#40 Anticipating Financial Circumstance Changes

One of the things I'm concerned about is that as we get more money, either by paying off debt or salary increases, the additional available money is just absorbed.

For example 2 months ago I paid off my student loan. This was £330 per month. However, in the following 2 months we've not saved a penny.

Further example is that 2 years ago I was earning £51500. That is nearly £18k less than what I earn now. However, we have no savings to show for it. Granted the priority in this time has been paying down debt and we have achieved that.

So my plan is to plan and as soon as additional income comes available have a decision already made to automatically move that money each month so it's not missed.

Upcoming changes in circumstances.

1. Potential pay rise eta March / April 2017
1. Roughly £50 per month
2. Bonus eta March/April 2017
1. Roughly £3000
3. Tax code change eta May 2017
1. Roughly £100 per month
4. Paid off Credit Card eta Sept 2017
1. £50 per month
5. Paid off House Loan eta Sept 2018
1. £281 per month

Options for what to do?

1. Cash savings.
2. Stocks and Shares ISA.
3. Pay off mortgage.
4. Treat.

If I commit 

1. Any additional pay rise income to go into Stocks and Shares ISA. We've proved that we dont store cash very well so will use monthly surplus to top up cash savings.
2. Commit to split the bonus in 3. One third to cash savings, one third to S&S ISA and one third towards treat for the wife and family.
3. Commit to adding tax code changes to S&S ISA.
4. Credit card re-payments can be used for cash savings.
5. House loan is too far in the future to consider now.

What I'm interested in is increasing the monthly amount I save into the S&S Isa.

Currently this is £50, starting 2nd Nov.

With pay rise and tax code change additional income this should increase to £200 per month by the summer of 2017, as well as a one-off bonus amount.

I have started considering what my 2017 goals are likely to be. It's early but I'm excited as it'll be the first year where the focus is turning to wealth accumulation rather than debt repayment. With £400 already invested in PPBF shares the aim should be completing 2017 with around £2.5k held in stocks and shares, with a further £1.2k invested in my company share save scheme.

#39 Where Does My Money Go?

I'm interested in seeing a breakdown of where my money goes and crucially how much % of my gross pay am I actually saving.

Gross Pay	$5,750.83
Tax	$1,495.47	26%
National Ins	$384.44	7%
Season Ticket For Commuting	$274.67	5%
Childcare Vouchers	$124.00	2%
Fixed Spending	$1,302.81	23%
Variable Spending	$1,020.00	18%
Debt repayment	$331.65	6%
Pension Payments	$287.54	5%
Fidelity World Tracker Fund	$50.00	1%
Expected Savings Per Month	480.25	8%
	Overall Total	100%

This is based on my monthly budget, which as we know I've only stuck too once so far in over a year. Therefore the 8% expected savings per month can be ignored.

Using gross is interesting as I can see the amount of tax paid etc however as this cannot be changed it doesn't provide a fair reflection upon how much of money which could be saved in theory is being saved.

Therefore, here are the net figures...

I have added the net pension cost to me to the net pay to enable a 100% view of the book;

Net Pay + Pension Net Contribution	3,351.48
Fixed Spending	$1,302.81	39%
Variable Spending	$1,020.00	30%
Debt repayment	$331.65	10%
Pension Payments	$166.77	5%
Fidelity World Tracker Fund	$50.00	1%
Expected Savings Per Month	480.25	14%
	Total	100%

Disappointingly the amount of my available pay being saved is exactly the same = 6%.

If we stuck to the budget this could be increased by 14% to 20%.

Once debts are re-paid this can be increased by a further 10% to 30%.

What concerns me most is that over the last 18 months~ we have only stuck to budget once.

What that means is that excluding my pension which can only be accessed at age 55 we're only actually saving 1% of my take home pay.

That is ridiculously absurdly low.

 According to this chart referenced by Mr Money Mustache  this means I'll retire in 98.9 years. Great.

Therefore, priority has to be increasing the savings rate by sticking to the monthly budget, paying down the debt and increasing the automated savings each month rather than rely on cash savings.

