Small successes: refinancing and cost cutting

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It has been about two weeks since we have embarked on our ambitious plans to become completely debt-free in 10 years. I have been daunted (and haunted!) by this task and to be honest after crunching and re-crunching numbers am not convinced it is achievable just yet. That being said, we have had some successes in getting us closer to our goal and I am trying to focus on these rather than our debt mountain.

Financial successes this month:

  • Student loan – This loan bugged me, so after some reader advice, I went straight to the internet and found a better deal. I was quickly approved for a £7,500 loan through M&S bank at 3% over 5 years. I estimate this will save me around £1,400 in interest plus the monthly payments have decreased by £26/month. 10 minutes of research for a £1,400 savings – I’ll take it!
  • TV, Phone and Internet – Our monthly expenditure on TV, Phone and Internet was £102 per month, split as £44/month with Sky and £58/month with BT. After reviewing our bills I was convinced this could be improved, so Mr Small called Sky, threatened to leave, and they offered a combined package of TV, Phone and Internet for £55.20/month. That’s a savings of £46.80/month or £561.60 per year. I’ll take that! Note: I understand that Cable TV is a luxury and could be cancelled completely; however we enjoy watching family movies and TV shows and see it as a good alternative to going out and spending even more.
  • Shopping deliveries – We were paying £9.99/month with Ocado on their Smart Pass. This allows us to get unlimited home shopping deliveries. I am looking at our grocery spending and considering changing stores so I called Ocado and asked to cancel the Smart Pass. Lo and behold, they then offered the same exact product for £2.99/month with the first 3 months free. I took the offer.  I will now have 3 months  to look at alternatives without paying a penny for deliveries.  So the savings will be £9.99/month for 3 months and then £7/month thereafter if we stay with Ocado.

In summary, over the past 2 weeks we have saved £82.79 per month in regular outgoings. This is not life-changing savings by any means, but we can put that savings directly into our emergency fund. It also means that all our debt is at a 3% interest rate or less. After a useful reader comment, I have now decided to focus on our emergency fund rather than debt overpayments to try to build it to £10,000. We have 2 old cars and need both of them for work, so I want to make sure our emergency fund will at least cover the cost of 2 new (old) cars. A decent used car can be purchased for £5,000, a price which also falls comfortably within Financial Samurai’s one-tenth rule.

Note: I am not affiliated with any of the above products and do not endorse them in any way. The savings realized above are based on my personal circumstances only. 

 

 

Breaking it down: My family’s balance sheet

After my very first post where I declared my family’s mission to pay £285,000 of debt in 10 years, I think the next step, as scary as it is, has to be full disclosure of our assets and liabilities.

Family balance sheet the end of March 2017

LIABILITIES: £284,868

Mortgage = £262,913 (1.89% interest rate)

Yikes, that is high – but it is not as bad as it seems! Even though we have such a large mortgage, it is secured against our house and the UK housing market has done really well over the past 3 years. We purchase our house in December 2013 for £307,500 and the value is now estimated at around £370,000. That equates roughly to a 6% compound annual growth rate. Considering our interest rate is currently only 1.89%, this means we have been increasing the equity in our property year on year. We are due to re-mortgage our 2-year fixed rate deal later this year and will post more about this on a future post.

Unsecured bank loan = £14,590 (3.40% interest rate)

This bank loan has been in place since October 2013 and we have added to it over time. We initially borrowed £12,000 for moving costs when we bought our house in December 2013 (see above). Since then we borrowed an additional £3,500 in 2014 for an emergency car repair, £5,000 in 2015 for medical costs (more on this in another post), and £8,120 in 2016 for MBA tuition fees. Each time we borrowed we lowered the interest rate and have ended up here. We have paid off the balance aggressively at various points, but always in short spurts before something else came up. So in total, we have borrowed £28,620 and have about half of this left outstanding. I want to tackle this debt as soon as possible but not until we tackle the student loan.

Student loan = £7,365 (8.00% interest rate)

This debt annoys me because the interest rate is ridiculously high. I took it out from a private student loan company at the end of 2015 to pay for the first year of my MBA which started in January 2016. At the time, the loan seemed perfect because the repayments are only £40 a month. I foolishly overlooked the high interest rate, telling myself I would just make large over-payments and wouldn’t end up paying much interest. Of course, something else came up (like the second year of my MBA!) and here I am with this debt 18 months later. We are currently overpaying an additional £120 per month to this loan and we have it in our sights as the very first victim of our debt repayment mission! I am currently researching my options to refinance this debt.

