A tricky January - can we sort this quickly??

[flamencoone]

Morning,

We have just finished a major removation of our home. We borrowed some money to fund this, however we went a little over budget so we have ended up having to use all of our emergency savings too. This means that we are entering the new year with no financial back up. To add insult to injury, the following has happened.....

We have an unexpected tax bill of £747 to pay. It's definitely right and HMRC have actually been quite nice.

We have an outstanding builders bill of £680

We borrowed £700 from DD's savings which we want to put back immediately.

This means that we need to find £2127 to 'clear the decks'. We can then start saving again.

We are in a fortunate position to have some discretionary money left when all of the essentials are paid. I am hoping that a super frugal january could see us clear of this in a month. DH thinks this is over ambitious. Our numbers are as follows

Total joint income after tax - £6917
Mortage/debts/bills ( everything unavoidable) - £3450
Food- £400 (IF I meal plan and shop at Aldi - we will also have left over christmas food for a week or so)
Petrol - £200
£100 - need to replace some school uniform/shoes
This totals - £4150

4150 + the 2127 that we need to clear eveything = £6277

In theory, this leaves a bit of a buffer of £640

Does this seem doable? I am prepared to do whatever it takes to not drag this out beyond January.

12 and 14. it's very tight BUT it's just a month and then we will be back on our feet

Well yes of course it's doable - you've just illustrated how. And you have a buffer if food ends up costing more.

Though given you usually have a couple of grand spare once bills paid I'm not sure what the rush is. Use your overdraft if necessary - end of Jan payday will clear it.

He wants us to ask HMRC if we can pay it over 12 months. Pay the builder in full and pay DD back over a few months. I agree that his plan would also work, but I just think that if we can do it straight away, then lets just do it and move on

I know, and I do accept that this is not anywhere near the same as the many people who struggle month to month. I am aware that I am actually very fortunate. I suppose there doesn't have to be a rush, but I just really want it sorted so that we can start to build up savings

Your DHS speaks sense, twelve months of tight(ISH) VERSUS your plan.

As a credit manager I would take a sensible plan over a knee jerk , re the knee jerk plan my new FD overrode me on knee jerk and they defaulted, he had egg on his face at the next board meeting

Mine, they paid up, slowly and steadily and to the penny because they could still live.

Just be careful.

Does your daughter actually need the money asap - why not pay that back over 3 or 4 months (plus any interest if it would have been in a high interest account). The tax bill and the builder are more important to clear surely?

I would split your approach - pay the builder and HMRC in January and the savings you borrowed in Feb.

I would do this. If you feel bad about it add £50 interest!

I would let HMRC recover via tax code, that way you know it will be repaid but spread the cost. It’s c£63 per month.

Pay the builder in Jan.

Pay your daughter back monthly (including interest), at the same time start building up your reserve fund.

I know when you are always in credit with savings it can be scary to owe money with no savings. However, trying to pay back in one month is not pragmatic.

I agree with this. Better to pay other people and companies first what you owe them - it’s surely a bit different when it’s your child (Unless she needs the money urgently?).

I get what you’re inferring about the mental weight of it and starting afresh in February, but there’s probably no urgency when it comes to your daughter. So I would save the £1340 surplus from next month, in two accounts for you and her.

Firstly over £600 spare is plenty! Just be really strict on zero extras for that month. Which I think isn’t that hard in January anyway.

Secondly though, I’d definitely pay the builder asap. Then I’d set up the HMRC payment to come out on the due date. I’m assuming that’s the 31st jan.

Presumably by 31 jan you will a. know how much money you have left and b. been paid your January pay.

Assuming you have enough money left, then pay your DD. If you don’t, then take it out of the Feb pay and your savings will just have to be a little less that month.

It sounds like you have over 2k surplus each month, so if your income is stable I don’t really see the dilemma. You will build your savings back up very quickly

Split the difference. Maybe all in one go is overly ambitious but dragging it out over a year seems unnecessary.

If you pay your council tax and water over 10 months, have you accounted for the lower bills in February and March that will leave a bit extra you could save?

But you say the £3450 cannot be reduced and includes debts. Have you moved it all onto interest free deals? Have you reviewed the cost of all contracts, eg mobile phones, broadband etc?

Does it include savings for annual and irregular expenses, like Christmas, holidays, car costs, insurance etc? Maybe a job for the Christmas holidays is a thorough budget review so you can pay those bits off, pay any debt off at minimal cost and at the same time start to build your savings back up, which should earn more interest than any debt is costing you.

Have a look at:

Do a money makeover and potentially save £1,000s - Money Saving Expert

How have you ended up borrowing money from your kids savings when you have that much disposable income?

You need to get your finances sorted to stop this happening again, the repayments are a secondary concern tbh.

Firstly £400 for food and a buffer of £640 isn't tight, it's comfortable. It's more than most people live on and if you are high earners then you are presumably reasonably intelligent.

Secondly if you are such high earners why don't you just phone the bank rather than borrowing off your daughter? These are reasonably small amounts given your income.

Did you not read the OPs opening post? Building works cost more than anticipated. Clearly not an every month occurance if the OP usually has savings.

@flamencoone I'd do the same as you for no other reason than I don't like owing money.

£600 spare cash and you're worried it'll be tight? for one month? honestly no idea how you'll sleep at night 🙄

Does your daughter need the money back quickly? If not I would wait to pay her back until you are more settled financially. The builder & tax bill are more urgent I imagine and should be prioritised.

It’s good that you’re talking to HMRC and hopefully you can arrange a payment plan with them but the builder needs to be paid in full asap.

I’d do your DH’s plan personally unless hmrc will whack on loads of interest. Builder is probably the priority here and then I don’t see what the rush to pay back your daughter is. Obviously would be good but I bet if you asked her, she’d probably rather have a less frugal January. With the income you’re on I’d take a bet that your food shop is normally much higher than £400 so would be something everyone would notice.

Weird flex but okay.

How old is your daughter? And how many people are you feeding in your household?

plus agree with @Frenchfancy says x10

I'd pay:

The builder first, as it's their livelihood and they need the money now

Then HMRC - tax is a priority debt and they will put charges and interest on (might be from 31 Jan). Either pay in full now or try to make an arrangement to pay, they don't mess about. Bear in mind you'll probably need to go through your finances with them and they might say nope pay in full as you have a healthy surplus. Do not assume they'll accept a 12 month plan if you can clearly pay more quickly.

Your daughter is the lowest priority against the other debts.