Trying to get the balance right - advice needed!

[EMU23]

Hi.
I am a long time lurker, but this is the first time I have posted.

I am trying to get my head around our financial situation and how we can move forward. I will give you some context....

We are both early-mid 40's, married for 12 years and 2 DC's. We own our house ( mortgaged) and we both work full time. We have a LOT of debt. I don't want this to become a debt post, as it's not really about that, and I don't want to share the numbers etc, however the situation is -

We both entered our relationship with some debt - CC's , loans for cars etc. Neither of us were particularly financially sensible in our twenties. We had several rounds of IVF, funded our own wedding and spent a small fortune renovating a house. We also weren't earning anywhere near our current level of earning so for a long time we were only really servicing the interest and not reducing the balance. We have now restructured all of the debt so that it is on the lowest possible interest rates, and we are overpaying to reducing the balance more quickly. We aren't adding to, or taking out any more debt. Like I said, this isn't just a debt post but I wanted to give some context. Our aim is to be unsecured debt free within 4.5 years

So I a trying to strike a balance where we enjoy life, do nice ( budgeted) things, whilst repaying the debt and saving some money for the future. I am struggling to get the balance right.

Now that we are both working full time we have a good joint income of around 105K per year. dh also does bits of freelance work throughout the year. Our average monthly take home is currently £6700.

Our mortgage is low(ish) at £520 per month. All of our other household bills come to slightly over £700 so £1120 for all of our household expenses. This includes all mobile phone bills, internet etc

I have become savvy with food shopping and manage to do this for £100 per week, although this is becoming increasingly difficult.

We run two cars and on a normal month we will spend £300 on petrol/diesel.

our dc's do various activities that cost us £150 per month and they always seem to need new blood clothes/shoes! We spend around £100 per month of these items.

We both have gym memberships costing a total of £62 per month.

So all in all, we spend about £2130 on general living.

We are trying to work our how to best allocate our money. I know that some people will say that we should thrown absolutely everything at the debt etc and I can understand that train of thought, however I feel that it's important for us to also have some fun. I don't want to not take my dc's on holiday for 5 years, or not be able to have days out. I want a plan that is sustainable for us.

So I was thinking that we should apportion the 'spare' money in the following way -

We will have about £4500 to split -

£2000 - debt ( this would be an overpayment as minimums are lower)
£500 - emergency fund for house/car issues
£300 - personal spends for me
£300 - personal spends for dh
£500 - savings for hols/days out
£300 - £150 each into savings for dc's
£600 - transfer to separate account and either use it to pay off a chunk of debt, or put towards home improvements etc.

I would like to add that I appreciate that there will be people reading this who are struggling to pay the gas bill. I a 100% not trying to piss anyone off. I have been there, and I know how that feels. I would certainly not have posted this on the cost of living board and I recognise that despite our debts, we are fortunate. Please don't berate me for asking for advice though - we are all different.

I would be grateful to hear how you would manage these finances.

What would you each spend the £300 spare on? If it really is spare then that sounds like a lot to me.

Hi, For me it would be things like having my hair done. I would also save some for the odd night out/weekend with my friends as that it important to me.

Ah OK, that makes sense then, Op.

What do you want to achieve that you aren’t achieving now? You have plenty of money to do the things you want to do and pay off debt, in a well arranged way, obviously you could spend less on hair and more on food or debt if you wanted to. But I don’t understand what you feel is unbalanced?

My general philosophy with kids is that you're not going to have kids forever. We could throw everything at our mortgage and aim to be mortgage free young(er), but at what other cost? So we're not putting lots away in savings or overpaying the mortgage right now, our minimum was to have a mortgage and we thankfully have good public sector pensions, good insurances if the worst happens, but outside of that we choose to prioritise living and giving the kids the childhood we want them to have (within our means though, at the cost of not having huge savings, we're not going into debt for this).

