-time contracts for the foreseeable, cutting his income in half, so we are about to be in a position that we can't meet our obligations debt wise. I have put whatever I can on payment holidays for now, but as my husband's situation may run longer than they last, we need longer-term plans.

I was just starting to get some traction for increasing our income through my business, but I am unable to operate whilst I have the kids at home full time and I am also furloughed from a minimum wage job and I have a suspicion my employer may be forced to make some redundancies in the not too distant future too, so want to get on top of this now.

We have obviously had to take our heads out of the sand and really acknowledge that things have to change. I have been a member of this site for a very long time, so I know how these things go and I know I been in denial for a while now. I just wanted to post our SOA as it makes it more real and obviously for any advice and guidance. This SOA is how things will look once my husband's new contract is in place and we have signed the agreement on a consolidation loan, which will take our debt repayments down from £660 a month to £450. 

Our grocery budget is, without doubt, a major cause of our monthly overspend.... my daughter has health issues which require special foods, I cook a lot of fresh meals with really high-quality ingredients and she also needs certain treatments which are expensive etc...so we acknowledge this has been the main cause of overspending in last 18 month and we will be working to reduce this as much as we possibly can. We were due to have an appointment with the Paediatricians at the hospital last week to discuss her issues and what can be done but this was obviously cancelled due to the lockdown  

Just to answer possible questions;
- Our CT is over 12 payments
- I am a member of Martin's Energy Club so our energy is always moved where cheapest
- We were both on cheap PAYG sims until very recently, husband still is but I had to upgrade my phone for my business (so when I can get back out working again after the schools reopen, this will become a business expense again)
- We run 2 cars but don't own them... if we sold one we would have to pay my Father-in-law the money as he owns them and saving from running costs would only be £30 a month give or take and may make life rather difficult for school runs etc once I am back out to work full time (we are definitely not ruling out doing this however!)
- I have contacted our Life & Sickness Insurance provider to ask about pausing/amending/cancelling our policies as these are a big expense - waiting to hear back
- We are locked into FTTP BT Broadband service as we are a newbuild and they have the sole contract on the estate for the next couple of years.. I will be calling them to see if there is a cheaper option
- We don't take holidays... but I don't doubt we have overspent on occupying ourselves at home, which we are now hyper-aware of!

We planned to consolidate the debt, cut up all the credit cards and address the overspending... is that what you would recommend to get on top of this or are we looking at this the wrong way? Thanks in advance. 

enthusiasticsaver

Consolidating debt is rarely a way to deal with too much debt.  Have you actually had this loan agreed already at 3%?  You do need to make sure you do not run credit cards up again and this loan will be around your neck for a long time presumably.  
Why are the life insurance policies so high? The buildings insurance looks high too even if contents is included.  Are you going for the top of the range insurance policies with all the extras included? Go for a basic insurance package especially while you cannot cover essentials. 

Groceries is way too high. Look for cheap food providers.  My son in law is gluten intolerant and three of my family members are lactose intolerant so I know these foods are more expensive but Lidl and Aldi now do good ranges of special dietary food and although fresh food is more expensive than junk £800 still seems like a massive amount for 2 adults and 2 children. Even with 3 adults on lockdown we are managing on about £350 accommodating 1 lactose intolerant, 1 vegetarian and that includes wine.  Can you cut alcohol out or are there cigarettes etc in that £800 spend?  You can cut out entertainment for now and clothes so that would help until you are working again. 

sourcrates

Hi,

Two things stand out in your SOA.

The first is £800 on food, 2 adults and 2 children can easily live on half that amount, probebly less, i understand about the eating issues, but whats the difference between quality, and high quality, i would say only the price.

Having worked in the food industry, the only difference between fresh waitrose and lidl food, is the price, its the same food, with a more expencive price tag.

The second, you mention the "C" word, consolodation, not always a good choice, you say you`ve been a member for a while, if you read through this forum, you will find many people have consolodated debts, its the next stop on the list down from not been able to obtain zero % deals on your credit cards any longer, in other words, a well worn path, most people mistakingly go down, thinking they are doing the right thing.

Ask any bankrupt how many times did you consolodate your debt, you will get an answer of 3 times, maybe 4, it rarely works !!!

This is because they don`t address the issues that got them into the debt in the first place, a good example is your £800 grocery bill, the majority of that will be because you buy well known branded goods, you have  to live within your means, otherwise no solution will ever work, and you will end up back in the same position, but with twice/three times the debt.

Also further borrowing, if you can get it, is not how you repay debt, your just side stepping it, you still have the debt, and it will cost you more in the long run, a much better solution is to use debt management, cut your budget, live withing your means, and pay the debt back that way.

