Living with Debt Without Realising it

draiggoch

I have been a member of these forum for over nine years now and normally just read the threads to relax before going to sleep. I have followed many Diaries and peoples experiences, highs and lows. 

In recent years (as I am getting older, mid forties) I have realised that I have been living with constant debt since I first left college. Spending all my wages with little to show for it. I'm married and have a teenage daughter whom I am trying to steer away from spending money she doesn't have (she's only 13 but as with most children her age wants something new quite regularly). I have a home with a mortgage which is down to 25% of the value by now due to small monthly over payments and price rises.  

During the last year of working at home and cutting frivolous expenses (just in case the worse happened) I managed to accumulate an emergency fund for the first time ever and it is still growing month by month. I look at our outstanding debt and it is higher than our remaining mortgage amount. We have brought the debts down by 25% in the last 18 months and are continuing to work on them and moving them about so any payments cover the capital rather than monthly interest. I know where all the money goes every month (spreadsheet) and follow most of the advice from MSE.

The main realisation I came to was the fact that we are living on a small percentage of both our wages as most is going towards the debt, so hopefully in about 30 months time when the debt should be cleared we shall have three times as much money to live on.  Two years later the mortgage will be paid off and the teenager may be in university. Therefore my plan if all goes well is to retire in 10 -12 years time (depending on the changes in retirement law) and develop new interests. At least I'll be able to cope on a lesser income as I have been living with the restriction for decades!

That's enough of my rambling, just thought it would be interesting to hear other people's views on living with debt in the background and how it will influence your future plans.

D.

kimwp

When you say you will have three times as much money to live on, what's your plan for that money? Are you thinking of living to that?

draiggoch

kimwp said:

When you say you will have three times as much money to live on, what's your plan for that money? Are you thinking of living to that?

I was thinking of pumping most of it in to my works pension as it is salary sacrifice. Decent amount going in now but with no debt can possibly increase it to 35%. I just feel that I need something to look forward to as in being able to leave full time work earlier than my 60s. The savings from not paying a mortgage should cover my daughter in university.

MalMonroe

That's all very nice but don't forget to live in the now as well. It's great that people think to the  future and put money aside and plan for retirement but - I don't want to sound too morbid here - not everyone actually makes it to retirement. Four of my good friends didn't. I feel I am lucky to have made it.

I think one of the saddest sentences has to be "I need something to look forward to". Life is short. Live it now. You can still pay off debts and your mortgage but you can also do other things as well. 

Can't you develop new interests now? Why wait another 10-12 years? Many people live with debt in the background and most of us cope. As for my plans, I retired a few years ago and am about to launch my own online business as I'm saving to become a home owner again. I've had enough of renting. I'm also planning to do a part time MA online and take up the piano again. Busy times. But good times, too!

draiggoch

MalMonroe said:

That's all very nice but don't forget to live in the now as well. It's great that people think to the  future and put money aside and plan for retirement but - I don't want to sound too morbid here - not everyone actually makes it to retirement. Four of my good friends didn't. I feel I am lucky to have made it.

I think one of the saddest sentences has to be "I need something to look forward to". Life is short. Live it now. You can still pay off debts and your mortgage but you can also do other things as well. 

Can't you develop new interests now? Why wait another 10-12 years? Many people live with debt in the background and most of us cope. As for my plans, I retired a few years ago and am about to launch my own online business as I'm saving to become a home owner again. I've had enough of renting. I'm also planning to do a part time MA online and take up the piano again. Busy times. But good times, too!

Thanks Mal,
A lot of things have been on hold for the last year, I would have met up with friends from all over the country during normal times but hopefully  we can start again this year sometime. 
I can't say we have missed out on any activities due to planning for the future, we have been to Lapland and Florida when the little one was smaller (appreciate it more than a moody teen!).

It's just come to the point where if I can concentrate resources for the next 10 years then more opportunities will open up. I do appreciate what you said in terms of not actually getting there as I have known many colleagues who retire and drop dead or suffer from medical issues within 12 months. Also from my own family history, it led to a sports car in my early twenties due to seeing a close family member passing early.

Always tempted to try the piano, we have one in the house as my daughter plays (a bit!).

kimwp

I recently achieved (ish) the situation that you are expecting to be (no debt, mortgage paid off, but no dependents to get through uni, also suspect I'm a bit younger at 36) - I whacked all the income previously going to my mortgage into pension AVCs, then got a bit excited at reaching a round number so squeezed my day to day living finances further.

It feels pretty tight, so I'm taking the attitude that I'm going to work out if/where my budget is stopping me having fun and then expand those areas. It's giving me a good baseline for thinking "would that make me happier or would it just mean freedom to buy more stuff", which are not necessarily the same things. It also lends to thinking creatively about doing things that make me happy without costing a lot.

It's definitely a balance between freedom now and security later, but (genuine, not store-bought) joy and happiness now is a priority.

draiggoch

I'm quite lucky in that I have two deferred DB pensions that pay out at 65 which will give me about £10,000 at today's prices. So it's the 55-57 to 65 period that I am trying to plan for now. Just trying to get the right balance in place for the next 10 years. 

Still planning on trips to Iceland  and Canada in the next 5 years but trying to make sure the cost is covered rather than sticking it on a CC as I may have done previously. Living in debt can just feel like normality and I'm trying to get out of that mindset. A few years of tightening the belt will be a positive long term.