ASSETS: £320,821

Home = £307,500

This is the purchase price of our property in December 2013. I do not like to revalue our home to its market value, which is estimated at £370,000 because this is unpredictable. The first home my husband and I bought in 2006 sold for the same price we bought it for 7 years later (bad timing!). There is no way to predict that the UK housing market will not crash again. We also have other assets in our home, such as cars, televisions, computers, but I do not value these for the purpose of looking at our net worth as they are depreciating assets.

Cash = £7,045

We get a decent interest rate in our bank account so we keep a fair amount in there for liquidity. We have this cash earmarked for the final year of my MBA so have no plans to invest it.

Investments = £6,276

We have a regular deposit being invested in equities via an ISA, a UK tax-efficient savings scheme. I have found a great investment product that has super low management fees. I will talk more about this another day. This full fund is earmarked for our son. We want to put money aside for him for when he is older. However, having researched more about personal finance, I am not sure at the moment how important this fund is. There is part of me that thinks my son should earn his own money and that this balance would be better used for debt repayment or as an emergency fund. I’m a still dwelling on this fact, but for now will continue to deposit £100 per month to this investment pot.

Pensions = ???

I do not know what to put down for this figure. My husband has £25,500 in a Self-invested Private Pension (SIPP) but he cannot access it until he is 55 at the earliest, 13 years away. My husband and I also both work in the public sector which means we have defined-benefit pensions. We contribute a percentage of our salary (around 8% each) to a large fund that our employers top-up. For this contribution, our employers promise that we will receive a pension payment on retirement based on our average salary during employment multiplied by a percentage based on the number of years we worked there. This makes it very difficult to calculate a pension asset value because (i) we do not know how long we will be at our employers, (ii) the pension plan formulas could change, and (iii) whatever annual benefit we receive lasts until our death. So at the moment I am leaving all pension assets out of my net worth calculations, though I am certain they would be quite valuable.

So there it is, laid out plain and simple. Our first task must be to pay off that horrible student loan. To do this, I am going to be looking at our income and expenditure budgets very closely over the next few months and try to increase the rate at which we can overpay that loan. In conjunction, I  want to look into refinancing the loan. I think we can easily pay the loan off by the end of 2018, but I want to see if we can do it by the end of 2017! I will delve into our monthly income and expenditure in the next post.

Inspiration and purpose

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I was drawn to this quote by Confucius when I saw it at a recent seminar for my MBA. As I sat in the class and viewed this quote on the screen, I thought of my family’s debt. The debt that was growing with each day that I studied on my expensive MBA, planned our holidays, and paid our bills. And it dawned on me that I did not have to tackle our debt head-on as I always had in the past, recklessly failing each time in frugal exhaustion. I could, instead, disassemble our debt mountain one small stone at a time. This is what I hope to do, and I want to capture it on this blog.

A blog will be good for me. I often find myself speaking about my personal finances with friends and family. I am open with my money and have no problem blurting out my debt, net worth, monthly bills or anything else. However, the response I get is usually silence (in a very polite and British way), but silence nonetheless. I soon realise, after awkwardly changing the subject, that what I desperately seek is a kindred spirit financially, someone to bounce ideas off, someone who wants to listen but also share. I am drawn time and time again to personal finance bloggers who pour their monetary hearts out. I like to read about successes and failures and to know that paying off debt is not only possible but achievable!

The purpose of this blog is to hold me to account. To help me reach the ultimate goal for my family, which is to be debt-free in 10 years. And I am talking completely debt-free: no student loans, no personal debt, no mortgage, nothing.  This is a huge task! Our debt at the end of April 2017 is just shy of £285,000! Based on my calculations paying this off in 10 years is a stretch, but with some support from the online community, I think I can get there.

I also have made the decision to write anonymously on this blog. I have written blogs in the past and happily disclosed my identity on those, which worked well for those blogs. However, for a finance blog I want the freedom of anonymity. I want to talk openly and honestly and anonymity will give me that for now.

I plan to post net worth updates to start and basic posts about how we budget, what our plan is to pay off our debt and any financial changes that we make to help us towards our goal.

Welcome to our journey!