Budget help

[Sarabudgetly]

Created a new username for this.

I’m terrible at budgeting and have generally managed to get away with it by earning a high salary. But I’ve resolved to get a handle on my finances this year after getting stung with a few tax bills recently and my DD starting private school in September. I earn £160k and my income is £7,600 pcm after all deductions including pension, critical illness cover and PMI. I get bonuses but I haven’t factored these in as they are discretionary. This year’s bonus will be used to pay my tax bill.

I don’t have any savings and I don’t have much left over each month, sometimes I am in my overdraft. This is stressful and in the last year I’ve had to borrow money from parents on a short term basis to cover unexpected bills (such as my roof falling in). Everything else just gets paid from my salary when the bill lands.

This budget reflects my everyday life without making any dramatic changes. I appreciate that I earn a lot but, putting that aside, looking at my budget are there any areas for obvious savings? What aspect of my budget seems unrealistic or wasteful to you? I have friends who earn much less but seem to have bigger homes and a better quality of life. Admittedly, they do not send their children to a private school so probably just have more disposable income.

My mortgage (£1,700pm) is paid from my contribution to the joint account. My husband is on a much lower salary but also contributes towards our mortgage and pays for our car (a 3 year loan of £360pm we are repaying to parents), food shopping, fuel, utilities and other clubs for our DD. He also doesn’t have a lot left over each month.

This is so interesting OP, huge admiration for working so hard to get to the position you are in and that’s really inspirational. Some people that come from poverty go the other way and live with that fear that they could be in a position of struggle again (this is how I feel, and find it hard to let go sometimes and live a little). However, totally understandable that of course you want to enjoy the money you have earned and that’s great, I think it’s all about balance.

This can be the year that you educate yourself about pensions and mortgages. Money saving expert has easy to read guides. Pensions are a huge hot topic at the moment. The general rule is take the age you start saving into a pension, halve it and that’s how much % contribution you should be putting in per year. BUT depends on what income you want / need in retirement. 100k in a pension pot might only give you 4k a year income so if you want 30k a year you’ll need 500k in there plus your state pension. Lots of calculators on this but it’s SO important to do now. If you put your salary in via salary sacrifice and increase the % (HR will do this) you will save a fortune on tax and NI but use a monthly income calculator to see how much it will reduce your monthly income eg if you take off 10% of your take home pay. Plenty of high earners will be paying in 20% plus so yours is low. At 57, you can take out 25% of your pension tax free which you could use to pay off any mortgage left or give your child a deposit etc . Radio 4 ‘money box’ has a pensions special at 3pm today ‘are you ready for retirement’ this might be worth listening too on catch-up if available! Or there was a money saving expert pension special on iplayer.

Mortgages are another topic covered on Money saving expert, great that you are on the property ladder. Also make sure your savings are accessible / tax free in an ISA with a good rate of interest. If in a high interest savings account you might need to pay tax past a certain savings point. Again this is something to read up on too, and then your savings can make you money!

(you should also receive a yearly pension statement directly from your work pension provider - I would hunt that out from your PpW (or it might be online / you have emails on it). have a look and it will tell you currently how much income you can expect at retirement. Also make sure you have completed your pension beneficiary form from your provider to ensure your husband gets your pension if anything happens to you)

If you really up your contributions now you could possibly afford to retire at 57 and escape the stresses of your job early if you want / need to :) of course your husband needs to do the same and be aware of how much he is expecting to receive too / make sure he is making the right contributions

OP, I think a lot of the problems stem from you and your husband continuing living your pre-family lifestyle, but having much bigger expenses and responsibilities now. This is not going to be fixed with just a bit of batch cooking. School expenses can't be trimmed, but other things can be.

For everything you can reduce, the money should go straight into savings or pension, so you don't mentally treat it as a pay rise. Try doing two months of cutting back on absolutely everything, then see what you want to add back and what you were fine without. After the two months you will have a nice pot of savings to motivate you to continue.

Really do look very seriously about upping your pension contributions, or you will be in for a big lifestyle shock come retirement.

Hi Op-

the main takeaway for me is the private schooling, you can cancel Disney plus etc but on your earnings that’s a drop in the ocean compared to school fees. I’d suggest a really good school that’s free with extra tutoring, also cut down on takeaways and do Gusto instead-easy to cook/ prepare xx

Hi OP. I sorry if my post didn't seem.very supportive I was probably reading it in my grumpy morning mood. You have done so much to gwt to this level of income there's no way you should need to forgoe pleasure .. I guess it's going to be a massive learning curve for you now you are at this point. Background really does help as money is also emotional issue. Maybe some coaching or support qith it all would be better than trying to just cope qith it alone. And sounds like your dh could help in some ways , but if he is being bailed out by parents he really hasn't learned financial management at all he s learned that you can have it all. And for different reasons to you may struggle now. I hope he's on board with your desire to get a grip on your finances .. it would.be good for you both. You can have a good life on that money and a secure future. Coming from.monye maybe your dh can rely on an inheritance so he is lackadaisical about it. And you haven't learned to plan ahead so may live more in the moment..
Hope you find a way to enjoy ehat you ahve amd feel pleased you know how to manage it. !

