Priorities.

I spend a large part of working day getting elbow deep in peoples finances.  I work in homelessness prevention and one of the biggest problems we are currently facing in the housing sector is how many people are struggling to meet the costs of their accommodation.  It’s all lovely for those of us how are fortunate enough to be able to have which investment platform offers the cheapest trades, but for a large proportion of the population making rent each month is far from guaranteed, never mind having anything left over for savings.

Whilst there are large numbers of families for whom their income is simply not sufficient to cover their basic essential expenditure, there are those families who could manage financially, or at least could manage an awful lot better, but who have never been given any kind of financial education.  Think about it; I went to primary school, secondary school, 6th Form college and 3 different Universities as I made my way through a fun but very expensive education.  Not once did I ever have a lesson that taught me how to compare mortgage rates.  Or how stamp duty works.  Or how to judge if the up front tenancy costs a landlord or letting agent are trying to charge me are reasonable.  I was never taught how to do a household budget, how credit or finance agreements work.  And I never once, not in all of the 21 years I spent in full time education, had a lesson on what to do if you get into trouble with money or debt. 

I was fortunate that my parent s taught me a lot of that, and a natural discomfort with debt helped with the rest but what about people who don’t have family to teach them?  What if your family is not good with money, because nobody ever taught them?

A lot of the families I work with struggle with their finances as they are not confident identifying what their priorities should be when cash gets tight.  I don’t mean that in the nasty, stereotypical, tabloid way, which assumes low income families are spending all their benefits money on online bingo and Iphones.  I mean when pretty much every letter that drops through the door has that scary red writing on it, and the words ‘Final Demand’ staring ominously up at you – how do you know where to start?  Who do you pay when everyone wants paying?

Work out what makes everything else meaningless.

This is my basic rule for working out what order your priorities should be in.  It works for most things, really, but money in particular.  Lay all your bills out in front of you.  Don’t get overwhelmed by it, just take a cold hard look at who is looking back at you.  Not the biggest number, not the scariest demand.  Which one, if you don’t have it, means that having all the other stuff stops being an issue.  I guarantee this rule will put housing at the top.  Rent or mortgage.  If you don’t pay these, you can lose your home and, if you don’t have a home, paying the gas bill means nothing.  Paying your phone bill means nothing if you have nowhere to live.  Paying off the credit card doesn’t help you if you are homeless.  I don’t mean to bang on but really, when you are in any doubt, please repeat this mantra – Aint Nothin’ More Important Than The Rent.

If you have a roof over your head, then you can start to make inroads with the other debts.  As long as you have a roof over your head, the bailiff can turn up and take every single other thing you own, and you will still be able to lock the door safely behind him, sleep on the floor and start to fix things tomorrow.  Everything is harder when you are homeless and, as I see with my customers every single day, once you become homeless, getting back under a secure roof is so much harder than keeping one you already have.

From there, you can continue to order your bills and debts, based on which ones will have the biggest impact if you don’t pay.  For this, its important to really understand consequences.  If you don’t pay your Sky bill, they can cancel your subscription and potentially take you to court for any outstanding monies.  If this happens, the court will look at your income and, if you request it, they can order that a repayment plan be agreed which allows you to clear the debt in affordable installments.  So, worst thing that happens if you don’t pay the Sky bill is that you have to pay it, and some costs, over an agreed period of time, and you wont have Sky anymore. 

However, if you don’t pay your council tax, they can take you to court and apply for an attachment of earnings.  This means that money can be taken directly from your wages before you are paid.  Depending on how much you owe, they can also apply for any property you own (including the home you are living in) to be sold in order to free up cash for the debt.  This isn’t a common approach but it is something that can happen, so it is important to understand that not all creditors are created equally and thinking about who has the power to make life hardest for you is a good way to clarify who should get paid next.

Work out what you can afford.

This one is another piece of advice that sounds obvious but I regularly see people who, in a mix of panic and good intentions, promise repayment amounts they are never going to be able to sustain.  If you do a realistic budget and it turns out you only have $25 a month left after your regular expenses have gone out, you cant promise to pay $50 off your debts – you’ll be in a deficient from the off and you’ll either have to default on an agreement or run up new debts by not paying other bills to free up cash.  Be honest with yourself and the people you need to pay. 

