The Frugal Life: Budgeting

Beating a recession

Fri, 11 Apr 2008 10:29:14 GMT

Everybody’s jumped on the recession band wagon lately, insisting the big financial end is nigh, so I thought, why be the exception!

Kidding aside –this scare-mongering makes me angry as it may frighten a lot of people unnecessarily. But I’d be lying if I said the hype hasn’t got to me. The notion possessed me that we could sell up and buy a cheap backwater bolt-hole, where we’d have more room to grow veg and a smaller mortgage. But now is not the time. DJ still has to commute into London to work, plus we love where we live.

But a slowdown, rather than a full-blow recession, is probably on the cards. And tightening the belt is a good idea. It’s doing something drastic that’s probably a mistake. Some people are considering selling their houses to realise the equity, and renting with the view to returning to the housing market eventually. But this is pretty risky. What happens if you can’t get back in? Not to mention the money wasted in selling fees and rent.

Cheshire Building Society’s boffins suggest the following strategies to beat a recession:

- taking out mortgage or income protection policies

- saving for a rainy day

- making sure your cv is up to date

- knowing where to go for debt advice eg. Citizen’s Advice Bureau

Sensible stuff. But I’m in two minds about mortgage protection. When I lived on my own I took out a policy. It would pay my mortgage if I got made redundant– and the year before me and half the staff at an internet company were fired so I was nervous it could happen again. But the devil was in the detail. It would ONLY pay out if I earned nothing at all while I was unemployed!

However, Duncan Philp, a senior consultant at IFA Macbeth Currie, told me not all policies work this way and it’s worth having mortgage protection in place, or three months’ mortgage payments stashed away in a bank account.

He also recommends overhauling your finances regularly. “It’s very important to have financial reviews and think ‘what if’,” he says. “People are famous for doing nothing and that’s what energy companies and banks rely on.”

The biggest area to look at, Duncan says, is your mortgage. “It’s at times like these that people need to review their mortgage to ensure they’re getting the best deal.”

The key is to be in as flexible a position as possible. Make sure you have a competitive mortgage product which is affordable but that you can overpay. It’s better to take out a 20 year mortgage, and overpay, cutting it to 15 years, than starting on 15 years and being tied into the payments. And pensions are important, “there’s no point paying into a pension if you can’t feed the children” he says. All pension and ISA payments should be flexible, so it’s possible to stop them if money becomes tight. Also, ensure that your bank accounts are the best on offer so your money is working enough hard.

Other ideas, according to this useful article, and this one are to delay major purchases, pay off credit card debts if possible and scrutinise day-to-day finances to see where fat can be trimmed.

What are you recession beating tips? Leave a comment and let me know.

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Mortgage Envy

Mon, 07 Apr 2008 13:43:21 GMT

Fresh from my break, which was lovely and very relaxing - thanks for your kind messages - , I have been struck down with a terrible case of the green-eyed monster.

A friend of mine I used to live with years ago and now only see occasionally as she’s very highflying and busy, got in touch. It was nice to hear from her, and the usual small talk ensued over email about work, family and troublesome other halves, etc. when amid the chitter-chatter she just happened to slip in that she and her fiancé had just paid their mortgage off….!!!

My delight in hearing from her quickly turned to abject envy in realising that from now on never again will she and her chap be burdened by mammoth payments to the mortgage man – our single biggest expense each month. That is - assuming they doesn’t buy another, bigger property at some point of course. Aaagghh!!! Just imagine the freedom of being completely mortgage or rent-free! Maybe some of you are lucky enough to be so, I don’t know. If so, maybe you could let me know how you achieved it! My friend’s fiancé is older than her and fairly well off, and they both earn a good wage, so that would have helped. But I also know that they both worked their socks off to raise the extra cash to pay the mortgage off. Yet, when I think of the money they will be saving each month it still turns me a shade close to olive.

We would be almost £1,000 a month better off if we were mortgage free. For years I’ve dreamed of writing a best seller that would set me up for life, or winning the lottery but these are just pipe dreams of course. And it doesn’t help that I don’t actually do the lottery!

On a more practical level, DJ and I have been considering paying a little extra a month towards the mortgage. Although it would be an added expense immediately, each paying £50 extra we would shave about four years off the mortgage and save nearly £20,000, according to an overpayment calculator. Our current mortgage allows us to make overpayments up to a certain amount a year, beyond which you are charged for. So it’s worth bearing in mind. So far I’ve been squirreling away any money I save into a savings account for a rainy day, but maybe I should be putting it to better use on the mortgage. The question is how long term your frugal game plan is. In the long run your mortgage is probably one of the biggest areas where you could save money by paying some of it off earlier. But many people struggle just to keep up with existing mortgage payments.

Apparently an offset mortgage would better suit me as self-employed worker too because the cash you put away to go towards the yearly tax bill can build up interest which can help pay the mortgage. And it might also be something worth doing to build up equity in the house in the current mortgage crisis.

Unfortunately I've just looked through our paperwork and realised our discounted mortgage runs out this year. Now is not exactly the best time to renew, is it? Not exactly a frugal success! Oh dear...

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Work life balance

Thu, 20 Mar 2008 07:44:01 GMT

My home internet service crashed and burned yesterday, which was a total pain given DJ and I were both trying to work from home. I say ‘trying’ as, frankly, not an awful lot got done. We were concerned that BT digging up the road had something to do with it. My neighbour’s internet and phone went down the previous day. But when we called AOL, our broadband provider, there a recorded message said there was a widespread network problem and it probably wouldn’t be fixed that day. Drat.

Inevitably a few expletives were uttered. But I got to thinking about my old job and remembered that on average the internet there went down far more often than our home one (fingers crossed!). Our one has crashed twice in past six months, whereas my old work one went down about once a week.

