Saving tips and advice

saundyc

Hi, me and my husband own two houses, one is rented and we have a 27year mortgage remaining with £115k to pay. Our other house has recently been remortgaged for £80k to consolidate debts and buy a new car along with some money left over towards an extension. We have no savings and this remortgage is intended to help us save money for emergencies, holidays, future needs etc. My question is what type of ways do people save and what should we aim to save for, for example, our funerals, paying overpayments on our mortgage, pensions, children's university, should we have multiple bank accounts for different expenses? I deal with this on my own and I would appreciate any tips or advice for going forward in our lives. I'm 35 and my husband is 33 and we have two young toddlers aged 2 and 1. 

kimwp

There's no should, you need a method that works for you - I'd advise only going as complicated as works for you. Does your life insurance not cover the cost of the funeral?
You only need to save for mortgage payments if you've maxed your allowance, otherwise just overpay.

Ebe_Scrooge

Depends on your priorities.  Most people would agree that putting money into a pension is sensible.  University costs for the kids - yep, very sensible.  Wedding costs for them as well?  Those are kind of longer-term goals, so it may be sensible to put the money somewhere where it'll earn something (not easy these days, I know!).  But also somewhere where it's safe (so the stock market is probably not the best option, depending on your risk appetite).

You definitely need an emergency fund - to cover stuff like household repairs, and loss of employment.

It's a good idea to save up for holidays and cars, rather than taking out a loan, if you're able.

You ask about different accounts.  Again, personal preference.  What often works is to have 3 accounts.  One "everyday" account where your salary goes into and all the regular bills come out of (food, utilities, mortgage, council tax, etc. etc.).  A different account for "short/medium term savings" such as holidays, cars, household repairs.  Then a long-term savings account for future child expenses - university, weddings, helping them with their first house, whatever you intend to do.

There's no one right answer - what works for one person won't work for another.  But what you do need to do is sit down and plan what you need to budget for, both short-term and longer-term.  You'll then be in a position to allocate your money to the most sensible savings pots.

ladyholly

I think you should also look at why you accrued the debts. The normal wisdom on here is dont consolidate unless you are sure you make the changes needed to stop getting into debt. Does the rent on your 2nd property cover the mortgage?

EssexHebridean

You already know, I hope, what a risky strategy turning presumably unsecured debt into secured - AND just consolidation itself, is? We usually strongly advise against either - you’ve combined the two inadvisable methods and will need to be VERY careful about how you go forwards from here. For a start - ensure that you look at the remortgage as “£80k of debt” NOT just an £80k mortgage - that will help keep your eyes on the ball.

I’m also going to suggest that you change the “new” car to a decent second hand - so keeping more money back towards the extension costs. You mention having money “towards” the extension - how far short of the amount needed are you and how do you propose to fund the balance?

for clarity - if you don’t establish the causes of your debt, and address your failure to budget and plan for things like the car replacement, you’re going to end up with another big chunk of debt in a few years, and potentially reach the stage where you’re struggling to pay monthly payments. If that happens, your property is now at risk. 

Do you budget at all? If so, then you need to look at that budget again to work out where it’s gone wrong. If not - you need to start. It may work well to begin by putting together your SOA (Statement of Affairs) - there is a link to a calculator in my signature. That will help you to get all income and expenditure in one place. If you use the “format for MSE” option and post into here we can take a look and see if we can spot anything missing but also any savings you might make. Only when you have your exact outgoings established can you begin to work on a strategy for savings though - trying to do it the other way round simply doesn’t work. 

