Pay off mortgage and start having even more fun 😁

daisy_1571

If I may suggest though, ahem, but that wouldn't be an emergency as it would either be the end of the tenancy which would be known in advance or you would have contractual notice it was happening. Nor would it be correct for it to come from an 'emergency fund' as you have already identified you most likely will have such a need but not for some time in the future so you have plenty time to prepare, or rather the business has.

That would be something that you might decide to put, for example, depending how urgently you want to have funds 1%, 10%, 25% of the current rent away each month in a pot called 'rent free period ' or 'no tenant' or something (better lol) that makes sense to you, same as you do for tax, insurance, maintenance and other business costs. That money builds up automatically each month until it reaches a 'x times month rent' or '£xxxx' or just continues to build through the tenancy/tenancies until you have a fallow month or two.

Thats what I mean by the difference to a general 'emergency fund' - you take all the things that you need on a monthly, 6 monthly, annually, ten yearly basis and save for them. Things that might constitute an emergency to the unprepared but is a known future expense to the prepared will already be covered by the pots. Things that are a genuine wow, never saw that coming you would either fund out of general savings or borrow from a fully stocked pot that you won't need immediately then work out a plan to replace it.

And you are going to fully fund a 'cruise' pot, a 'bargain cruise i spotted' pot, an 'its an emergency I need to go on a cruise' pot and a 'gosh has it really been 4 months since I've been on a cruise I need another one' pot so you won't need a general emergency fund for that either 😂🤣😝

Dxxxxxxxx

South_coast

Loving the cruise pot names 🤣 And I believe an empty rental is usually referred to as a "void". But "no tenant" works equally well 😘

daisy_1571

Thanks sc, I wasnt happy with the names but just couldn't think of a better wording 😁

newgirly

Yes I see your point Daisy, Dh has a firm grip on the business accounts and I’m not sure how much is in there as a cushion right now - not enough though. But I like to extract money from it / him where I can 😆 at the moment we are drawing x amount each month which he says is the maximum we can afford from it right now, so I need to budget for void periods but also the fees to re advertise and for legal fees if we do get notice. Realistically contract or not it may not be worth chasing for money if they stop paying and leave, it can be costly. Also we are renting at a low price currently and the rent will be going up to market rate when the break clause comes in - just over two years. Sooo we could be looking at more fees then even perhaps 🤷‍♀️

Chat GPT my current financial advisor - I know 🫣 says we should be able to retire in the next few years but an emergency fund for void periods is the weakness.

I guess in my mind if I have separate pots for everything there will be nothing left 😩 what does everybody do on here? I currently have :

Sinking funds :

vets

Dentist ( go every three months so costs plus a little extra saved)

Car tax

Car and home ins

Travel ins

Xmas / birthdays

Private cardio and scan appointments

Holiday and sick pay for dh as self employed (sort of)

Holidays

There’s no home repairs or car repairs etc. pots and so far nothing for the business (except what surplus dh has in there). From about Oct this year we will be debt free and will have some extra money to save, I was just going to put it in a vague idea of a long term savings pot. I feel like this is the most secure we have ever been as it’s always been debts or overpaying with nothing to fall back on except cc’s so it is relatively new to me and I am struggling to know how much enough 🤷‍♀️

Also I do need many save for cruises pots yes 😂

South_coast

You could put everything in one big ephemeral pot and just pull it out as and when you need it, but obviously you need to make sure there is enough in there!

Maybe you need to turn it on its head and instead of deciding how much to save, decide how much you need to live on each month and saving everything over and above that?

daisy_1571

I'm not understanding or maybe its because I've never been in his position but I would have thought .....

money required for business running costs and long term costs stays in business until its required to buy stock, pay for professional services, pay invoices etc this will fluctuate and come in/go out as daily items crop up or known costs are due, some of this money will be ring fenced for specific things like voids, stock ordered but not yet bought, insurance due next year, maintenance of boiler needed every 3 years so a third saved each year etc etc, and also the moneys in categories described below

similarly money set aside for tax, employees pension, employees ni etc stays in business until paid to relevant company and then it stays out the business

money drawn down by directors/owners/wages for staff goes out of business and stays out the business

If he's taking his wage/dividend or whatever its called he surely is using that as living on money? It doesn't go back in from what is now his personal funds to prop the business up?

I don't see how 'you' need to budget for the voids etc? That should be the business that has to budget for those kinds of things?

Its probably me not understanding, maybe its tax efficient or something but to me it would just be confusing to have business money in my personal accounts. Anyway, I'm sure you and he both know how it all works and you certainly don't need to explain it all to me 😁 🤣.

daisy_1571

as far as living day to day on wages and planning for future goes this it sounds really complicated to write it down but a spreadsheet or notebook for a few months and you will refine and understand it for your own doings.