Willing2Learn

Have not got time at the moment to take a good look at your SOA.  Will do that later.  Just wanted to say don't consolidate if you have not addressed the fundamental flaws in your budget.  It just leads to trouble...

enthusiasticsaver

I also  see you have no emergency fund which again is a classic error when debt busting.  If an unavoidable expense crops up it means people are tempted to  add it to a credit card.  You need to set something aside for this.  

shoppingobsessed2020

Can I ask, will you have a surplus or a deficit with the new budget?  My quick calculation shows a deficit still  

the quickest and easiest change (and one I’m struggling with myself) is the grocery budget.  I’m also on a specific diet so understand the cost implications of specific health related diets.

ktb

enthusiasticsaver said:

Why are the life insurance policies so high? The buildings insurance looks high too even if contents is included.  Are you going for the top of the range insurance policies with all the extras included? Go for a basic insurance package especially while you cannot cover essentials. 

 Can you cut alcohol out or are there cigarettes etc in that £800 spend?  You can cut out entertainment for now and clothes so that would help until you are working again. 

Thanks for your response.... I have already contacted our insurance broker re; canceling/pausing/reducing the life and income protection policies, these seem like a bit of a luxury at the moment I agree. 

Home & contents is a Sainsbury's bog-standard policy, was the cheapest I could find when I shopped around and runs until Oct.

We don't drink or smoke so no expenses there. Ironically I had entertainment at 0 and then saw other threads where people were told to be realistic, so added a little in because with 2 kids at home full time we have spent a little on audiobooks, colouring/craft stuff etc... obviously, we keep these to a real minimum, especially now, but I think i'd be kidding myself to think this is going to absolutely zero. We certainly won't be buying any non-essential clothing, but kids do need shoes and clothing as they grow - my son will need a new school uniform when he goes back as he just had a big growth spurt. 

Definitely aware that our grocery budget is the big ticket item...we are looking at that for sure. Just have to be a little careful for my daughter's sake, transitioning her onto lots of new things.... need to take it a bit slowly. Thanks again for your pointers.

ktb

shoppingobsessed2020 said:

Can I ask, will you have a surplus or a deficit with the new budget?  My quick calculation shows a deficit still  

the quickest and easiest change (and one I’m struggling with myself) is the grocery budget.  I’m also on a specific diet so understand the cost implications of specific health related diets.

The food budget is 100% a major factor and one we are working hard to address this asap. My daughter has come so far since we went organic and as fresh, home made and healthy as possible - buy my goodness did our shopping bills go up. No point eating well with no roof over our heads, but I also don't want to sacrifice her health either, its a tough one. 

With the new budget above we would still be at a deficit however as my husband is moving to part-time hours, one of us will be able to get an extra job to make up the shortfall (whilst the other provides childcare)... so we should be in a better position than the SOA here suggests. We will be able to cover all our outgoings if we can reduce the overspend we have currently have. 

Thanks for your response, it;s appreciated. 

ktb

enthusiasticsaver said:

I also  see you have no emergency fund which again is a classic error when debt busting.  If an unavoidable expense crops up it means people are tempted to  add it to a credit card.  You need to set something aside for this.  

Definitely an issue and something we will look to address if we can...we have certainly been in the position of having to juggle things on cards for unexpected emergencies in the past, so this is good advice - many thanks. 

ktb

sourcrates said:

...... a good example is your £800 grocery bill, the majority of that will be because you buy well known branded goods, you have  to live within your means, otherwise no solution will ever work, and you will end up back in the same position, but with twice/three times the debt.

Also further borrowing, if you can get it, is not how you repay debt, your just side stepping it, you still have the debt, and it will cost you more in the long run, a much better solution is to use debt management, cut your budget, live withing your means, and pay the debt back that way.

You speak a lot of sense - thanks for your response. 
A chunk of this debt is in my Dad's name and I certainly do not want him impacted in any way....  with both our incomes at what they 'should' be and with the very necessary reductions in our grocery budget etc that you quite rightly point out, we would be able to cover the existing debt repayment.... but obviously we need to get to that point post lockdown, without incurring more debt. I feel very torn.. I have completed a step change debt management online form and it says to call them and they are closed today according to the recorded message, so I will try them again next week to discuss our options. 

Drawingaline

Is it just your daughter who has these dietary requirements? Would it be possible to buy ingredients for her, bulk cook and freeze meals, then everyone else eat a little more budget wise? You could even eat the same meal, but she has her own, special one while the rest have a budget version?