In terms of not having dependants then you can have more control on your outgoings as costs sometimes appear from the unexpected especially with children. I'm not complaining as the benefits from the little one far outweigh any unexpected costs - but they do cost!

enthusiasticsaver

I worked in mortgage and debt arrears counselling for many years and often tried to get people to see what you have now discovered.  When taking debt on (whether a loan or building up a credit card balance or overdraft) it is not only the cost of that borrowing people need to take into account (ie interest) but also the monthly repayments have to be deducted from disposable income. Many don't get it until they calculate how much of their monthly income is going out on debt of one form or another.  Debt has been normalised over recent years thanks to low interest rates and easy availability.  Fine for those who are disciplined but can be a millstone round your neck if you are the type of person who spends first without planning for repayment. 

Once your debt is gone having that money back to spend, save or invest will make a big difference and I am glad you are passing these lessons on to your daughter so hopefully as an adult she will not be as keen to live with debt.  

Due to my background we never really had much debt beyond a mortgage and were able to retire 8 years earlier than our state pension age in our late 50s.  Would have been earlier but we helped our daughters through uni and on to the housing ladder first. Sounds like you have a good plan once the debt is gone but I agree a balance is needed as we never know what is round the corner.  We have a trip to Canada booked for this year (postponed from last year) but due to the virus we probably will postpone it again. 

BabyStepper

Learning about saving for the future while enjoying the present, and how debt effects all of that, has been a recent discovery for me too. I wish I had known about this earlier and often have regrets about daft decisions I made in my 20s and 30s. I wondered if it was an age thing, that I had to be approaching 40 before something clicked, but some people never seem to get there. When I was first paying off my debt, I was aiming for the day I could go back to how things were. It took ages to realise that this is it now, no more mindless spending, ever.

Living sensibly and within your means does not seem to be common but I am am quite proud I've achieved it at all, and I'm also aware I could slide back into my old ways any minute. I think it's great that you're planning to help your daughter through Uni, I would hope wealth could be passed down generations in families but it doesn't seem common. Everyone seems to just want to spend constantly. As @kimwp said, genuine, not store bought, joy and happiness is the thing to aim for. 

Having no debt is an eye-opening experience. I hope you achieve your goals.    

draiggoch

Thanks Enthusiastic Saver and Babystepper, I'm fortunate to be in a position these day that means I can pay off debts and put money aside for future planning. Ten years ago it would not have been possible due to many factors.

Once you start making inroads it can be strangely addictive, adjusting the income and expenditure monthly, watching savings grow and debts diminish. 

Being an only child our daughter will inherit from both sides of the family in the decades to come so hopefully she should be in quite a healthy position if she decides to start a family or whatever her plans may be.

northerner999

BabyStepper said:

Learning about saving for the future while enjoying the present, and how debt effects all of that, has been a recent discovery for me too. I wish I had known about this earlier and often have regrets about daft decisions I made in my 20s and 30s. I wondered if it was an age thing, that I had to be approaching 40 before something clicked, but some people never seem to get there. When I was first paying off my debt, I was aiming for the day I could go back to how things were. It took ages to realise that this is it now, no more mindless spending, ever.

Living sensibly and within your means does not seem to be common but I am am quite proud I've achieved it at all, and I'm also aware I could slide back into my old ways any minute. I think it's great that you're planning to help your daughter through Uni, I would hope wealth could be passed down generations in families but it doesn't seem common. Everyone seems to just want to spend constantly. As @kimwp said, genuine, not store bought, joy and happiness is the thing to aim for. 

Having no debt is an eye-opening experience. I hope you achieve your goals.    

This really sums it up for me. While I was getting to grips with my CC debt I thought I wanted to then have the ability to spend like I did when building up the debt: that if only I could reduce the amounts I owed then suddenly I could go galavanting around the world and live a life of luxury. 

The reality is once I became free of CC debt I wanted something different, which was financial security and freedom. That meant building and maintaining an emergency fund and operating within my means to ensure I had the cash available for what I wanted to do - that change in attitude really helped me last year as the pandemic/lockdown hit and my income dropped to less than 25% of its previous levels. I was able to make mature decisions ranging from what I bought at the supermarket to what bank accounts I put my emergency fund in which I would never have been able to do earlier in life when I was putting things on my credit card and just assuming future earnings would cover it. I now know I can live on less than 25% of what I was getting a year ago without having to eat into savings or resort to the CC so as my earnings increase in the coming months due to work coming back online I'm determined that a good chunk of that extra income goes towards future planning much like the OP. 

While I wish I'd understood this more in my early 20s and definitely wish I'd put the price of a couple of pints a week into a company pension when was 21 rather than delaying, like you say achieving this understanding before we hit 40 puts us ahead of a lot of people and I feel in a strong position as I'm now able to make my money work for me rather than the other way round. Becoming debt-free was liberating in a way I didn't anticipate and I think it's only the learned experience of getting to grips which things which led to that understanding. 

I read this forum less frequently now but like to pop in and occasionally offer advice. I never did the *i'm debt free now* post because in all honesty it was only a few months afterwards that I really hit that more mature spot with my finances. I feel very fortunate that I'd completed my journey before this pandemic and my heart goes out to those who are really struggling and impacted by it.