I essentially have almost all our money in one account getting best rate of interest i can.

I then have a spreadsheet detailing our normal outgoings - mortgage, council tax, money that goes out weekly to our living on account, pocket money to our personal accounts, tv, Internet etc. Thats the actual outgoings but the money thats left over in that account isn't just free and there for spending.

At any given month I look at page 1 of my spreadsheet and say it shows me that I have £1000 in that account leftover after the above known amounts that leave the account every month are accounted for.

But I don't actually have £1000 to go mad with because I know there's all sorts of bills and payments I need to pay out over the next 12 months or longer.

So page 2 breaks this down into an upper part and a lower part.

In the upper part are the costs where I know the figure and I know when I need it. For things like insurance I just use last year's figure and add a bit in case it goes up, for other things you will know the cost.

Spreadsheet will show me I am 6/12 of the way through saving for vehicle 1 tax, 8/12 saving for vehicle 2 tax, 1/12 saving for house insurance as the premium was paid last month, so many twelths for the various vehicle insurances. All these are known costs ie car mot is £50 and is needed once a year so £50/12 = £6 so I know i need to save £6 every month to have that ready for next year. (The first year I start working this way and its due in 5 months time I know that I need to save a tenner each month but once its paid and ive got a full year I'm only funding that pot by £6 from then on.)

I recently added a new line for passports as we had to renew this year and I hadn't anywhere specific to get that £200 from. Now I'm saving 2 x £100 = £200 for the two passports. Divide by 120 months and it will chunter away saving £1.66 a month and in ten years when we need a passport the money will be there. Obviously for as long a period as that I'll have to up the figure each year or so as its unlikely to cost the same in ten years time but im happy the saving is beginning to be done.

So say all these might come to £395 of that £1000. Not money I need right now, but if I spend it this month, when the bill comes due I'll need to find that money from somewhere.

So thats the 'known known' costs.

For the 'known unknowns' you have to make an educated guess based on what you have done in previous years and what you think the cost will be.

For example vet bills, you know there will be a bill but you don't know when it will come. (I try to genuinky keep that pot at £600 but it obviously gets used then I have to top it up.) (If you pay a vet plan you would have this on page 1 as it goes out each month or if get an animal yearly vaccine you might have .element in the upper tweltgs part of the spreadsheet) Clothes, same. Vehicle servicing, you might have a brand new car and need very little, you might have an old banger and want a bigger pot. We have a category called fun where meals out, tickets etc come from. I think presents are in this part of the spreadsheet as there's a slight unknown quanlity for this - most birthday presents I know about obviously but a new home, new baby, engagement etc crop up and lend an unpredictable quality. Vehicke service and maintenance, house maintenance etc

So for these categories set a target amount and whatever is left, after funding page 1 costs and the upper page 2 spreadsheet of known twelfths, can be split around these.

This lot in a perfect world might come to another £600. Now obviously £600 and £395 = £995 so you genuinely know you have a fiver over. You might decide to allocate this to a category, you might start a new line called unallocated and let it sit there until you need it. You might withdraw it and go mad with a lucky bag 😂 but either way, happy days.

As is more likely, all of that will come to £2565. Much more than your £1000 of actual money. So it means all the discretionary lines can't be fully funded and will need worked on gradually and monthly till you can build up a bit more for each category.

It all seems terribly soul destroying at first. Or indeed, later ! I've been refining and tweaking this way of working for over 20 years and have rarely had everything fully funded and money left over. But I have had money for annual things that 21 years ago had me putting my weekly shopping on the credit card without understanding why I had no money each month 🙃 😅

South_coast

Daisy, wow 🤯

I, on the other hand (just to confuse you, NG 🤣) decided several years ago that I am not a multiple-potter and instead snowball money to whatever I need it for. I save a fixed amount each month (nice round number 😀) and live on the rest. I know what's coming up, how much I need and in what order I need it, and pull it out as and when required. Though I'd never save for something like a passport, I'd just cover that from monthly cashflow and have a slightly tighter month that month (same as dentist, etc). I do have the advantage though of being an employee and therefore having a reasonable amount of confidence that the right amount of cash is going to turn up at the right time every month.

What about trialling something like YNAB, NG? I've never used it, but there's lots on here swear by it

daisy_1571

Och I know, sc. Too much detail for ng but I just love my system so much with the most recent tweak from about 5 months ago. If it can help anybody sort out their finances im more than delighted. I cant believe it took me so many years before I understood how annual and longer payments work to derail your monthly workings.

😂I love that im already thinking about a 10 year saving 😂 no different i suppose to us saving a little bit for nephew and necessary big birthdays so we don't have to find it all in one year.

