How to live without savings?

HazieDaisy

Hi everyone,
I have been reading your posts and am full of admiration for you all doing so well at reducing your mortgages.:j

I have had a bit of a doh moment realising that my "savings" are actually "losings" compared to my mortgage.:o

But I still don't quite understand..
This seems like a stupid question, but if all your spare cash goes into overpayments how do you buy expensive things? (I am talking about predictable things, not emergency fund)

e.g. If I overpay by £100 a month I save something like £20,000 over the life of my mortgage, which is fab, but when I need a new car in 5 years I won't have any cash.
Will I then have to take out a loan? (argh)
Or re-mortgage for the extra cash?

These both seem like bad options.

Any advice gratefully received.

Also apologies if this already answered somewhere else but have looked and there is SO MUCH to look through.

HazieDaisy

dimbo61

hi daisy debt is bad bad bad but mortgage debt is not quite so bad as
when your have finished paying off your mortgage debt you have a home
that belongs to you and it is somewhere to rest your poor tired body after
working all day to pay for it.
you might if you overpay with every penny you have spare ( live like a monk)
have paid off your mortgage in 5 years ( its going to take me 6 sorry !)
Then if you have no mortgage, all the money you used to pay on the mortgage can go to pay for that nice BMW you have always wanted.
But why would you need a new car whats wrong with the morris minor
cheap to run,repair and insure.
being debt free and having savings in the bank is a nice warm feeling
dont you think GOOD LUCK becoming MF

TurnaroundSue

HazieDaisy wrote: »

Hi everyone,
I have been reading your posts and am full of admiration for you all doing so well at reducing your mortgages.:j

I have had a bit of a doh moment realising that my "savings" are actually "losings" compared to my mortgage.:o

But I still don't quite understand..
This seems like a stupid question, but if all your spare cash goes into overpayments how do you buy expensive things? (I am talking about predictable things, not emergency fund)

e.g. If I overpay by £100 a month I save something like £20,000 over the life of my mortgage, which is fab, but when I need a new car in 5 years I won't have any cash.
Will I then have to take out a loan? (argh)
Or re-mortgage for the extra cash?

These both seem like bad options.

Any advice gratefully received.

Also apologies if this already answered somewhere else but have looked and there is SO MUCH to look through.

HazieDaisy

Never re-mortgage for cash to buy something like a car etc. You are borrowing against your home and if times get hard then you would be putting it at risk.

I personally would overpay my mortgage and if and when needed to change my car would get a short term loan or try and get a 0% credit card and pay off asap.

Good luck with whatever you decide to do. I will be in the position in August to start overpayments on my mortgage and it can't come quick enough!!:D

poppyoscar_3

how about going half and half? half to overpay, half to save.

it's amazing how you can actually save just by doing mse things, and then at least you feel like you're not burning all your bridges (or new cars)!

i have to say that seeing the balance go down on the mortgage and the savings in interest go up is quite addictive though! can't wait for my mortgage statement!

PO xx

DawnW

I think there is a place for both saving and overpaying, as PoppyOscar said. It is good to have an 'emergency fund' put by, though remember, usually if you overpay you have the flexibility to take a payment holiday later if you need to.

wymondham

You could have the best of both worlds by having a flexible mortgage that allows you to overpay when times are good, pay in normally when times are tight, and even withdraw any previously overpaid funds for dire emergencies (and I mean emergencies, not the BMW fund!)

ailuro2

Our overpayments are still accessible to us, so if we needed a new car tomorrow we'd have the money for it in a few days.

In the meantime the overpayment is saving us 5.5% which, to find the equivalent savings rate after tax isn't so easy, I suspect we'd keep shuffling it around, then of course it would be seen as a fund to buy a new car so when we had enough we'd probably buy one even though we didn't really need one....

It works well for us to 'hide' it away in the mortgage, and we can see how much time we're saving on our mortgage.

