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  • FIRST POST
    • bwatkins1
    • By bwatkins1 13th Jan 18, 1:02 PM
    • 2Posts
    • 1Thanks
    bwatkins1
    Borrow or clear savings?
    • #1
    • 13th Jan 18, 1:02 PM
    Borrow or clear savings? 13th Jan 18 at 1:02 PM
    Okay, this is a stupid question on the face of it but bear with me...

    I was made redundant from my very good job two years ago. I used the redundancy pay off to renovate my house and relocate to another part of the country. I got a new job earning half of what I did before but enough to pay the bills and save maybe 100 a month.

    4 months ago I had to replace my car. I wondered about getting a loan but as I had just enough money in the bank I decided to pay in cash.

    You could say I am now asset rich, cash poor. I own three vehicles (I kept the car I replaced because I intend to fix it and sell on, the other vehicle is a camper van), a light aircraft and 2/3rds of my house. But all the cash I own scraped together comes to about 1500.

    I paid cash for the car because I always think it's better not to borrow if you can. If an unexpected bill comes up (or an expected one - my boiler is going to die soon and will need replacing) I will borrow the money then.

    I am starting to think that was a bad idea. Now, on paper, over a two year period I have gone from earning well, saving money every month, and an increasing balance in my bank account to being unemployed with no income for 6 months, followed by a small income that only just covers the costs and a bank balance that has gradually dwindled before nosediving to where it is now. If I were a money lender I probably wouldn't lend money to me based on that.

    So at what point is it better to borrow money than spend savings? Are my concerns founded? Is there something I need to do in the short term to improve my situation? Or am I worrying over nothing (yes, I know I have first world problems. It could be a lot worse. I am reminded of that every day as I walk past hundreds of homeless people on the streets of London, many of them wearing camouflage and missing limbs).
Page 1
    • enthusiasticsaver
    • By enthusiasticsaver 13th Jan 18, 1:36 PM
    • 6,617 Posts
    • 13,920 Thanks
    enthusiasticsaver
    • #2
    • 13th Jan 18, 1:36 PM
    • #2
    • 13th Jan 18, 1:36 PM
    Okay, this is a stupid question on the face of it but bear with me...

    I was made redundant from my very good job two years ago. I used the redundancy pay off to renovate my house and relocate to another part of the country. I got a new job earning half of what I did before but enough to pay the bills and save maybe 100 a month.

    4 months ago I had to replace my car. I wondered about getting a loan but as I had just enough money in the bank I decided to pay in cash.

    If you only have 100 spare each month how would you be able to afford a loan?

    You could say I am now asset rich, cash poor. I own three vehicles (I kept the car I replaced because I intend to fix it and sell on, the other vehicle is a camper van), a light aircraft and 2/3rds of my house. But all the cash I own scraped together comes to about 1500.

    I would sell some of those assets - the second car certainly and the camper van and light aircraft if you don't use them. The light aircraft sounds like an expensive hobby. Don't you need to pay for fuel, upkeep and landing fees and does your budget run to that?

    I paid cash for the car because I always think it's better not to borrow if you can. If an unexpected bill comes up (or an expected one - my boiler is going to die soon and will need replacing) I will borrow the money then.

    Again, if your budget is so tight you only have 100 spare each month and cannot afford to save for a new boiler I think you need to think again about either economising on your current bills or selling some of the assets above.

    I am starting to think that was a bad idea. Now, on paper, over a two year period I have gone from earning well, saving money every month, and an increasing balance in my bank account to being unemployed with no income for 6 months, followed by a small income that only just covers the costs and a bank balance that has gradually dwindled before nosediving to where it is now. If I were a money lender I probably wouldn't lend money to me based on that.