I couldn't cope with 'i know what's coming up, how much I need and in what order I need it, and pull it out as and when required' cos without my spreadsheet I wouldn't have any idea what was coming up, when it was coming up and if I would have the money to cover it.

I love that we are all different but willing to share and everybody finds a nugget of gold or an idea that turns all their previous ideas on their head from time to time. 😁

Dxxx

newgirly

Wow thank you for the in-depth reply Daisy, that’s very impressive, what an amazing amount of detail and organisation! I think I may be floating in the middle between yourself and South Coast on how I’m arranging things at the moment 🤔

Sorry if this is too much info but I may as well start by explaining the set up with the factory, apologies if I’m repeating myself 🙂 Right now I’d say just under 60% of our income is from dhs job (as a tradesperson working full time for one company but self employed) and the rest is drawn by a combination of payroll and dividends to us both from the limited company that owns the factory. He also potters doing tiny jobs at the weekend b00kbinding (his old profession) and that money which is small goes into the business account alongside the rent.
So the actual expenses for the business are very minimal, the tenant is liable for all repairs, service charges and rates, dh might spend a tiny amount occasionally for his weekend work, this is unusual though. So our costs involved there are obviously wages, our dividends plus accountants fees and corporation tax. When the company he previously worked for moved away we had to find a new tenant which was very costly due to needing two commercial agents and it taking time as the market was a bit depressed. We scraped by in just under 6 months , which is the cut off from paying business rates on an empty commercial property - hence why we took the lower rent so we didn’t have to start paying out ( no savings at that point still had a small home mortgage).
So dh did have a cushion in the business account but that’s been emptied this year. He is currently trying to slowly build up a float again, but it’s taking time as he started for a negative position by the time they moved in. He has continued paying out the bulk to us which makes up the 40% thats part of our income. This was previously used to op the mortgage.

If the tenants stay after the break clause the rent will go up and dh is pretty adamant he wants closer market value as neighbouring identical units are paying much more, if they decide to leave we will have costs to relist and 6 months to get it rented before we are liable for business rates again, oh and service charges. Obviously it’s about getting the balance right with whether you take less rent and reduce aggravation and costs, but I think he will push for market rate.

So moving back to our emergency fund, last time dh had a big float in the company and not only paid for the estate agents and legal fees but also continued to pay out wages and the dividends, this may have been a bit daft but at the time we’re in the last few months of the mortgage and I was turning 50 and wanted it gone the month I turned fifty if at all possible. Now there’s not much of a business float currently, but it’s slowly building. I think we need a two sided emergency fund, one for the business which is sat in the business account which covers costs involved in re renting it etc. and one personal emergency fund to cover the monthly amount that won’t be coming in if it’s not rented - the 40% of our income. This is not crucial while dh is working still, but I’m thinking more of if he retired early as the that factory income will be the bulk of what we live on (aside a small personal pension).
it makes more sense to take it out via payroll and dividends regularly I think.

That doesn't however address the issue of how big an emergency fund is necessary and I’m also in my head sometimes lumping together emergency fund and long term savings which we also have none of 😳 I fear if I were to fully follow sc and have one large pot I take from when required that I would required to take from it far more often than I should 😂 so I think a full breakdown of how much is allocated for each thing would be better from a discipline point of view. I think I have most bases covered with annual expenses, perhaps I should consider adding one extra pot for unknown emergency’s or item replacements?

I think that perhaps if we are trying to build an emergency fund to cover missing rental income it should be at least 8m worth of what we get paid out? I don’t know. Daisy I like you do like to plan ahead for bigger expense years, that’s what I’m thinking about doing for one big trip away when we can do it. It’s quite overwhelming sometimes to make decisions on priorities, dh is happy to travel wherever which I’m currently desperate to do as much of as possible (just incase!) but I’m also wanting him to retire and rest a bit asap, he’s not so fussed about that when I actually try and pin him down to let’s work out when you can , he’s a vague idea of I shouldn’t retire before 60 it’s too young, other days he’s fed up working.

There’s also other things to take into account like home repairs (house needs rendering and drive , plus we could do with new windows at some point maybe) but will we move and downsize? - size wise as this would be unlikely to be price wise unless we move away sadly. Currently we will be debt free at the end of this month - I will be cashing in the premium bonds as I left it to fate to decide as as we didn’t win again today they are going 😆 We still have lots to pay out on holidays we have booked for this year and two years ahead actually, but that’s going to come from monthly income, be it a bit high.

Anyway, apologies goes for the long waffle, there’s so much to think about and decide on, it was much easier when it was just everything but food money goes to the mortgage 😆