In fact, home working, which I’ve been doing for nearly six months now, has a lot to recommend it, not only in the quality of life but also from a frugal standpoint. No wonder Workwise UK is trying to encourage more businesses to provide flexible and home working opportunities, because it helps them save money too. So Thursday 15 May has been designated National Work from Home day. Get it in the diary!

I used to spend £2,400 a year commuting into London, but now I go in only occasionally and during off-peak times. I also previously spent at least £5 a day on lunch and snacks, even considering the subsidised canteen, and more on snacks or bottles of water, newspapers etc. for the journey back and forth. If we assume £6 a day of expenses for 48 weeks of the year, that’s nearly £1400. Now some days I don’t spend anything at all, and I make my own lunch and snacks using ingredients from the weekly shopping, often using up leftovers. True, it’s possible to do this if you commute and there’s a microwave at work, but you have to remember to take your Tupperware container etc. with you. And there’s always the temptation of abandoning your meagre lunch and going out for slapup meal!

Even with the expenses of home working, such as broadband internet (which we already had anyway), lighting and heating costs (and extra tea bags consumption..), my outgoings have fallen. You also have more time to do things you enjoy, as well as cook casseroles and other meals for the evening – the temptation to eat out or order a takeaway is less because you’re not so exhausted from commuting that you can’t face cooking.

Not that there aren’t downsides. You have to be completely self-motivated – it’s no good if you’d get distracted and want to watch Trisha all day - and the isolation can be difficult. At work you automatically have company and somebody to talk to. At home while you can email and message friends, it isn’t quite the same, so you need to have a routine and make sure you get out of the house. And sometimes it can feel like you’re on top of the shop. But on the whole I think home working is great. Although, of course, I realise I'm extremely lucky that my line of work is compatible with home working, because not everybody’s is.

How do you save money at work? Do you fritter away money on lattes? Or have you found a cheap alternative to commuting?

Happy Easter holidays everybody!

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Budget fun

Thu, 13 Mar 2008 11:08:00 GMT

I forced myself to watch all of Alistair Darling's Budget speech yesterday lunchtime - oh joy. Not that there was an awful lot in there that was terribly exciting. On the whole it was a pretty dull Budget with not a lot going on. On the bright side, though, at least Darling is raising child benefit and the winter fuel allowance for pensioners, although whether the latter will make much difference considering the massive rises in energy costs recently remains to be seen. At least it’s something extra. And maybe Darling’s suggestion to the energy companies that they work with vulnerable customers won’t fall on deaf ears…we live in hope. On the downside, of course, anybody who smokes or likes to unwind after work with a pint or a glass of wine will be penalised by the hikes in duty. As will drivers. And his comment that if supermarkets don’t start charging for plastic bags the government might bring in legislation to force them to, smacked a little of jumping on tabloid bandwagons I must say, even though it’s time something was done about this issue.

Anyway. The little video clip below is just a bit of frivolity and nonsense on my part, but if you’ve got Budget fatigue it might cheer you up!

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The debts of despair

Fri, 22 Feb 2008 09:16:17 GMT

As an aspiring frugalist, money is usually on my mind. But The Parents Guide to Money (a budgeting and benefits guide for prospective parents), which I blogged about on Wednesday, got me thinking about budgeting in general and, specifically, about the debts some people are unfortunate enough to get themselves into.

Perhaps you read about the broke lottery winner, John McGuinness, who blew his way through £10m, partly due to a bad investment in a football club, who now owes £2m and is thought to be applying for a council house. This guy is an extreme example, but it just goes to show that no matter how much money you have, it can all run out if you don’t watch your finances and overspend.

I’ve had my moments. Years ago when I broke up with a boyfriend, my rent doubled as I moved out of the cheap room we lived in in a shared house and into a flat with a friend. My salary as a TV researcher didn’t go far in London anyway, but to cheer myself up I started going out a lot and buying clothes on a credit card. Soon I owed about £1,500, which eventually I paid off, but then quickly ran up again – this time to about £3,000 – after I bought my first place. Probably £2k of that was on furnishing and decorating the flat, but the other £1k the result of random shopping expeditions and nights out.

But while my mother was horrified, and I had a few sleepless nights, compared to some happy shoppers out there, this was Mickey Mouse money. What frightens me is the number of people I know – all intelligent, well educated people - who have run up enormous debts, upwards of £30,000 via credit cards and loans. And this isn't university related debt. With the exception of one friend who borrowed to save her business, most have simply spent money on useless items they don’t need, like clothes or gadgets. One is now travelling the world after coming into some money, despite the fact he owes tens of thousands to creditors. Is it because owing money to a company doesn’t feel as bad as owing it to a real person?

Why are people compelled to run up these kinds of debts? Is it simply because credit cards and loans are too readily available and we are constantly bombarded with marketing emails tempting us to borrow instead of saving for something we want? Or is it some kind of need to live up to an imaginary lifestyle that we think we should enjoy? Like wanting to be a WAG? God forbid! Maybe it’s a reaction to the frugality of the past? Our parents’ attitude to money? Jane Furnival’s book Smart Spending includes an interesting questionnaire about our grandparents and parents’ attitudes to finances, which I found to be a real eye opener.

Writer Barry Williams reckons that advertisers and retailers have conditioned us to believe that everything we see in the shops is something we need, and when we see a discount ticket next to it we feel like we're getting a bargain, even though the item will probably end up unused in our wardrobe or kitchen.

Apparently the government is introducing budgeting education into schools. Not before time, I think. I just thank God that my mother is a budgeting whizz, and that I live with DJ – an individual overflowing with Scottish blood who spends months pondering any crucial investment, such as whether to buy a packet of crisps, before splashing out…

Do you or your friends owe money on credit cards? How or why have you run up debts? What needs to change?

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