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.

A couple of people have asked about my mortgage - we have 6.5 years left although it will move to a new rate in a few months which will increase it by about £80pm. We 'only' owe 40k so this isn't a big deal.

I am dead against remortgaging to pay off the debt. My home is my security. I don't think it's wise to make unsecured debt, secured.

I would be paying off at least £3k for the debt. Forget about kids savings for now, you can throw more at that once the debt is paid off.

I don't think you need £500 a month in an emergency fund. Build up a few thousand and then leave it there. You can work to top it up again if you need to dip into it.

And I don't understand what the last £600 is for. Just throw that at the debt for now. As long as you have a few thousand in an emergency fund, then you can use those savings for home improvements etc if you find you don't have to use it for something else.

And I would keep the £500 a month for holidays etc. Thats a decent pot of money and I agree you need to have those things to look forward to.

I got myself into a bit of debt a number of years ago, before I had kids. I kept throwing a bit more at it than I felt comfortable with. So if I thought I could pay off £500 that month, I stretched myself to £550. I had a spreadsheet and could see what difference a little bit more could make to how long it would take to pay it all off, and that really motivated me.

I became much better at saving once it was all paid off as I just starting putting that money into savings rather than paying off debt.

By my calculations you owe over 100K, I think you should be prioritising paying off the debt quickly so you are better placed to save, support your DCs through HE / starting out and building your pensions. Have you both checked your state pension forecast? Do you have redundancy / critical illness cover? If your DH suffered an accident or developed a health condition that impacted his ability to work or you split up, you would find yourself in a very vulnerable position.

I don't understand why you're trying to keep good costs at £100 a week for a family and then giving yourselves £600 a month to spend on haircuts and nights out. Doesn't make sense to me.

Hi,

The debt isn't quite as high as that, although it's bad enough! We do have critical illness cover in place which would cover our mortgage. We will both be late 60's before we claim state pension although we do both have private pensions .

Reading it like that, I agree that we need to rethink this

So how much interest are you paying on nearly 100k of debt ?
You are aware interest rates have gone up, and you understand that the 0% rates will soon stop being offered to you as you are a poor credit risk.

All the fun in the world at £600 a month will pale into insignificance when the interest alone is double £600. Plus an amount of the capital to repay

I am sure your kids would rather you were able to retire than all the luxury holidays in the world

Agree with this. That money is far better spent right now on bringing your debts down. You can compensate later.

Pay off those unsecured debts! The interest rates are very high. I personally would remortgage and get them on a lower rate and then overpay like mad.

You can still do nice things but in a cheap way! Kids don't notice whether a holiday is cheap or not. We were very hard up years ago and could only afford a week in Bournemouth once a year for a few years. But we had a fantastic time, just as good as the more expensive holidays.

At between 80-96K( rough calculation)
I would pay the higher monthly sum £3400 and get rid.
Essentially you just won't be saving for DC or in a home improvements pot.
Both crazy when you owe this much.
Once you have paid off the debt, you will be able to save a huge chunk quite quickly.

I would spend more on food and home comforts and treats and throw everything else at the debt . If you used all spare money to pay off the debt how many months would it take ?

I would ditch completely saving for children and home improvements, ( don't do any more home imporvements until debt paid off, then save up for next home imporvements make a resolution to not borrow for anything ever again that you will save first and spend later so as soon as you buy a car you start saving for the next one) also I would allocate £500 a month to holidays including family treats and I think short term your personal spends should be less, does the £300 include all clothes haircuts nights out and hobbies if so it's might be OK but if clothes etc are in a separate budget then I think you need to cut it
if you took the £300 for children and £600 for home improvements and cut your DH spends to 250 from £300 you would have an extra £1000 to throw at debt, then once emergency fund is at somewhere between 5-10k throw that £500 at debt too, that would increase amount at debt to about £3000, once debt is paid off you have £3000 a month to save towards your next goal or £36,000 a year
do not however skimp on your pensions
if in between your expenses go up you need to cut holiday and personal spends
I have a 13DD she gets £40 a month for sweets going out with friends and make up I control the other £40 for essential clothes, clubs etc. Myself and DH get £80 which includes clothes and coffees, books hobbies etc

If you are remortgaging anyway I would absolutely wrap the highest interest portion of that unsecured debt into the mortgage and overpay. For me that would be anything over 4% that you can move without penalty and taking me to a maximum 60% LTV. Not doing that doesn’t make any sense - the unsecured debt is much more volatile and this gives you the ability to overpay in a more controlled & meaningful way.

beyond that I would target £6.5k in a savings account - 3 months of your expenses. Do you have any savings at all right now to form the basis of that? If not - £750pm until you achieve that.

£4500 I would split as follows:
£750 emergency fund
£250 house fund (for things that are needed eg washing machine breaks not ‘wants’)
£300 each for personal spending
£500 to cover days out/holiday/Christmas/birthday celebrations
£50 each for kids if going into s&s ISAs where they’ll grow - if it’s cash or low interest don’t bother and just top it up when you’re in a better position
£2300 debt repayments

i think that gives a reasonable balance while making a dent in the debt. If income increases at all I’d split it 50/50 between debt and life

We don't save anything for the DCs. They're older teens and have got part time jobs or sell stuff on eBay.

Holidays should be cheap until debt paid off. Same with treats etc. Lots of fun cheap stuff for DCs and families, you need to seek it out.

Once the debt is paid off or at least drastically reduced you can splash out on an amazing holiday to celebrate!

And don't skimp on pension contributions, v v important. I'd prioritise that along with the debt. Everything else apart from bills is secondary.

Look at YNAB - you need a budget. You have to pay for it now but it is soooo worth it! There are lots of things in your budget that you haven't accounted for. Xmas, birthdays, professional fees, haircuts, take aways, green waste, car repairs, washing machine breaks down, school trips, uniform, etc. Ynab will take all of these into account (if you put them in!, so you don't get any nasty surprises).

I don't have any debt but if I did i'd attack it and get rid of it as quickly as possible. Imagine how much money you'll have once you get rid of it. Have a look at Dave Ramsey, he's a bit annoying and it's very american based but his general principles are pretty good. He'd say live on rice and beans and pay it off asap (once you have a $1000 emergency fund).