Another thing, to try and turn you from defensive (totally understandable, I was there) is to focus on what you can achieve - rather than what you will have to forgo.

This is great little tool to work out how you can accumulate savings - you can put in different scenarios to see how you could get to a particular savings goal.
https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

Try a few pension calculators as well - just to see how much you need to think about getting in your pension pot. Having positive goals to aim for may help you plan and stick to your budget.

Hi OP
There are a lot of parallels between your situation and mine.
We are on year 9 of paying school fees and it has just got harder and harder!

Our earnings have just not kept up with the leap each year in fees, let alone the hikes you get as they go through the years, such as pre-prep to prep, and soon-to-be prep to senior.

Over time we have slowly ground to a halt on renovating our house, gone down to one car, cut back holidays, got rid of the cleaner, eat out very infrequently with new clothing/purchases, etc becoming few and far between!
We've got 3 years left to go until the end of GCSEs and it is tough, but both DH and I say that we wished we'd started the journey a little later, say at prep, not pre-prep, and saved Reception, year 1,2 and 3.

We also wished we'd hit the frugality trail a lot earlier!

So whilst your child's education is your red line, and I get that, I would recommend really prioritizing building a buffer for fees. We started paying £3k a term in reception, and we are paying just under £9.5k now (including music lessons and some school transport) in year 8.

The mortgage is up by £600 per month, tax take is the highest we've had in 15 years, and food/holidays/utilities feel like they have doubled!
Get that buffer built, and don't spend a penny of any pay rise each year..save it.

@notafraidofthebigbadwolf I think people are generally missing details in the original post. OP gets a bonus, and this is her instant savings each year. This means that she can generally get away with living month to month on the large take home pay as the bonus provides the buffer most years and should build up to the 6 month safety net over time. OP is just feeling nervous because of an unexpected tax bill, the roof falling in this year along with the start of a commitment to gigantic level of school fees for a 5 year old.

This is exactly right. My bonus acted as savings/a buffer but this year I had the triple whammy of the tax bill, a lower than usual bonus because the markets were quiet last year, roof works* and the start of school fees. The roof works also came after a whole house redecoration over the summer and a larger than usual summer holiday, all of which I was able to cover from my monthly salary and bonus. But it’s left us with nothing in the way of savings.

Work deals are back on track and I have every expectation that my bonus at the end of the year will be in the region of £50k and, after tax, that will cover school fees for the year. But my bonus is not guaranteed (it was pretty much just enough to cover my tax bill) so I haven’t included it.

*I’m not sure why the insurance didn’t cover it (I know, I know …) DH deals with the insurance and dealt with the roof.

I got so angry about this but I’ve just had to accept it, let it go and endeavour to call HMRC every 3 months!

I would be very wary of relying on your bonus while you don't have a buffer of savings to fall back on. If you plan around having it and then it doesn't materialise for whatever reason, you'd be stuffed. As the basis for kick-starting a really healthy savings account to have in the wings in case of future need, it's great but I'd be so, so cautious of mentally earmarking it for anything - especially anything you can't do without. From what you've described, your current budget has somewhat lurched from one thing to the next (not judging!) and relying on an occasional large injection of extra cash to even out the gaps just feels really risky to me.

@AppleTree16 I got the critical illness cover wrong, i pay just over £200 pm for critical illness for myself and DH and PMI. It looks like I have overestimated travel and parking costs by calculating them across 52 weeks and not including holidays. Same with school fees. I actually pay school fees across 10 months using 0% school finance so I will have a two month payment holiday each year that I can use to save.

@excelledyourself yes, I wfh the other two days. I eat whatever is in the fridge or eggs on toast and DH usually makes me a coffee before he leaves for work so I’m not buying anything. We can’t look after DD while we’re wfh as both our jobs involve a lot of meetings and are intensive. DD gets 18 weeks of holiday a year. She is not in holiday clubs when we take time off but I have averaged the cost of holiday club across the year with the real cost being a bit lower.

@SecondUsername4me My commute is just under an hour each way. If I work past 10pm I use my work’s car service to get home so don’t pay any commuting costs and will usually buy a sandwich from Sainsburys to eat in the car. If I get the train home I wait until I get home to eat and will eat a ready meal if DH picked one up for me or cereal/toast if he didn’t.

@myturntonamechange Kudos to you for starting the thread and taking all the ranging opinions on board. I think you and many posters are massively missing the point though.

You are an extremely high earner and your DH earns an above average wage, yet you have no security, no savings and various debts. Making a ham roll and taking a coffee into work isn’t going to substantially change things.

It’s not going to work on its own but I think it can have a snowball effect. Start small and work your way up and all. Ham sandwich, no coffees today, dinner from the freezer instead of our usual takeaway and no Ubers today. That’s easily £50 saved that I would otherwise have spent and the important thing is that I feel really jazzed and am looking at other areas to save too.

