Net worth update: July 2017

Net worth update (1)

I am officially a light-weight blogger! I have been so overwhelmed with life ‘stuff’ this month that I have not posted a single other blog post than my net worth update. I am disappointed, but blog posting was at the bottom of my to-do list behind MBA studying, summer holidays, medical appointments (more on this another time) and work. I am going to be nice to myself and not put too much pressure to blog more than I can. I am sure I will get back to more posting when things calm down. Now to the monthly figures…

Our net worth increased by £3,588 (or 5.23%) from the previous month. We made a £220 over-payment to unsecured loan 1, but also needed to withdraw £452 from our emergency fund to pay for a new fridge.  Our emergency fund contributions in July were £730 so overall our emergency fund increased in the month and our goal of reaching an emergency fund of £5,000 by the end of 2017 is still on track. I must say that all the advice I received to build an emergency fund before focusing solely on debt pay-off was crucial this month. As soon as we realised our fridge was broken we went straight to the emergency fund and there was no stress at all!

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Here is how we did against our mini-goals:

  • Increase our net worth each month, by any amount
    • Achieved. Our net worth went up by £3,588
  • Make £50 per month from side income (e.g. matched betting, freelancing, etc.)
    • Achieved. July was a decent month for matched betting for me. I profited £146.18. I did not make any other side income, but as I was very busy this month I am pleased with this number.
  • Spend £400 or less on groceries and toiletries each month (previously we spent £500 per month)
    • Just missed. We spent £406.62 on our groceries and toiletries. This is only just over our £400 goal.
  • Make an over-payment to unsecured debt each month, whatever amount
    • Achieved. Overpaid £220 into our largest personal loan.

I am very happy with our progress again this month, but with a few changes on the horizon I am aware that these large monthly increases may not be possible for some time. I can’t say much more about our changes just now, but will update as soon I am able to confirm what changes lie ahead of us…

 

Net worth update: June 2017

Net worth update (1)

It’s my favourite time of the month, where I get to update on the progress towards our goals! After having a negative result at last month’s net worth update, I am pleased to say we are very much back on track. Our net worth increased by £4,962 (or 7.8%) from the previous month and we managed to overpay an extra £2,000 towards our largest personal loan.

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A large part of this increase is due to the compensation we received from British Airways for them cancelling our flight. We received just over £1,500 in compensation. In the past if I had received this money I would have definitely spent it on another holiday, or stuff for the house, or extra nights out. Instead I plowed it right into the principal of our largest personal loan. That felt good!

Last month I also set some mini-goals. Here is how we did against these:

  • Increase our net worth each month, by any amount
    • Achieved. Our net worth went up by a healthy £4,962
  • Make £50 per month from side income (e.g. matched betting, freelancing, etc.)
    • Achieved. As mentioned in my recent side-income report, June was a good side income month. I made £113.49 working at the polling station at the UK snap election; £83.55 in matched betting; and £40 in swagbucks vouchers.
  • Spend £400 or less on groceries and toiletries each month (previously we spent £500 per month)
    • Achieved…kinda. We spent £382.15 on our groceries and toiletries while we were home. But we also had a week on holiday in New York so if were home that extra week, I think we would have gone over. This will be hard to hit in July.
  • Make an over-payment to unsecured debt each month, whatever amount
    • Achieved. Overpaid a satisfying £2,038.29 into our largest personal loan.

I am very happy with our progress this month, but I know that we had an usually good month so am cautiously optimistic that we will beat our original goal of paying off all our unsecured debt by the end of 2018.

 

Net worth update: May 2017

Net worth update (1)

After writing my savings strategy post and thinking about long-term goals, I was starting to feel very excited about eventually becoming debt free. I kept imagining what financial independence will feel like and was feeling super motivated to get us to debt-free status. But when I put together my net worth update for this month, my motivation took a nose-dive. A few things happened that put me off track and it felt like in the short-term nothing was really happening. Here are the figures:

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Our net worth at the end of May 2017 was £63,637. This is £25,641 higher than last month, but only because I added in my husband’s personal pension (SIPP) worth £26,090. Taking out the pension value, our net worth actually decreased by £448. Short-term debt increased by £22 because I refinanced our second loan for a lower interest rate and ended up taking out a loan for a slightly higher amount than what was due on the previous loan. I put this increase into savings, but it does not feel nice to see a debt balance increase, whatever the circumstance. Add onto this the financial fiasco with British Airways last week and the payment of quarterly MBA fees of £2,030 this month and, well, the combination just makes me feel like I am crawling slowly towards financial independence rather than running towards it.

