Monday 2 January 2017

Need to sort out your household finances in the new year?

Are you struggling to make ends meet? Several years ago, a friend was struggling with their household bills and asked me if I could lend them some money to tide them through. It was not an insubstancial amount. I said I'd help them if they let me have a look at their finances and let me help them sort it out. I said that if I couldn't sort out the shortfall in monthly monies, I'd lend them some until such time as they sold up and moved to a cheaper property. So what did we find?

1. Credit card debt. They were paying a whacking great figure of 19.5% on their credit card interest. They had a £16,000 bill. Simply by transferring the debt to a zero balance card, they had an immediate saving of £260 a monthor £3120 a year.

2. Mortgage. They had an interest only mortgage, with a non performing endowment. The value was £95,000. I put them in touch with a Mortgage broker. Their existing mortgage was a massive 5.5%. They got this down by 2%, saving £118 a month - £1,425 per annum

3. Electricity, Water and Gas. They had never shopped around at all. At the time I was using an energy broker. They instantly saved £75 a month, £900 a year.

4. Living in Mill Hill, like me they did most of their shopping at M&S. Whilst the quality is great, it isn't cheap (this was before Iceland moved in). We went through their bill. We worked out by that they could easliy save £30 a week by buying essentials from an on line retailer

5. Sky TV. My friend was paying around £60 a month for Sky TV premium sports package. I asked what he watched. The answer was 'Generally the big match on a Sunday and the Monday night game". As a suggestion I said that if he cancelled Sky and went to The Bridge, he could watch the games and have a pint. A pint was just under £3, so the monthly saving was around £35. As it was he rang Sky to cancel and they gave him  a half price deal for a year saving £30 a month or £360 a year.

6. HP for his car. My friends car was his pride and joy. This was in truth the cause of the problem. He'd taken a huge finance package out to fund it and this was costing an arm and leg. He had around £30,000 outstanding and the interest rate was 19.5%. He was paying nearly £6000 a year in repayments. I suggested that when he did the remortgage (as suggested in step 2), he increased the equity by £30,000 and cleared the car loan. He'd be paying 3.5% on this instead of 19.5%. That was over £595 a month.

Adding all of this up, came to over £1000 a month, nearly £14,000 a year in expenses that could easily be avoided. It also turned out that he'd borrowed money of other friends and family and was at his wits end. When he refinanced his house, he found he had huge equity in the property. He was able to up his mortgage by £50,000 paying off his car, his friends and getting some double glazing that further cut his bills. He was still around £950 a month better off and (£11,000 a year). He was able to meet his commitments and not worry.

I was reminded of this as I saw him over Christmas. we were discussing it and he said "I'm surprised that you haven't written a blog about it. That really dug me out of a massive hole". He said that although he'd realised he may be paying a bit too much, he was horrified when he found it was over £14,000 a year. This wasn't money he was enjoying. It was simply money he was spending for no reason at all.  I'm not an expert on such matters. I am sure there's stuff I pay far too much on, mostly because I am lazy, but for big things like mortgages and car loans etc, I've always tried to get the best deal. It is quite horrifying how much money we waste. Many large companies try and entice you in with "interest free" offers, but then give you the hard sell to buy expensive alternatives. Be careful!

Just think, even if you can only save a tanth of what my friend could, that's £1,400. Enough to buy a very nice guitar in my shop!

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