Sunday, 29 June 2014

Overdraft: The forgotten debt


Being a good girl, I was reviewing my money recently and was rather confused. Looking at what I received in redundancy pay, what I had paid off in debt and what I recall spending from January, there was nearly £2,000 that I could not account for. This really worried me, I was pretty tight with my money during my period of unemployment, I just couldn't work out where that money had gone. Then I realised - I had paid off my overdraft. 

I have been in my overdraft for years. It was £1,500 so even after being paid I was usually straight back in within a week of pay day. To me being in the 'red' was normal for me. I didn't consider my overdraft to be debt. I expect there are many people reading this who are also consistently in the red or use to be. I didn't consciously plan on clearing my overdraft, once I received my redundancy pay I just saw the figure in credit and budgeted according to that. 

Realising where that £1,500 had gone (the other £457 I finally remembered I had paid to my boyfriend for my share of our new bed) it made me think. I knew I paid a fee each month but I didn't know off the top of my head what it was. Looking into it, I was paying 19.9% interest on my overdraft every month, that was around £300 a year I was paying. I would also occasionally be caught out with fines of going over my agreed overdraft limit when direct debits/delayed debit card payments came out before pay day. No wonder I now feel flushed given the amount of fees I am no longer paying!

I am loving being in credit in my current account. 

Going back to the avalanche/snowball methods, if you are currently paying off debt where does your overdraft fit in? Should you be paying off your overdraft compared to the other debts you are paying? Have you even considered your overdraft as debt?

If you are debt free and had overdraft debt, did you pay off your overdraft first or last?

*Image courtesy of Stuart Miles www.freedigitalphotos.net 

Sunday, 22 June 2014

Guest Post: Money and Happiness: Can they Coexist?


Bre at The Weight of Debt has kindly guest posted for me today. I hope you enjoy!  

Can money buy happiness? You will find people all over the spectrum between yes and no. The reason for this is because everyone has grown up in his or her own vision of the world. No pair of people will have lives exactly the same and in result no one’s opinions are exactly the same. Especially when take into account all the different factors of life including but not limited to: finances, past experiences, parenting, environment, and current events. With that being said here are my thoughts on money and happiness.

Don’t Let it Control You

In my opinion, the biggest contributor to the whether or not money and happiness can coexist is whether or not you control your money or if money controls you. If you currently live paycheck to paycheck with no emergency fund and are stressed to wits end you probably aren’t very happy when it comes to money. Versus someone who has gotten a hold of their budget and have diligently scrounged to save an emergency fund and can now sleep in peace knowing the world could push them down tomorrow but they will survive.

It works on the other side also. If you are very well off financially but are still in debt, are just piddling away your finances, or are waiting for your net worth to make you feel complete you probably aren’t very happy either. But if you are investing properly in your family and giving away money to help those in need you may feel perfectly at peace with your money.

There is a Maximum

In 2010 there was a study by Nobel Peace Winner Daniel Kahneman and his colleague Angus Deaton, that showed happiness will level out after reaching an annual income of $75,000. It stated that emotional well-being will rise with income but only to that $75,000 mark. The study showed that low income was associated with emotional pain such as divorce, ill health, and loneliness. High incomes showed satisfaction but satisfaction in material factors of life, but that does not necessarily mean you are happy.


I was shocked by this study. I don’t make nearly that much at the moment but I would of at least imagined the figure where financial happiness plateaus would at least be in the six digits! However, we live on a lot less and are perfectly content with our lives.

 Spend it on Others

I recently wrote about how Giving is Food for the Financial Soul. I paid for coffee for the person behind me at Starbucks and it made me happy. I fantasized about people for the rest of they day paying for the coffee for the person behind them as a domino effect as my small random act of kindness.

I would find it very hard to believe if you spent money on someone else in a random act of kindness and you then tell me it didn’t make you happy.  In addition giving to others can fill the need for shopping which can help you to control your financial habits if you are addicted to spending!

It All Depends

I personally believe that money and happiness can coexist but it requires some time, budgeting, and personal will power to overcome the hurdles that come along with money, whether it is the abundance or lack of. The great thing is that you are in control. If you currently don’t have a hold on your budget and are unhappy, you can control it and bring happiness back into your financial life.


