No debt or no savings ??????

[madchocolatemum48]

We have a reasonable amount of money coming in. ( about £5 000 /mth)
We are currently renovating our house.
Dh doesn't want to be in debt, so every month we pay off the credit cards, bills we have accumulated over that month. So we have no debt, but it also means we have no savings either.
I want to split what we use to pay off and have a savings/emergency account.
Dh doesn't see where I'm coming from.
Opinions please

The interest you pay on a credit card is going to be more than the interest you can earn on savings, so unless you have an interest free CC, I would always clear the debt first.

Get rid of the debt first. Will also be easier to save again if you're not paying interest

No debt - debt is expensive. If you have lines of credit open, you can use these in an emergency but I would recommend trying to build up some savings ( while staying out of debt) by looking at your outgoings carefully.

Really you should aim to have 6-12 months of your income on savings.

if you only just have enough money coming in to cover your spend, then you haven't got enough to save as well. Savings are a good thing, but the only way you can do it is by spending less than comes in. It only takes a period of unemplyment, or a bad illness or accident, cutting your income, and you are unable to service your debts.

£1,000 saved, at typical 1% interest, gains you £10 per year less tax.

£1,000 on your credit card, at typical 25% interest, costs you £250 per year. On a loan shark payday loan as advertised on TV, it might cost you £4,000 per year interest.

So you must clear your debts before you can save.

I think every household should have a 'rainy day fund' - relatively small amount of easy-access cash to cover if there's an emergency or unexpected expense. Try putting 5% of your income (£250) into a savings account each month first - straight after you get paid - and then managing your way through the rest. Keep up with the debt payments and bills obviously, but cut back on the discretionary/unnecessary spending.

Get rid of the debt first.

As others say, being debt free is important, so I would make sure you pay any outstanding debt first.

You are renovating a house, and oh boy can that cost a lot ! But its a short term thing and the end will be in sight soon. Once the renovations are complete you should be able to save money too.

Thank you all for your opinions and advice, most welcome.
It makes sense to keep the debt at a minimum, so maybe I can squirrel away a little something every month without dh freaking out
Then we are both happy.
I think I'm getting resentful that the house is taking so much money, but it won't be forever.

I agree - pay off the debts. If an emergency comes up, you obviously have a credit card available that you can use, so for the moment, that can be your 'emergency fund'.

Once the house renovations are finished, then you need to look at your priorities for where the savings should go. A cash ISA as an emergency fund with say 3 months of living expenses in it should be your top priority. After that you need to divide the savings between:

• long term savings for home stuff (replacing white goods, carpets, matresses, furniture)
• car replacement fund
• overpaying the mortgage
• pensions savings (which don't HAVE to be in a pension specifically, they could be in say ISAs if you can trust yourself to never dip into them ever!)

Savings take a very long time to build up. I would start putting a small sum away now on a monthly basis. £200 from 5k PCM should be very manageable even if you have to cut down somewhere or use a slightly cheaper way to renovate. By the time you next get around to thinking about it you'll have £1k already set aside

And next time you're thinking of buying something you really don't need, spend the money on premium bonds.

I'm by no means a great saver but I'm self employed so need some money saved up. I do £200 into a stocks ISA, £80 each for kids and 7.5% of every net invoice I am paid, plus the odd premium bond. It builds slowly. (And will be needed next summer when I take a month or two off work).

ALWAYS pay off debt - have a look at my credit card spreadsheet on the "site stuff" board to see how much credit cards really cost ...