Have a written budget, and include everything.  This will help you not only clarify what your spare cash situation is like, but will also throw up areas for potential savings to be made.  Once you know what you have left each month, make an offer of repayment to each creditor, starting with the ones we have identified as most important.  If you are in real trouble with your rent or mortgage, speak to your other creditors, advise you are at risk of loosing your home and that you need to prioritise this.  Ask if they will give you some breathing space to catch up with the house and then, once you have paid off any arrears, then you can look to start or increase payments to other creditors.  As you pay off each debt in turn, you can filter down more money to the next most pressing name on the list.

If there is no money left over, or if there is a shortfall every single month, then we need to make sure the budget is in as good a condition as possible.

Trace the Waste.

We’ve talked about a written budget and I really cannot bang on about it enough.  Grab bank statements, comb through and list everything you spend money on during the month.  Do this for at least the last three months (six is better) to make sure you don’t miss things which don’t come up every month but which do come around repeatedly.  Once you have your outgoings, you’ll be able to see very quickly what is left out of the money you have coming in.  You will also start to see where your spending your money and, most likely, you’ll start to see things that can go.  This isn’t always an easy process and you need to be as open minded as possible.  There will be things that you initially feel are non negotiable, but you need to be willing to trim things as much as possible if you are going to free up as much cash as possible.  This isn’t usually a problem in the FIRE community, and I know that anyone who is planning to FIRE will feel as though I am egg sucking territory but I frequently spend my days going through budgets with people who are convinced that their gym membership is an essential, or that they need the largest Virgin Media TV package.  I have even had a woman tell me that it was unfair of me to suggest that she cancel the additional Maths and English tuition she was paying for her son to have every week.  She was paying $60 a week for him to have 2 hours of tutoring outside of school time, but was $35 a month short on the rent and honestly believed that her home was unaffordable.  Cut the lessons and she’s got a surplus, but she was horrified that I would suggest it.  Even more horrified when I suggested there were free resources online that would help her son with his school work.  This was a prime example of someone locking onto something and confusing the comfortable with the essential.  If you have the spare cash, go ahead, feel free to spend it on whatever you want.  If that means extra tuition to help your children at school, that’s a really admirable thing to want to provide them – in this case I don’t necessarily think this kind of spending is a waste, I just think it isn’t essential and can be replaced with low cost or free alternatives.  If you don’t have the cash, the extra help with their grammar isn’t going to take the sting out of having to move out of their home.  Things can always be restarted once the money frees up a bit and you may find that there is plenty you can do without once it’s gone.

Speak up.

Communication is the key with any kind of money trouble.  If you have an open and honest dialogue with your creditors, your landlord, your bank, your utility companies, you stand a much better chance of being given extra time to get on top of things, a potential freeze on interest or additional charges being added and, sometimes, even a payment ‘holiday’ to give you time to catch your breath. 

It also helps you feel more able to negotiate.  It can be easy to just agree to things on the phone, especially if you don’t want to have to call back and talk to them again!  But if you get used to calling businesses, being honest about your finances, asking for help when you need it and being polite when you need to say that you cant afford something they are asking for, then it will be much easier to successfully negotiate an arrangement that both sides can agree on.

Speaking up is also important if, despite your best efforts and all the budget wizardry you can muster, the numbers still don’t add up and you are genuinely stuck in a property you simply cannot afford.  If this is the case, please contact your local council and speak to their Housing Options department.  Go to them with a realistic head on.  Please do not go in thinking that having a budget which shows your property is unaffordable will mean that they instantly hand over keys to a cheap as chips social tenancy as you are setting yourself up for a fall.  What they will be able to offer is free advice.  They will be able to refer you to any additional support that may be available, such as help to clear rent arrears, help with finding a cheaper private rented property, help with up front costs like rent in advance or a deposit and even help negotiating with your landlord if you have had any trouble.