When it comes to 2017 aims for the year I think this will need to one of the key drivers. Replacing the debt repayments with direct debits into savings to increase our savings % to 16%.

#38 Wealth Accumulation

I have realised now that we are nearing a period of wealth accumulation. Our debts are a third of what they used to be, and we're working to paying them off in the short term.

Now I need to focus on how to build wealth.

A couple of pieces of advice I've read over and over again;

1. Don't delay just start now. 
2. Compounding works miracles.
3. Shares beat cash usually over the medium / long term.

A couple of lessons from my own experience;

1. We are great at adapting to spend the amount of money we have.
2. If savings are easily accessible they will be accessed.

So with that in mind I'm going to begin the journey of accumulating wealth :).

I'm 30 years old and target setting is for another day.

Today is about starting the journey.

Here's a view of my current standing.

£12.5k in a pension I can accecss @ 55 years old.

£350 in individual shares.

Obviously I plan on maintaining my full payments into my pension.

I do not plan to buy further individual shares.

As mentioned in previous post I plan on paying £100 into my companies sharesave scheme. I will track this as 'cash' as I am only buying into options. Once these mature in 3 years time - if still within the company - these can be turned into shares or a profit from shares.

I will continue with the plan to create an emergency fund which is at least one months out-goings. This will be built up in a regular savings account - as I am able to get 5% interest rate that way.

My final way of creating wealth will be through a Global fund. Initially I believe I'll start with a small amount - £50 per month and see what's remaining. I will find the cheapest fund platform and cheapest fund - targeting no more than 2% charges per annum.

#37 First Dividend!

I received my first ever dividend last month!

1.60 for my 4 shares.

Reading into this, it appears this is the interim (half year) dividend payout, with a final dividend also paid. So in effect two payments per financial year, which now runs Jan>Dec.

In each of the previous 5 years the final dividend payment has been twice that of the interim payment.

Assuming the final dividend is 80p, I'd get a payment of £3.20 for my 4 shares. Giving a total dividend for the FY of £4.80.

Given I invested £429 to purchase the shares it's the equivalent of a 1.1% interest rate, based only on dividends ignoring any movement in the initial capital.

#36 Sharesave scheme and new house

2 exciting things have happened lately.

#1 We found a house we like within our village and had an offer accepted. Our is up for sale but with no offers in the 3 weeks it's been available.

#2 My company opened up the latest sharesave scheme.

New House?

The house we're looking to purchase is on the market for £500k.

We had an offer of £490k accepted.

We expect our house to sell for £350k. 

We have £188k equity in our house, and as you know 0 savings.

Mortgage broker has provided us with these options...

Ok, so on the basis of purchasing at £490,000 you could borrow £360,000 with one lender over a 40 year mortgage term, the rates are as follows;

-          2 year fixed @ 1.64% = £1026.04 a month

-          3 year fixed @ 1.94% = £1081.83 a month

-          5 year fixed @ 2.29% = £1149.07 a month

-           

Or if you are happy to pay a little more each month and stick with a 35 year term, there is a better 2 year fixed rate available as follows;

-          2 year fixed @ 1.49% = £1103.54 a month

Alternatively, if you wanted to raise a little extra funds and still stay under 75% LTV, you could borrow an extra £7,500 over a maximum of 35 years

-          2 year fixed @ 1.49% = £1126.47 a month

-          3 year fixed @ 2.09% = £1237.78 a month

-          5 year fixed @ 2.29% = £1276.24 a month

I don't want to increase to a 40 year term, so ruling those out.

The house we're buying is going to need to attention, so the additional £7.5k of provider 3 looks interesting. Couple with the fact that for a 2 year fix it's only £23 more expensive and would provide us with a £7.5k windfall I think we're leaning towards that one.

Now, that would increase our monthly mortgage payments from the current £797 to £1,126, an increase of £329. Funnily enough almost exactly the same amount as I was paying back my student loan!

Sharesave Scheme

The priority is the new house, fingers crossed.

However, we also do not want to miss out on the opportunity that the Sharesave scheme provides.

It's 3 years.