Thank for suggesting Rami Sethi, I will check out his website!

Thanks @Starseeking and @Alwayslookonthebrightside1 . My pension is on my to do list for tomorrow. I seem to have pensions from various providers as I have changed jobs a lot so need to get a handle on what I have.

I missed the radio 4 “money box” special but I love a podcast/radio programme and will check it out.

@11NigelTufnel - absolutely, we haven’t adapted our lifestyle since taking on the burden of school fees and that’s becoming very clear to me.

Amazing news OP, £50 saved in one day, imagine what you can save in a month, 2 months.. saving is addictive! And you will get a buzz when you see the safety net in your savings account grow. And then of course when you DO treat yourself it feels more special.

Regarding the old pensions, I’d go back through all your ppw and make sure they all have your current address if you’ve moved a bit. They should all still be sending yearly statements and updates but easy for these to get lost if you’ve moved a bit and forgot to update the address on one or two. Also, just a warning, you can’t always increase your pension % contributions via salary sacrifice whenever you like. For a previous employer of my partner, you could only do this once a year, (via HR) if you missed the deadline you had to wait a whole year to update the contribution % again. So I would check the process with your HR department.

Also, if you really want to get on top of things, you can do your tax return for April 23/24 at the end of April 24 so you will know how much tax is due, (even though the tax return deadline is end of Jan 25.) This will give you a heads up if it’s a big bill. Hopefully not though as you’ve already been in contact with HMRC but it’s for peace of mind. You will need to wait for your P11D to finalise and submit it though, that’s usually sent to you in July.

I would also create a new copy of your spreadsheet with the revised numbers / delete costs you will no longer have so you know how much you can save if you stick to the new budget. This will motivate you and give you a target to aim for. If you’re happy for DH to carry on spending on your CC / debit card then this should include a budget for him to stick with too. Hopefully he’s on board with the new financial plan and realises how crucial this all is for your financial future.

@Toohardtofindaproperusername you didn’t come across as unsupportive, just encouraged me to think about why I was being so resistant! Money is a tricky subject for DH and I talk about. I’ve been gently nudging him all day and he has now said we can do a household budget if I think it will help so that’s definite progress - thanks to everyone who has pointed out that it can’t be a solo effort and we both have to be fully onboard.

@GogoGobo you’re like the ghost of Christmas future! Yes, private school is a red line that I won’t move on and I am determined to build that buffer to help with future increases and VAT. I know lots of people have said it’s not worth it at pre-prep or prep but they also don’t know my child and what the school has done for her in just one term. I’m glad I’m finally seeing the light and getting on the frugality wagon now before it feels like it’s too late. On the plus side for you, you’re almost done with the fees!

@Persipan i think it’s very fair to say we’ve lurched from one thing to the next 😂. As others have said, the plan is to be more prepared and to anticipate the big ticket items instead of being reactive. I definitely don’t rely on my bonus, it’s not factored into my numbers and will be a nice surprise when it comes.

@Alwayslookonthebrightside1 I’ve got lots of annual statements knocking around, of course I don’t read them but I will
dig them out. If I should be contributing half my age to my pension does that figure include employer contributions?

Yep OP, the ‘half your age’ % is the total, including both your contribution and the contribution from your employers. Then would still need to put that % in a pension calculator to see how much it would give you in retirement and if you think that will be enough.

There was a useful thread on this the other day

https://www.mumsnet.com/talk/am_i_being_unreasonable/5003010-if-you-are-retired-and-have-a-good-life-can-i-ask-how-much-pension-you-draw#:~:text=I%20saw%20£41000%20or,even%20earn%20that%20now...&text=The%20general%20recommendation%20is%20'the,income%20to%20enjoy%20financial%20independence.'

https://www.retirementlivingstandards.org.uk/

These are some guidelines that have been created to help understand how much you might need in retirement

Thanks @Alwayslookonthebrightside1 💐

Good progress OP and I’m impressed with how you’re engaging with all the things people are throwing at you. You’re clearly very bright and hard working, so there is absolutely no reason why you can’t do this. I really believe understanding and getting to grips with finance is a game changer for women.

I’d strongly recommend Pete Matthew’s Meaningful Money if you haven’t come across it already as it’s UK based. Its like having somebody’s Dad explain things to you in a clear and non-patronising way. He’s very good on pensions and investments, as well as the basics of budgeting and financial planning.
https://meaningfulmoney.tv/get-started/

I also agree with a PP about getting your tax return done in April/May so you can plan ahead. It’s worth getting an accountant specialising in this as you are likely paying a huge amount of tax which could be tweaked through pension contributions and other offsets.

Hi @AppleTree16 Could I ask where you get your critical illness cover from please? Mine is much more than that so I’d love to get a quote from them.

It’s Aviva but added on via an extra from my work pension (with Aviva). So maybe we are getting a volume discount?

I get the difficulty with cooking every night but Charlie Bigham and M&S do great ready meals that would be cheaper than takeaways. The big boxes of Indian or Chinese could replace your Friday Night tradition?

Cut classes, supplements and vitamins.