One thing I will add - holidays should be budgeted and saved for, NOT borrowed to pay for, and most certainly NOT paid for by mortgaging a property. It sounds like a mindset shift is needed here I’m afraid.

final point - this is your family finances - you should not be dealing with them on your own. Tell your OH that the party’s over and he needs to get involved, even if you continue with the nuts and bolts of the day to day stuff, he needs to at least understand what goes on. To be blunt - if you end up under a bus tomorrow, it’s not helpful for him to end up in a position where as well as grieving for you, and trying to manage the grief of your children, he also has to try to get to grips with finances when he has no idea of any of the background. We’ve seen these exact cases on here before - and the distress caused is incredible, all the more so when it’s completely unnecessary. Sounds grim I know, but better to plan for the worst, even if you never have to deal with it - better for you to know that he and your littlies would be in a better position as well.  

fatbelly

Crikey, Essex you're right. I hadn't read the original post until I just read yours.

80k of secured debt consolidation sets the old alarm bells ringing.

OP - unless things change dramatically in our brave new world, you won't be getting as much interest on your savings as you will be paying on the secured loan.

So if you are in the very lucky position of having surplus cash after your price increases on just about everything you will be buying from next month, then throw this at the secured loan. 

saundyc

Thanks everyone for your advice. It has really made me evaluate our current circumstance. I understand the issue around taking out a secured loan to pay off unsecured loans and it was a decision that was the best option for us at that moment. I know the reason why I'm in debt because I never saved money and it turned into a vicious circle loan after loan. I am good at budgeting and I account for every penny but I need to learn how to manage our money and save going forward. On the other hand my husband grew up in a privileged household and he was never taught to manage money and I don't think he understands the value of items such as the new car and our caravan which he 'demanded' getting. This is the end of it though, as someone stated it's time for a mindset shift! Currently, the rent money well covers the mortgage on our 2nd house and this includes rates and communal fees. In relation to the extension, I will have £10k towards a possible £40k but after reading your comments I'm thinking this might take a back seat until we are in a financially secure position as there is no real need for it atm as our kids are young and the reason for doing it is to have more space for them as they become older. In your opinion, would the best option be to overpay on both mortgages? Also save for short term goals such as holidays and long term goals such as pension, kids university, emergency fund? Just to note we do live very simply, we hardly go out drinking or eating and we don't buy clothes often. Thank you for your help 

kimwp

In short: Save for anything you know you are going to have to spend on. Save an emergency fund for things that you don't know you are going to have to spend on eg washing machine breakdown or loss of a job - this is what the £10,000 should now be - put it in an easy to access account with the highest interest you can find and leave it there until there is an emergency. Pay off the debt with the most interest. (There may subtleties regarding this last point re tax on buy to let's)

Jami74

saundyc said:

I know the reason why I'm in debt because I never saved money and it turned into a vicious circle loan after loan. 

Just to note we do live very simply, we hardly go out drinking or eating and we don't buy clothes often. 

I think you're in debt because you spent more money than you had coming in rather than because you didn't save. It doesn't really matter whether you live simply or not if you are still spending money you don't have on stuff you don't need.

Think of budgeting and savings as expenses that need to be paid rather than a nice thing to do if there's any money left over. Consider them a priority (like mortgage and council tax) and set up standing orders for them. Then only spend the money you have left after you have paid everything else.

littlegreenparrot

I have separate accounts and find that easier to deal with. 

Everyday current accounts, a holiday and fun stuff savings account, an emergency savings account. 

Pension is separate through work. If you don't have one already I would set this up asap. I'm 10 years ahead of you and am worrying about not having enough in my pension. 
If I had children I would also have a savings account for each of them for when their 18, uni/first cars etc aren't cheap. 

Even if you got them set up and for now only made small regular payments while you get back on an even keel you have got started and got into the habit. 

saundyc

Jami74 thank you for your advice, you're right, I was living past my means and I really like your idea of treating savings as a priority because it should be, I'm having a few light bulb moments on this thread!
Littlegreenparrot thank you for your advice. I have a pension through work since I was 19 and I opened a LISA account last year and I set up a direct debit the other day for monthly payments into the LISA. I have credit union accounts set up for the children so I aim to set up child benefits transfer into these accounts every month.