The point is, you are far from the first person to go through this kind of bumpy patch and you are far from the last.  Please, please, do not let it weigh you down, do not let it keep you from sleeping, eating or spending time with your loved ones.  If you are feeling overwhelmed and honestly cant talk to your family and friends, then speak to your GP who, again, will not judge you or think any less of you, they will offer advice and support.  I would think twice about keeping things from your loved ones, though.  You may not want to worry them, or you may think that they will think differently about you, but you’re wrong.  They will want to help and they will see you talking about it as a sign that you are in control and taking positive steps to deal with a problem.  Don’t go through it alone, Speak Up!

That is my slightly rambling advice on how to tackle your finances when things are getting away from you.  There is more detailed stuff to cover, but most of that is a bit more specific to particular situations – these are kind of a one size fits all set of tips which covers the stuff that I deal with most often.

Do you have any golden rules to help when things get a bit hairy, financially?  Or are you in a mess and don’t know where to begin?  I’d love to hear what experiences people have had with this sort of thing – you might be able to get some advice, or help someone going through the same thing.

Making Sense of the Family Budget – Part 2

So, last time I took a look at my regular spending and the costs which make up my monthly budget. I plan to tackle each of those sections to see what savings I can make but, in the mean time, I have been giving a lot of thought to the one part of the budget I did not really touch on last time, but which eats a huge chunk of our family income – Housing costs.

I have a kind of endless debate going with myself as to what we should do with our housing situation. We are very lucky to have been able to buy a house that perfectly suited our needs and which we were, due to timing and the previous owners situation, able to buy at significantly below the market value of similar properties in the area. So, with no real skill or real estate knowledge, we have managed to make a fairly good investment. We’ve also done work since moving in to update and improve the property which is also likely to be reflected in the increase in value since we moved in. Add to that a slightly obsessional approach to overpaying the mortgage buy $200 each month as soon as we were moved in and settled, and we find ourselves in a position where we have managed to claw together a fair amount of equity which in the property we own.

We are aware that, were we to sell and downsize, we could afford to buy something outright and be mortgage free. This is an idea which constantly dances around my mind and, I have to admit, I am seriously tempted. The mortgage plus the overpayment, if it were freed up, would throw open some very interesting possibilities for us. The Mr. and I could continue working in the roles we have now, meaning that we have a significant amount of ‘spare’ cash each month. This could be invested, with a view to retiring early, or it could be used to fund a different lifestyle, with more frequent holidays or activities which we currently have to save up for. Alternatively, we could simplify our lives, and use the cut in costs to free Mr and I up to make work choices based on what we enjoy and not how much we can earn. This could be part time hours, allowing for more family time, or even a change of career. Each of us has other professions we wish we had been able to work in but either the low overall pay or the cut in pay needed to go back to the beginning and retrain in a different industry means that neither of us feel able to pursue this at the moment. Being mortgage free would take the pressure of the finances and allow us to earn less without us suffering any hardship. Being able to earn less and still meet all the bills is a pretty tempting prospect.

But, for every opportunity that I can see a mortgage free life offering us, there is still part of me which isn’t sure. My carrying on, paying of the rest of our current mortgage, we will be accruing additional equity each month. When we do get to the point where, through other pension and investment planning, we have saved enough to be able to retire, we’ll be able to downsize and release the remaining equity. By keeping a house which is bigger than we need, in a more affluent neighbourhood than we need, we may well create a buffer against any future changes in our plans which I cannot foresee.

Being disabled means that I am constantly aware that I may not be able to continue working as long as I want to. My condition is degenerative and as time goes on it is getting worse. My mobility is reducing and my pain levels are increasing. For the moment, I am able to manage this, and I don’t plan on stopping work any time soon but I don’t know when that will stop being the case and, when the time comes, I don’t know if it will be better to know that my house is paid for and we can afford for me to stop work as soon as I need to, or if it will be better to know that, whilst we may need to sell and downsize in order to manage, we will have a larger pot to do that with, due to the mortgage payments in the intervening period.