To help me with motivation, I am going to set some mini-goals for the rest of 2017. I am hoping that with these short-term goals I can see more visible progress towards our overall strategy. My goals will be:

  • Increase our net worth each month, by any amount
  • Make £50 per month from side income (e.g. matched betting, freelancing, etc.)
  • Spend £400 or less on groceries and toiletries each month (previously we spent £500 per month)
  • Make an over-payment to unsecured debt each month, whatever amount

I will update against these goals each month now until the end of the year.

 

Our savings strategy

oli-dale-139169.jpgNow that I have declared our ambitious plans to pay off our debt and mortgage in 10 years, I suppose it is about time that I set out exactly how we might be able to do this.

It will not be easy, especially since we have debt from fertility treatments,  MBA tuition fees, and a house move. So yeah, it’s a going to be a long journey. Here is how I think we can do it:

  • Firstly, and this is absolutely fundamental to our plan, we are now living well within our means. Our monthly income is more than enough to cover our expenditure. Here is what our typical monthly income and expenditure looks like, including regular transfers to investment/saving accounts:Screen Shot 2017-05-12 at 20.01.25So even after £800 transferred to savings and investment accounts, we have £1,632 left over. Over the next year, this surplus will be earmarked to pay for the final year of my MBA course. We will hold it in our main bank account (we get 2% interest in there up to £5k) until the fees are due.
  • My MBA will be paid for in July 2018. At this point, assuming only minimum debt repayments have been made, our unsecured debt will total around £16,500. We will start to over-pay our highest interest (3.4%) debt by £1,000 per month. The £632 remaining will be kept in our main bank account for annual family trips and other non-emergency yearly costs.
  • Following this plan, our highest interest debt will be paid for by March 2019 and our next highest by June 2019. We will then only have our mortgage outstanding.
  • We plan to then snowball our debt towards the mortgage, plowing £1,416 into a  stocks and shares ISA on the premise that our mortgage interest is less than 2% whereas annual returns on stocks will be much higher than this. We will also divert our SIPP investments to the ISA so that it is not locked away for when we want to pay off the mortgage.
  • Finally, assuming all goes to plan (fingers crossed!) we will have saved the value of our mortgage in an ISA by April 2027 and exactly 10 years from now we will pay the mortgage off all in one go!

Here is my net worth forecast (excluding the value of our house and any emergency funds held in cash) at the end of December for the next 10 years if all the above goes to plan:

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I have made some assumptions in working out these figures. They are:

  • We will receive an average of 5% annual return on investments in stocks.
  • Salary increases will not be invested, but kept for annual cost of living increases.
  • The ISA allowance will increase to £21k by 2020.
  • We will not incur any penalty to pay the mortgage off early.

I would be more than happy to receive any comments on if our plan could be improved in any way.

After the mortgage is fully paid, we will then work on retiring within 3 years from that. Using those dates, I will be 49 and Mr Small will be 55, at which point he can cash in his work final salary pension and SIPP. This may not seem like early retirement, at least compared to the extreme early retirees out there, but for us it will be less than 15 years after we start our financial independence plan and we would be absolutely thrilled with that result.

 

 

Net worth update: April 2017

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Our net worth increased this month by £2,044 or 5.7%. This is a good increase for us. On average over the past year we have been increasing our net worth at a rate of only 2.5% so I am pleased with the increase, but also know there is still room for significant improvement.

The main driver for the increase was a boost to our savings accounts as we try and focus on building an emergency fund before tackling our short-term debts.  I cashed out £342 of matched betting profits in April and the stock and shares ISA also performed well.  I  opened up a savings account at our bank which has a 12-month bonus interest rate of 3%. I plan to put £400 per month in there over the 12 months.

The short- and long-term debt payments are the standard amounts, i.e. without any over payments.

 

 

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.