Bre is a new personal finance blogger at The Weight Of Debt, sharing her journey to become debt free by the end of 2017. She shares the ways she is making extra income, saving money, and all that she learns as she continues to pursue her goals of becoming debt free. Please consider following on Twitter at @TheWeightOfDebt.


Tuesday, 17 June 2014

Frugal Failure: The Potato Ricer


I have been somewhat of  frugal failure this week. On the plus side, I am managing to keep within 'my means' and have paid off some debt. I have not had to use credit to pay for anything since January and I am loving having money in my account more than 2 weeks after pay day knowing full well that I can make my next minimum repayment which is due on 25 June. However, I am becoming complacent.

Being in credit is a novelty for me. I have spent the most of the past 10 years consistently in my overdraft. Now I am in credit. Now I have money.  

I am starting to become a spendthrift again. 

I don't know if I am experiencing a 5 month itch but I bought lunch 4 times last week. I went to Cafe Nero twice this week (it's only Tuesday!!). 

And 

At the weekend, when out food shopping, I put a potato ricer in my trolley without a second thought. Like most people (except those Atkins converts and those 'no carbs before Marbs' lot) potatoes are a staple purchase. I eat them a few times a week. I have been after a potato ricer for a while. I wanted smooth mash, none of that lumpy crap from using a masher. So I put the ricer in the trolley and bought it. 

I have ignored my own rules.

This was such an impulse buy. I didn't go to the supermarket to buy a potato ricer. I should never have gone to the non-food isles. I put myself in front of temptation and I failed.  

I didn't check the price. I just bought it. It was fifteen flipping quid! I should have checked online, I later discovered I could have got one for a tenner with free delivery. I could have got cash back. I could of bought a second hand one. I am a frugal failure.

I forgot one of the rules of debt repayment and money management. Distinguish between your wants and your needs. I WANTED a potato ricer, heck no one ever NEEDS a potato ricer!

Aaaagh!

I like to spend and debt repayment, while at times is fun (it really is - I love watching those numbers go down and reading other people's blogs), it is also boring and you can feel deprived. I am not in the extreme cheapskate league of debt repayers. There are other personal finance bloggers out there who are much more hardcore than myself in terms of their expenditure and debt repayment. But I am a lot more frugal than I use to be and my expenditure has dramatically reduced. This in turn has resulted in me paying off more of my debt. 

I am now though considering whether to have a £20 a month splurge fund, £20 that I can spend on whatever I want rather than what I need, something frivolous and not to feel guilty about it. With that £20 I could go to Nandos once a month (hallelujah to the piri piri), I could buy two, maybe three cocktails on a Friday night, I could buy a copy of Closer magazine (guilty pleasure) decisions, decisions.....

I do feel guilty about buying this potato ricer but I am also sitting here with a bowl of mash with cheese and chives, singing along to the theme tune of Bodger and Badger and bloody well enjoying it. 

Do you have a splurge fund? Are thinking about it? What would you spend £20 on no guilt permitted?

* Image courtesy of www.freedigitalphotos.net

Saturday, 14 June 2014

Quick Post

The Thrifty Issue

If you are looking for some further financial/frugal/thrifty tips make sure you check out Financially Savvy Saturdays, my Goals post has been featured. Plus there are a load of other great articles to read.

PS - I have changed my blogs domain name. This has resulted in all previous comments on my posts being deleted. If you have left a comment and I have not yet replied - I apologise.


Tuesday, 10 June 2014

Debt Confession


I have a confession to make.

I briefly mentioned my university fees in my 'About Me' page but I didn't harp on about it. The truth is my current debt isn't just credit card debt. I also have student loans outstanding from when I started university in 2000. It is approximately £5,000. 

I was one of the first batches of students once grants were abolished in 1999. This meant I had to pay university fees and take out loans for living costs. 

Back in 2000, university fees were a calculation based upon your parents' previous tax year salary. My parents had a fairly low gross income but due to a lot of overtime that my father worked it meant I had to pay a contribution towards my fees. Luckily it wasn't too huge (approx £300 a year). 

