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
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.
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.