Kavanne

We have a flexible mortgage with standard life and if we overpay, we can borrow it back if we need it

Kaz2904

I always have some money in savings so that we have access to money for when we are doing the house up. In my sig you will see the debt figure of what is owing to our savings. Gradually we are transferring the bulk of our savings to ISAs but I still want £1k in an instant easy access savings account.
We won't ever need that sort of money for a car because I would never spend more than 2k on a car. I would never spend more on a car than I can afford to throw away. As long as you look after a car you can get a good life from it. My latest car was £1550 for a huge people carrier. It's 16 years old and I hope to have it for many years to come. Who says you have to have a new car every time you get a different one?

margaretclare

Kaz2904 wrote: »

I always have some money in savings so that we have access to money for when we are doing the house up. In my sig you will see the debt figure of what is owing to our savings. Gradually we are transferring the bulk of our savings to ISAs but I still want £1k in an instant easy access savings account.
We won't ever need that sort of money for a car because I would never spend more than 2k on a car. I would never spend more on a car than I can afford to throw away. As long as you look after a car you can get a good life from it. My latest car was £1550 for a huge people carrier. It's 16 years old and I hope to have it for many years to come. Who says you have to have a new car every time you get a different one?

I couldn't agree more with the above.

If I look back I can see that what I wasted most money on, over many years, was cars and car loans. I would add to what someone else has said about not mortgaging to buy a car - never borrow to buy a depreciating asset. A new car loses a lot of its value the moment you drive it off the garage forecourt. Borrowing on a mortgage to buy a house is completely different, because (a) it's your home, it's where you make your base, your life, your family and (b) bricks and mortar tend to appreciate in value over time (that's a generalisation!) and in any case, bricks and mortar are more durable than a chunk of metal which can rust.

You need some savings because you don't know what's around the corner, !!!!!! happens, as they say. Car repairs, the fridge breaking down, the washing machine packing up, an emergency long-distance trip to see a sick relative, all these need savings. On the whole it's better to pay off debts than to have savings because you're always going to be paying out more in interest than you're gaining in interest on your savings, but it's always a good idea to have an emergency fund, 'rainy day' money.

HTH

StuartGMC

margaretclare wrote: »

I couldn't agree more with the above.

You need some savings because you don't know what's around the corner, !!!!!! happens, as they say. Car repairs, the fridge breaking down, the washing machine packing up, an emergency long-distance trip to see a sick relative, all these need savings. On the whole it's better to pay off debts than to have savings because you're always going to be paying out more in interest than you're gaining in interest on your savings, but it's always a good idea to have an emergency fund, 'rainy day' money.

HTH

I fully agree, save for what you need; I only had a car loan for the first two cars after university, since 1990 it is always cash I've saved. Plan your budget appropriately for example you may choose to put aside a few thousand each year to replace your car (either when you want, or, if it should become a costly item requiring more than routine maintenance), add to that sums for annual holiday, decorating, replacement TV (8yrs), PC (3yrs) washing machine (10yrs) etc. Then add on your annual purchases/costs like clothing, buildings & contents insurance, car servicing, gym etc Assuming you pay utilities etc on monthly DD, you'll then know what you should be putting aside each month for future expenditure over 12month and longer horizons. Build your budget around this. You need to have ready cash of about 3-6 times your monthly income to cover for unforeseen issues.

Put all these savings in an offset arrangement and it works for you by reducing the interest charged per month for the mortgage, but the cash remains available. We presently offset 50-65% of our capital owing (we've had a mortgage since 1994 so whilst aming to be mortgage free it is context of other balanced requirements) but we choose to only overpay by 40% each month so we can ensure we have a good cushion in place for other items and invest in ISA Stocks and Shares as well.

Then when you've paid off debts, and are well on the way to getting a good portion of the above in place, look at what you can comfortably afford to over-pay because it really makes a difference. In the early years it may be limited (and circumstances can impact this depending upon factors such as starting a family and adjusting income to account for more costs plus often some level of reduced working hours, redundancy etc...) but over the mortgage term things will improve so you can overpay more and also invest in other areas (Cash ISAs or Stocks & Shares ISAs etc) for cash growth.

Good luck.