Obviously you need to manage the debt to make sure it's paid and try to do it as financially sensible as possible with as minimum amount of interest you can get away with, but I wouldn't feel guilty about not making that the only priority, if your payments are manageable, I would prioritise some money for fun, activities etc. Have a long term plan, how long will the debt take with X amount aside for "fun".

It sounds to me like you need to see a financial advisor.

In your shoes I’d use the ‘extra’ income your DH brings (the freelance money) to pay for the holidays.
If anything happens (job loss etc), you want to have 3 months’ worth of salary in savings. So I would give myself 18 months to save the £20,000, which would mean putting 1,100 in savings every month. Add to that the £2,000 you’re repaying the debt, makes £3,100.

Think of it like this
Bills £2,130, I would round this up to £2,500.
Debt £2,000
Savings £1,100

So realistically, you need to write off £5,600 every month.

What’s left of it, before your DH brings the freelance money in? Because those money will go on holidays etc. That’s the amount I would split to 3, 1/3 for each of you and the children. You and your H can do whatever with your money, but bare in mind that’s for haircuts, eating out, clothes, books etc, and your children’s too.

out of interest, just how much into are you paying on those debts?

how much interest, not into, sorry

Hi,

Thanks - that's some food for thought. The interest varies and a big chunk is made up of personal loans at rates of 7-9%ish. I have done everything to get it as cheap as possible. I constantly review this to look for balance transfer offers etc

I would do;
£500 spends between you and DH.
£1000 into savings until reached £10k
£3000 to debt and the extra £1000 once you've got a buffer of £10k. Once debt free you will be able to manage to put £4k a month away.

Personally I would extend the food budget a little. While it's good to be frugal, saving and overpaying loans is only sustainable if you have budgeted for occasional treats.

Have you allowed a contingency? eg. unforeseen appliance needing replacement etc

Sorry missed the emergency fund on first read

Also look at snowballing the Debt. See MSE forums. Paid mine off far quicker using this method

If I was you….

I would immediately (and urgently) build an Emergency Fund of 3-6 months bare bones expenses.

Then, I would pay down the debt. I understand you saying you don’t want to go full-on, and want some things to look forward too. However, you need to balance that with the knowledge that having such a large consumer debt is not safe and leaves you in a vulnerable position if something happens - eg one of you gets laid off, or a medical issue requiring expensive treatment, time of work or time of work to do the same for the kids.

I think 4.5 years is too long to be in this perilous state for, so I would compromise with the myself and cut out £300 kids savings and £500 Emergency Fund (as you already have it) and £600 chunk of debt/home improvements = £1400 and add this to the £2000/m you are already putting towards debt, meaning £3400/m towards consumer debt.

This should cut the time you are paying off debt by half, to 2 years, 3 months (assuming less interest payments as you pay it down). Meaning by 30 June 2025 you could be debt free. How good would that be! Think of all you could do with the spare money then! (Hint: mortgage!)

But seriously, once debt is laid off you could save for a month or two and add that money to kids savings if you wanted too (they must be under 10 years old now, so don’t need £150/m each compared to you needing the money to pay off the debt.

I understand wanting some fun/treats on the way, but overall remember the quicker you are out of this, the better. I speak from experience. I can’t tell you how good it feels to have no consumer debt.

No savings would give you 7-9% interest, add to that the average 3% on balance transfers, you’re looking at approx 12-15% interest (give or take). On a debt of £50,000, that’s another £7,500 you’re giving to the banks instead of having fun and living your life. So your priority needs to be getting rid of the debt, imo.

Another vote for as much as poss at the debt. You never know where a curve ball of redundancy, serious illness or other such disaster will come from.

How long to go on the mortgage?
What age are your children?
How healthy are your pensions?

I wouldn’t have savings for the children until the debt was gone.
I wouldn’t allocate £600 per month on personal spends until the debt was gone.

I would spend more on food.
I would make sure I had adequate insurance cover.
I would make sure I had wills and POA done.