My parents though were not in a position to financially assist me with living costs (the fees were a stretch). They are a low income family and had my younger siblings to care for. I therefore had to take out the living loan. In total, when I left university I owed £13,000 in student loans (If you're American and reading this I know this is absolute peanuts compared to what you guys have to pay so I apologise in advance!). 

I don't include my student loan debt as part of my overall debt tally as shown on my blog for the following reasons:- 
  • Student loans are deducted from my salary like a tax. I lose over £100 a month via this tax. However, I have never had this money so I have never missed it. 
  • I only have to pay student loan repayments if I am earning over £16,000 a year. When I was unemployed I did not have to make any repayments. Interest was still accruing but....
  • Interest is currently only 1.5% per annum (it was 4.8% at its peak). 
  • The loan is written off when I am 65. 
I have mentioned what my goals are. If I did become a stay at home mum, I would not have to worry about making repayments on my student loans unlike with my credit cards. Therefore, I do not include my student loan as part of my 'frugal trial'. In the future, I may start aggressively seeking to pay off my student loan but I doubt it. At this stage once I am credit card debt free I would rather save, contribute to a pension and invest my money. 

Do you have any debt/spending confessions you dare to share??

* Image courtesy of freedigitalphotos.net 

Saturday, 7 June 2014

Debt Repayment Strategies - Part 3


Budgeting = boring!!! 


The biggest money mistake I have made is not budgeting. If I had budgeted, I doubt I would be in so much debt. Since knuckling down to clear my debt it has become clear to me that budgeting is crucial. To put it in perspective, this time last year, after I paid all my bills (excluding food), I use to have around £700 a month disposable income and I still could not make that last a month. I would have to use my credit card to 'get through the month'. In hindsight that is ridiculous and I am really quite embarrassed to admit this. 

In case you have not read my 'About Me' page, I am a solicitor and earn an above average salary but I am not a high rate tax payer. 

I now earn less than I did last year but so far (I have been in my new job for nearly 2 months) I am able to keep well within my salary. The secret is that I now budget

As far as I can see there is no one absolute method of achieving budgeting success. You will need to find the best method for you. If you check out the plethora of other personal finance blogs you will find many different methods of budgeting. There are many bloggers (seriously loads!) that love Excel spreadsheets, some bloggers track absolutely every penny, many use apps - there are so many ways to track spending and budget but I won't bore you with them all (although the percentage method at The Broke & Beautiful Life is very intriguing and I may try it in the future).

This is how I budget:

I am a little 'old skool' when it comes to budgeting. I like to budget using pen and paper. When I am paid I write down all my fixed outgoings, rent, council tax, minimum repayments etc. I then set out how much I will spend on food for the month (I get a bit of a break here as my boyfriend can be fussy so he'll pay the extra if he wants something). Whatever I have left is my disposable income. 

With my disposable income, if I have something specific to buy I will set money aside for that. For example, next month I have to get my hair cut so I will specifically set aside money for that. 

This month is birthday central so I have had to set aside money for each birthday do I am attending. 

With whatever I have left, or if I have nothing to buy in particular, I divide my disposable income by the number of weeks in the month until pay day. 

I now also regularly check my bank account (every 2-4 days) to ensure that I am on track. 

I play 'make believe'

If you are paying down debt, you need to find money in your budget. If your budget is tight this may be a problem. 

With debt you pretty much have three options. 

1) You make an over payment when you are paid, 
2) You make an over payment at the end of the month, or
3) You do a bit of both.

I am not here to preach, do whatever you prefer. 

For me I really really really do not want to be using my credit cards again therefore I am quite nervous of declaring 'I will pay £500 towards my debt on pay day'. Plans change and I may need access to money during that month. Instead I pretend to myself that my minimum repayment for credit card 1 is £220. It is actually £94. That £220 is taken off my salary as a liability and therefore does not form part of my disposable income. Therefore at a minimum I make an over payment of £126. The benefit of this to me is that if for any reason I need a bit of extra money, I can just pay £94 instead. 

I roughly have £50 a week disposable income (I know this is actually quite high compared to a lot of people but I grew up in a low income family and I remember the days of no food being in the house). Out of this £50 I pretend I only have £25 a week disposable income. The aim being that at the end of the month I will still have £200 left and that can go towards debt. This also gives me some flexibility to spend up to £50 a week if I absolutely have to. 