I don’t know what the right thing to do is, I suppose the coward in me feels that pulling the trigger and going mortgage free will be harder to undo, as going back to borrowing later is possible but not ideal. I kind of feel as though, even if I am putting off the decision, at least every month that goes by is another payment and over payment made and that, if we do decide to jump, the time I have faffed about trying to decide wont be wasted. That said, I am aware that the boys are growing up fast and having more family time or the free cash to go on adventures together is an opportunity which is time limited. Once the boys grow up and go off on their own adventures, the Mr. and I can enjoy things together, but we cant recreate any of the time we miss out on working whilst the boys are small.

Please don’t think that, whilst I am mulling over these options, I am not aware how incredibly fortunate I am to be in a situation where these kinds of choices are available to me. I am just trying to work out how to best make choices for us in the long and short term.

What do you think? Is it better to be mortgage free in a smaller, simple, house or to use your property as a way of accruing equity you can release later in life?

Making sense of the Family Budget – Part 1

family budget

Alright, so, the first thing I want to do in order to work out how to get the Lifeboat prepped look at is my expenditure.  It’s incredibly important to go over the family budget regularly and check what you are actually spending your money on.  For one thing, its incredibly easy to ignore or dismiss small spends as being insignificant.  It’s kind of like trying to diet, but telling yourself that just the one chocolate digestive wont make a difference, and then being confused why you aren’t loosing weight. 

Chances are, if you went back and checked, you’d had ‘just the one’ more times than you realise and are actually polishing off entire packets of biscuits over a relatively short period of time, without really clocking what you are eating.  Same goes for money.  If we don’t keep a handle on those ‘It’s just a couple of quid’ spends, we can find that we are shelling out a hefty sum over the course of the month and not even noticing.

Another reason why checking on your spends regularly is important if that it reminds you to shop around for things and not chug along on autopilot.  It you are checking your bank statements and receipts on a regular basis, you will know off the top of your head what each of your regular expenses comes to, will remember when things need to be renewed and will be able to shop around for the best deals to keep costs as low as possible.

Finally, I find keeping a track on the family budget makes me far more fussy about what I buy, as I am aware I will have to answer to myself at some point!  We’ve all sat, looking at that thing you are never going to use but liked the look of in the shop (there are Spirilizers, still in the box, in kitchen cupboards up and down the Country which are silently proving my point), or the bag full of random household tat that you picked up from B&M when you just popped in for some bin bags.  A regular audit of the bank account is a good way to keep that little voice in your head keeping you on track and asking ‘Do you really need that?’

So, I grab a calculator, a note pad, pen and my laptop (or paper statements if you get them) on a regular basis to make sure I am on top of things.

Groceries.

Weekly food shops are the norm for us and I only occasionally have to nip out for top up shops. I order my food shopping online and have it delivered as I am not reliably able to push a trolley around a supermarket but, aside from the logistics of going to the shop in person, I find online shopping makes budgeting and meal planning a lot easier. I use Tesco, for the most part, but I have also been known to use Asda, Iceland and Sainsburys at various times. Lidl and Aldi are both probably cheaper but, until they are willing to deliver it to the door, I’ll just have to live with the slightly higher prices.

One of the draws for me is that I can choose what meals I am going to cook for the week, plan out my ingredients and keep track of prices as I add things to the trolley. I can also compare similar items easily, which I struggle to do in store, where I cant always find things and there are other people trying to do their own shopping, who are either in my way or think I am in theirs (they are wrong, they are totally in my way). On average, I spend $85-90 per week for the four of us. That includes dog treats, cleaning products, nappies and loo roll, as well as the actual grocery part of the shopping. I have made efforts to trim this down but, in all honesty, I don’t think that this amount is going to be something I can reduce much more without a massive rethink on how/what we actually eat. I am not against this, but I am not a cook so I’ll need to think about this more carefully. Food is one of the big spends in any family budget, so I’d like to take better care of it if I can.

Utilities.

We have duel fuel, so I pay for gas and electric from the same supplier and we get discounts for getting both, as well as a discount for paying a fixed direct debit and another for not getting paper bills. I have recently switched suppliers, from Eon to EDF, as my fixed tariff had recently come to an end. We had planned to stick with Eon – we’ve been with them for a few years with no problems – but the cost went up sharply in the two months after my fix ended so I did a quick comparison and EDF worked out the cheapest of the big names. I have to confess some cowardice when it comes to small energy firms I have never heard of, so I do tend to miss out on some cheaper deals due to not being willing to take a risk.