I would do exactly the same as @LinesAndDot 2 and a bit years is not a long time to put a few things on hold for. You will save tons in interest if you pay down debt faster. I would get my head down for a bit and then start planning a nice family holiday for when the debt is gone (funded by saved interest!).

I would not be saving for the kids either. You are massive earners with an absolutely tiny mortgage. You can save significant amounts for them once the debt is paid off. This is not the time to be focusing on that. £300 each is pretty generous but as you are high earners and seem to be on top of this debt, that seems OK.

I'm wondering why no information about your pension provision? It's the single most efficient way of providing for your future, unless you will work until you die.
I feel you can't get a coherent response if it excludes pensions, it should be a top priority at your age and to maximise tax benefits available to you.
If you prioritise other things you may wake up in 5 years with an even bigger problem, especially if you both find that your working patterns are no longer suitable i.e. you don't want to work so much or any more.

Agree that paying off the debt should be a priority and you have the income to still enjoy your lives, and get it down as much as possible to save on interest.

I’d build up savings of maybe 10k for any emergencies. Would probably prioritise that actually. 500 per month for holidays and nice things etc seems reasonable. I do understand children are only young once and you want to live your lives, but I’d be looking more at a caravan in the Uk v 5* abroad somewhere.

I assume the minimum monthly repayment is a lot less than the 4.5k per month you have available? I’d put pretty much everything leftover after personal spends etc into the debt and should you need any home improvements or unexpected costs then you could just pay lower repayment that month and use your income for those costs. Although I would hold off as much as possible until I was debt free.

Yes to considering your pensions and also your mortgage positions.

I get you wanting to have some balance but I think your proposed spends are a bit odd.

£300 savings for the children feel a bit strange when you have so much high interest debt. You need to sort yourself first. Home improvements seems to be what contributed to debt so I would just add that £600 straight to debt repayment and psychologically stop any notion of home improvement until you’re in a better financial place. You have a proposed £500 for an emergency fund so that should hopefully cover any issues.

I can see why you want a holidays/day out fund but I don’t honestly think you can afford holidays yet. Id perhaps do two years with just days out and cut that budget right back and then possibly book a holiday you could then look forward to say in 3 years time.

Do all your expenses include things that are not monthly eg car & house insurance (cheaper to pay annually), allocation for birthday and Christmas presents, MOT, TV licence, any quarterly activities or subscriptions, budget for school trips, school holiday clubs/childcare, etc? I would work these out and do a monthly pot for them.
As PPs, I would also pay off debt before saving for the children.
I would probably also have a pot for family spends, cutting your personal pots a bit to pay for it. So if you get hot drinks in the park or if the kids need more than £100 of stuff replaced once a month, that there would be somewhere to pay for that.

When are you due to remortgage? If you credit card interest rate is 7% and you can remortgage for 5%, you could repay the credit card in say 5 years.

We are a similar income, £800 on debt each month and food/household bills come to £3500!
Id chuck everything at debt if I could.

Thanks for everyones replies. I have been ill with blody norovirus for a couple of delays - hence my delay in posting again.

I appreciate all of the comments. We have been looking at some 'worst case scenarios' - job losses etc.

I 'only' contribute £1460 to the pot so if I lost my job we would still be ok, plus I would be happy to go and work anywhere - I reckon I could earn a similar amount in retail etc. I currently work as a support staff in a school. I think that y job is relatively secure.

DH is in a secure role and it is very unlikely that he would be made redundant etc. If this did happen, he would be able to get a job fairly easily - he has been head hunted twice this year.

I am not naive enough to think that it couldn't happen, however It's very unlikley that we would lose our jobs.

We are both eligible for sick pay too. I am thinking about taking out some incoe protection as a safety net.

I think that we do need to think about throwing more at the debt, and lesson on savings for the kids etc. I do however still feel that it's important that we allow ourselves to have a life. We have had a shitty few years with bereavent, family illness etc and I a determined to enjoy life as much as I can. Of course I want the debt repaid but I also don't want my whole life to become a debt free mission, if that makes sense.