So far this 'pretending' method is working for me. 

What is your favourite way to budget?




Friday, 6 June 2014

Debt Update


My debt figures are now as follows:-

CC1         £4,205.20
CC2         £5,081.60
CC3         £2,135.79

Total debt cleared this month = £161.15

I know on the face of it that this looks rather tragic but I am actually rather pleased with this sum. 

You may have noticed that the figures for my credit cards look quite different to last months update. The reason for this is that CC1 figures were finally at the point where I had a realistic chance of transferring the balance to a 0% interest card. 

CC1 and CC2 were both offering current customers the opportunity to transfer the balance so I transferred the element of CC2 that I was paying interest on to CC1, then transferred the element of CC1 that I was paying interest on to CC2. 

Due to the balance transfers, I incurred charges. However, now all my cards are 0% interest so the fee was worth it. I have transferred balances in the past but crucially, the difference this time is that I paid off the fees immediately plus paid another £100 odd on top (£53 is my minimum repayment for CC3). 

In addition, I managed to pay off debt despite the fact that I only received just under the equivalent of 3 weeks' pay at the end of April and more importantly, I did not go into my overdraft(!) This may seem like a completely irrelevant thing to be excited about but for me this is a big deal. 

If your interested in reading more debt repayment stories I suggest you check these out:





How did everyone's debt repayment go this month? 

Wednesday, 4 June 2014

Do you need financial goals?


When I first started reading personal finance blogs I was rather dismissive of this whole 'you gotta have goals' malarkey. It just seemed so, well, boring and obvious. I mean, I want to clear my debt - that's my goal duh!! 

However, since I began to actively pay down my debt I can see now that goals are important. Without a goal, where is the motivation to continue? 

Actually, I think you need two moments to assist in clearing debt and not accruing anymore 'bad' debt, you need an 'aha' moment and you need a goal. 

Aha!

For me, I cannot pinpoint my 'aha' moment. I don't know the date that I cracked and said 'Victoria - NO MORE DEBT!' 

I do remember sitting in my tiny, expensive, flat last year sometime in the summer having a realisation that my minimum repayments on my credit cards were stupidly expensive. However, this didn't stop me racking up more debt. 

I remember when I left my job in December thinking that I needed to get smart with money. 

I remember a sleepless night in February when I was struggling to find a job and getting worried about money. 

But I cannot remember when I said 'enough'. It must have been the day I started my blog! 

Goals 

Having thought about this subject over the past couple of weeks, I have realised what kick started my debt repayment is my desire for things in the future. I would like to buy a home and I would like to start a family. More importantly I would like to stay at home with my children (at least while they are very little) and I don't want to return to work full time when my children are still at school. These desires of mine will not be achievable if I have £18k and rising of credit card debt. 

I am not one for finite rock hard goals - I like a bit of flexibility but roughly my goals are as follows:- 
  • Clear my remaining credit card debt by June 2016. 
  • Buy a property in 2015/2016
  • Start a family in 2016
Actually in an ideal world I would like to clear my debt by December 2015 but that would mean paying £605 per month towards my debt and that is not possible on my current salary but £460 per month, that is broadly realistic. 

My boyfriend has become a little obsessive with buying a property. He is saving for a deposit. I need to clear more of my debt before we approach a mortgage lender to assist in our application being approved. 

Babies! Yay! I really don't want to be scrapping around for money for credit card minimum repayments each month when I have children so I want the debt gone before babies. 

So, ultimately, I want to clear my debt to start a family. 


Do you think it is possible to clear debt without a goal? Did you clear debt without a goal? How do you motivate yourself to clear your debt?

* Image courtesy of chanpipat via freedigitalphotos.net 

The Million Dollar Diva

Sunday, 1 June 2014

Debt Repayment Strategies - Part 2



Last week I detailed a number of debt repayment systems that you could use. What I didn't detail under 'Debt Consolidation' was that you could add your debt to your mortgage. 

If you have enough equity in your property you may be able to add your debt to your mortgage. 

You may need to remortgage (find a new deal) in order to borrow more so that you can add debt to the mortgage.