I took the chance to check we were on the best deal we could be for the water rates, and the Mr. called and negotiated a cheaper rate for the broadband and TV package for the next 12 months. All in all, once I add in Council Tax, we spend around $420 on our household utilities/services.

Hobbies and recreation.

No family budget would be complete without the extras and non essentials department (not that the TV package is an essential but it seemed to fit more with utilities). First up, we have my mobile phone contract. I have no interest whatsoever in gadgets, which helps as I don’t feel any need to upgrade to the latest handset once my contracts are up, so I use phones until they break. Sometimes longer.

My current Samsung is two different colours as I accidentally shut it in a car door and smashed the screen, and the repair shop in town only had a red cover available, so I have a two tone black and red phone. But it makes and receives calls and I can listen to my Audible app on it – that really is the extent of what I need or use my phone for. Once the initial contract was over, I got onto the cheapest monthly tariff I could find, which worked out at $12 per month. This gives me vastly more minutes and texts than I ever need, so I could possibly get it cheaper if I went fully pay as you go and just topped up credit, so I may have to look into this.

My bank statements showed I was also pay around $40 per month for my eldest to take part in his hobbies. He has swimming lessons once a week, which costs me $28 per month, and Scouts costs $30 per quarter, so a tenner a month. I am not looking to cut this budget as the costs are fixed and I feel we get great value from those spends as kiddo is learning important skills, making great friends and having a blast twice a week. Sometimes, you really do get what you pay for.

One area I have to admit we were over doing it is subscriptions services. I had: an Audible subscription for $7.99 a month for 1 audiobook download each month; a $7.99 Amazon Prime subscription for access to Amazon Prime television and films, as well as unlimited next day delivery on Amazon orders; a $12 Netflix subscription for the full package which can be watched on a number of TVs at the same time and a $9.99 per month Spotify Premium membership. I had signed up to all of these services at different times and hadn’t realised that they had gradually added up to almost $40 per month on ‘things to watch and listen to’.

After setting aside a week to track what I actually used, in the end, I cancelled my Audible and Spotify subscriptions. I have built a large library of audiobooks and tend to listen on rotation to things I like, so don’t feel I need to be adding a new book each month. I also took the equivalent of 3 months Spotify Premium costs and bought a Bluetooth MP3 player, which I have loaded with music I already owned. These two changes have meant I will save around $185 in the next year, once the cost of the MP3 player is taken into account. We have kept Prime for the time being, although I am currently reviewing how much we actually use it, to see if that could go too. Netflix is staying as we watch it daily and each member of the family gets a good amount of use out of it.

Childcare.

Another big cost for me is childcare. I work full time, so the little dude is in nursery 5 days a week. He has a blast and the girls who work there love him to bits, but it isn’t cheap (in fairness, I feel as though childcare is really one of those things you don’t want to be scrimping on – your paying someone to look after your baby, you want it to be spot on). Both the Mr. and I claim the maximum Child Care Vouchers that we can through our employers, which comes to $243 each, but we still top those up by between $300 and $500 per month, depending on where holidays fall. There, really isn’t any way to cut this cost, without one of us cutting our working hours, for the next couple of years until (if the scheme is still running then) he becomes eligible for the free hours that 3 and 4 year olds are able to receive. Until then, my childcare bill is the biggest single expense in the family budget.

All in all, once I add in things like home and pet insurance, tv licence, a small clothing budget and fuel for the car, my monthly outgoings are around $1400. Not too extravagant for a family budget, but with a few extras so we never feel as though I am scrimping. My monthly income is around $2000 so I usually tuck $100 to one side for stuff like takeaways here and there or buying the boys the odd treat, like a comic book for the eldest. The remaining $500 is usually tucked away in savings or invested. I vary this depending on whether or not I am saving for something specific like a holiday or re-doing the bathroom.

So, that’s my current family budget, as it stands. Mr. has his own budget and it isn’t my place to discuss his money on the interwebs, so I will just use my income and expenditure for the purposes of this blog.