The price offered is fixed now and is fixed at 20% below todays market rate. The fix option price is £69.

The limits for entering the scheme are min £10 and max £500.

Cash can be withdrawn and the scheme exited at any point. Payment holidays can be also be taken.

I have missed out on previous scheme which saw a lot of people earn very well in my company, and was determined not to miss out next time the opportunity arose.

However, we do not have much money left each month.

So working on assumption we take the above mortgage and our monthly repayments are increased to £1,126 we would be left with £229 per month. Some of this could go towards the sharesave scheme.

However, council tax, electricity and water are all likely to increase.

Increasing all of these by 10% leaves us with £200 per month.

The elephant in the room is obviously that we've not actually managed to stick to our budget yet and will be buying a house which needs attention. 

So on the assumption that the £7.5k can both act as our emergency savings and cover improvements to the house I think we could afford £100 leaving £100 as cover for any overspend.

The guiding principle being that we have shown over the years that when we need to save we can make it work - hence we are in a position to buy a house worth half a million pound - but that when we have a bit of safety then we overspend. 

Hopefully we'll get the new house and will learn to live with less money and stick to budget!

Either way it will be exciting.

 

#35 Variable Spend Budget

For 16 of the 17 months I have been tracking budget spending we have over-spent on our variable spending.

The last 3 months have seen a combined variable spend of £3,831. This is £800 over budget.

I'm now going to attempt to break down the budget further to allow for better visibility of where the budget is wrong and allow me to focus on resolving.

Firstly, breaking down the spending into sub-categories.

We have Need, eg petrol, misc, debt interest. Kids.

Could. House, Mr Work.

Nice. Mr/Mrs/Family treats.

Then the one-off big items. The general idea of these being all must haves.

How much we spend on big-one off items?

Over the last 12 months we've spend £3,245.89 on one-off big items. This equates to £270 per month.

Our budget for variable spending per month is £450.

If we aim to reduce big spending to £250 per month. That leaves £200.

Things that can be removed, or not budgeted for as we want to remove them...

• Debt interest
• Top up Mrs account
• Mr work - buying lunches etc

Things which remain...

• Mr/Mrs/Family treats
• Stuff of kids
• Petrol

How this could break down...

• £250 on one-off big items. 
• £50 on petrol
• £100 on Mr/Mrs/Family treats
• £25 on kids stuff
• £25 on misc little items

I will update the budget and track this going forward.

Hopefully it will focus our decisions and allow me to identify where the over spend is coming from,

#34 Sept 2016 Summary

So, did we stick to the budget?

No. Overspent by £537.55.

If not, why not?

Fixed spend small amount over, inconsequential.
Grocery shopping - on budget.

We fell down on variable spending:
£330 on one-off big items.
£182 on family day outs/treats.
£143 on petrol.
£124 on the house.

Plus other spending meant that our variable spending was £935, which is over double the budget.

Some of this was needed, new freesat box to replace SKY TV (£184), car parking fine (£60).

Any positives?

The overspending of the last three months has been very bad. However, at least each month has got better.

Debt has dropped below £9k, now stands at £8,661.92.

Grocery shopping was again on budget thanks to using pre-pay card.

Lessons / thoughts?

Need to break down the variable spending budget to allow for better planning and understanding.

Expectations for next month?

My expectations for each following month have been well off recently.

However, we have our family holiday in October and still have the car-hire to pay for which will be roughly £150 plus other holiday spending. So expecting October to still be expensive and over budget, aim will be to spend less than this month to keep it going in the right direction.

Effect on overall finances?

S    Student loan – Does not exist anymore :)

·         House loan – £298 was paid off direct debit. Total remaining now is £6,547

·         Credit Card -  £48.68 was paid off. Total remaining now is £2,114.92

   

Total Debt = £8,661

~~~~~~~~~~~~~~~~~~~~~~~~

Savings

Paid for our foreign holiday to the Canary Islands so savings taken a beating.

Emergency savings / Savings for France 2017 family holiday

• £168

Shares

• Current value is £349.88 (decrease of £17.20)

Total savings =  £517.88

Pension

• Current value is £12,500.55