    So at what point is it better to borrow money than spend savings? Are my concerns founded? Is there something I need to do in the short term to improve my situation? Or am I worrying over nothing (yes, I know I have first world problems. It could be a lot worse. I am reminded of that every day as I walk past hundreds of homeless people on the streets of London, many of them wearing camouflage and missing limbs).
    Originally posted by bwatkins1
    I personally would always choose to use savings rather than borrow as it is almost always cheaper to borrow your own money. I would never take it down completely to nil though. Looking at your outgoings to see if you can reduce them is a good start to see if you can free up some money in your budget to have a bigger surplus each month. You do have assets though and at some point your mortgage will go so that will free up money.
    Debt free and mortgage free and early retiree. Living the dream

    I'm a Board Guide on the Debt-Free Wannabe, Mortgages and Endowments, Banking and Budgeting boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Any views are mine and not the official line of moneysavingexpert.com. Pease remember, board guides don't read every post. If you spot an illegal or inappropriate post then please report it to forumteam@moneysavingexpert.com
    • Bluebell_Mel
    • By Bluebell_Mel 15th Jan 18, 11:54 PM
    • 22 Posts
    • 22 Thanks
    Bluebell_Mel
    • #3
    • 15th Jan 18, 11:54 PM
    • #3
    • 15th Jan 18, 11:54 PM
    I agree with the comments made by 'enthusiasticsaver'.

    You have assets that are luxuries such as the campervan and light aircraft that are not something that you are using on a daily basis and can raise funds.

    You should always avoid loan as the interest rates are higher than what you would get on your savings.

    Sell the luxuries, that will top up the need for a boiler and any other unexpected expenses.

    You should keep your savings for just that, unexpected expenses or planned expenses. You know what you need to do, I think you just want someone to say, don't get a loan!

    Go through your expenditure and see what you can cut back on. Do you have sky? If so, why, do you need it? If not cancel and move. Freeview has most of the same programmes. Sign up to Netflix @5.99pm or renegotiate.

    Have a month where you write down everything you spend, down to the penny. My dad made my niece do this a number of years back when she was saying she was broke....she was earning more than me....that was real eye opener. Within 2 months she'd saved enough to go to South Africa for a month....that was just from analysing what she'd spent in a month.

    I did something similar recently as I have also been made redundant and thought my monthly expenses were lower than they were, so now tightening my belt and being more conscious as I want to stretch my redundancy money as far as possible.

    Good luck
    • forgotmyname
    • By forgotmyname 16th Jan 18, 2:47 AM
    • 27,231 Posts
    • 10,970 Thanks
    forgotmyname
    • #4
    • 16th Jan 18, 2:47 AM
    • #4
    • 16th Jan 18, 2:47 AM
    If you cannot afford to save how can you afford to pay interest?

    Since having money issues some 10 years or so back i have never paid a penny interest on anything.
    If i cannot pay for it now or buy it on the CC and pay for it without paying a penny interest then i dont buy it.

    CC keep sending me offers, but they go in the shredder.
    Punctuation, Spelling and Grammar will be used sparingly. Due to rising costs of inflation.

    My contribution to MSE. Other contributions will only be used if they cost me nothing.

    Due to me being a tight git.
    • PeacefulWaters
    • By PeacefulWaters 16th Jan 18, 7:45 AM
    • 8,318 Posts
    • 10,656 Thanks
    PeacefulWaters
    • #5
    • 16th Jan 18, 7:45 AM
    • #5
    • 16th Jan 18, 7:45 AM
    Unless you cut back, sooner or later your bubble is going to burst.
    • Herzlos
    • By Herzlos 16th Jan 18, 9:02 AM
    • 7,351 Posts
    • 6,645 Thanks
    Herzlos
    • #6
    • 16th Jan 18, 9:02 AM
    • #6
    • 16th Jan 18, 9:02 AM
    I'd sell off assets I didn't need to raise the cash, rather than using up all my savings or taking on more debt (or use the savings and restore from selling of assets, if you can't sell quickly enough). If your situation has changed so drastically, do you really need the aircraft and campervan? You can always re-buy in a few years if your situation improves.
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