Cash in the bank, c.12 months emergency fund, some loans, what would you do?

Splash21

Hi all,

Welcome to Friday, keen to get the opinions from others on our scenario. 

I am currently employed, wife is on Mat leave (SMP) and due to go back March 2023.
We have 2 children, one in nursery and the other hasn't long arrived but will go to nursery next year.
Wife pay post maternity is around £1.4k take home, for now she just gets SMP. 

Deviating a little from the SOA calculator, fixed costs per month (roughly Mortgage, CT, G&E, Water, Broadband, Food, Nursery, loans) are £2,938 / £33,000 (cash and shares) = 11.45 months emergency fund. Insurances, Road tax, TV licence etc are all paid annually. 

My Opinion
I am of the opinion that we pay down the outstanding loans of 7,892 (£369 in monthly repayments) leaving us with £25,108 (cash and shares). This would change our fixed costs from £2,938 - £369 = £2,569 / 25,108 = 9.77 months emergency fund. 

Thanks in advance! 

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.................... 2

Monthly Income Details

Monthly income after tax................ 3456

Partners monthly income after tax....... 600

Benefits................................ 0

Other income............................ 0

Total monthly income.................... 4056

Monthly Expense Details

Mortgage................................ 1216

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

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

Management charge (leasehold property).. 0

Council tax............................. 200

Electricity............................. 50

Gas..................................... 50

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

Water rates............................. 29

Telephone (land line)................... 0

Mobile phone............................ 16

TV Licence.............................. 13.25

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

Internet Services....................... 24

Groceries etc. ......................... 300

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

Petrol/diesel........................... 150

Road tax................................ 38

Car Insurance........................... 60

Car maintenance (including MOT)......... 50

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

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

Childcare/nursery....................... 700

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

Medical (prescriptions, dentist etc).... 5

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

Buildings insurance..................... 5

Contents insurance...................... 5

Life assurance ......................... 40

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

Presents (birthday, christmas etc)...... 50

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

Entertainment........................... 0

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

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

Total monthly expenses.................. 3071.25

Assets

Cash.................................... 17000

House value (Gross)..................... 435000

Shares and bonds........................ 16000

Car(s).................................. 10000

Other assets............................ 0

Total Assets............................ 478000

Secured & HP Debts

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

Mortgage...................... 360000...(1216).....2.09

Total secured & HP debts...... 360000....-.........-   

Unsecured Debts

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

Car............................4435......216.......3

Car............................3457......152.......3

Total unsecured debts..........7892......368.......- 

Monthly Budget Summary

Total monthly income.................... 4,056

Expenses (including HP & secured debts). 3,071.25

Available for debt repayments........... 984.75

Monthly UNsecured debt repayments....... 368

Amount left after debt repayments....... 616.75

Personal Balance Sheet Summary

Total assets (things you own)........... 478,000

Total HP & Secured debt................. -360,000

Total Unsecured debt.................... -7,892

Net Assets.............................. 110,108

TheAble

I would agree.

AnnieB2018

Any chance of reducing nursery days during maternity leave, freeing up to £500pm?

Splash21

Thanks @AnnieB2018 To be honest, that hasn't crossed my mind. Likely because we have c.20% of net income left after costs and so haven't felt the need to scrutinise it. Like most as well, if we gave up days now, we might not be guaranteed to get them back in 8 months time which could cause issues with employment for wife after maternity leave. 

enthusiasticsaver

I am not sure what shares you have but the market is in a bit of a slump at the moment so I guess liquidating those at a loss would be something I would want to avoid but I do get that getting rid of the loans gives you more leeway in your budget. You have a substantial amount in cash which must be earning almost nothing so I think using that would be worthwhile to pay off the car loans.  Other than that you look in a pretty good situation. 

Splash21

Thanks @enthusiasticsaver, appreciate your view on this.
 
Agree, they're at their lowest right now but still up on initial investment and with other free cash, it wasn't something I felt was needed nor would some of them take long to liquidate if needed. 

I will go ahead and use the cash to clear them, just wanted to make sure I wasn't missing anything as this idea had been going around in my head for some time. 

enthusiasticsaver

If you are not consolidating losses (you bought them some time ago) then that is not quite so vital to avoid then.  I personally think unless you have a need for the £17k or you think that your job is insecure then using some of that or even all of that to repay them would be ok.  You would still have around £9k left in emergency savings.  When will your eldest get free hours?  I guess you will obviously have to pay for the youngest then though.  Having two pre schoolers is tough in terms of childcare costs but it gets easier.  You don't carry massive amounts of debt though and have a surplus so you are in a good position. You do not state how much you spend in entertainment etc but I guess you must spend some so presumably that comes out of your monthly surplus or are you still managing to save even with your wife on SMP? 

Splash21

Yes, thankfully they have a wide birth so I'm not so concerned, if they were recent I'd probably be worrying. 
You're writing in black and white what I have going through my mind.

Eldest won't get free hours until September 2023, so there is a period of approx 6 months when both of them will be in nursery at c. £700 per month each, but this will likely be funded on a monthly basis and not from savings. Then the eldest will cost perhaps £50 a month for the top up hours on the 30 free hours. 

We're not huge spenders in entertainment, I usually seek free things to do so looking through the bills we're normally about £100-£150 on entertainment, this will increase as they get older naturally. Yes - we're still saving!

kimwp

NB, Check with your nursery what the charges are when you claim the free 30 hours- there can be charges for food etc and remember the 30 hours isn't through the whole year.

Splash21

kimwp said:

NB, Check with your nursery what the charges are when you claim the free 30 hours- there can be charges for food etc and remember the 30 hours isn't through the whole year.

Well noted! 

Brie

I would take all of the cash (or near as spit) and pay off the unsecured loans and dump the rest against the mortgage.  Then you will have more money to put back into the the emergency fund or to place even more against the mortgage before you get more care charges.  

I'm assuming you have good credit and a couple of cards that would get you through any extreme emergency for a month while you are otherwise waiting to rebuild the fund.

Don't touch the shares for the reasons already mentioned.