# How to save  to trade up?



## senansmam (20 Feb 2018)

Hi there. We are struggling with trying to figure out how to save for the 20% mortgage deposit that will likely be needed for us to move home. Pregnant with child number 2 and living in a 2 bed home so space really will be an issue in a year or two.
Age: 34
Spouse’s/Partner's age: 34

Annual gross income from employment or profession: 60000 plus about 5000 OT. This goes up in increments yearly, will be 70k in a few years.
Annual gross income of spouse:70000

Monthly take-home pay about 6300

Type of employment: I am a HSE employee, he is employed in private sector

In general are you:
(a) spending more than you earn, or
(b) saving?  - neither - spending everything though!

Rough estimate of value of home €300,000 (some local houses going for more recently)
Amount outstanding on your mortgage: €240,000 - we pay 1000 per month
What interest rate are you paying? 3% for 5 year fixed

Other borrowings – car loans/personal loans etc : 300 per month PCP for car

Do you pay off your full credit card balance each month? Yes - rarely use card


Savings and investments: none. 

Do you have a pension scheme? Yes, I have HSE (started work in 2014 so not sure of scheme but it's not the good one!) plus AVC of approx 330 per month. He pays 500 per month into a private pension.

Do you own any investment or other property? Own property abroad worth about 180k. For tax reasons in that country it cannot be sold before 2020. 

Ages of children: 2 and one on the way

Life insurance: mortgage protection policy plus 750,000 life assurance - together these cost 140 per month

Other expenses: childcare €1,100 a month. Income protection for both of us is about 130 euro a month. Health insurance, Sky, utilities and phone all add up to about 350 a month.


*What specific question do you have or what issues are of concern to you? *

We will need to move house in the next couple of years and can't figure out how we will save for it. We never seem to have anything left at the end of the month. I plan to sell the property abroad as soon as I can and hoping to have the 180k then but mortgage calculators online seem to say we can only borrow 470k with our income, so we will need another 200k or so if we are to get a 3+ bed house in Dublin city. Is this unrealistic?


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## RedOnion (20 Feb 2018)

Sorry, I'm a little confused. Are you planning to keep your current property or sell it?

If selling it, you'll have 60k equity, plus 180k from your foreign property, plus your mortgage of 470k so current values a budget of 710. But that delays you until you can sell in 2020. What budget did you gave in mind?

After mortgage and childcare you've 4,200 if take home pay left over. You really should be able save from that, so you need ti keep track, in detail, of where the money is going and cut out waste.
The one thing that stands out to me is your cost of income protection and life assurance. It seems high compared to my own.


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## gnf_ireland (20 Feb 2018)

@senansmam  I agree with @RedOnion here. Before you get caught up on the property discussion, I think you have to do a review of the finances to see where your outgoings are going. 

In a number of months time you will have a second child, and in around 12 months another 1000 euro a month childcare bill. If you are spending all you are earning at the moment, how will you be able to afford that ?

If you are spending all you are earning at the moment, you cannot show you can afford a higher mortgage. You need to be able to show you can afford a higher mortgage before you can consider upgrading the house.

As said above you have 4200 a month after childcare and mortgage at the moment. This is 50k a year. You really need to do a household budget and see what you are spending your money on and what is reasonable for the category. You need to shave enough for a second childcare bill and a higher mortgage payments from it as a starting point !

After that, I think it might be worth discussing moving. The key things to keep in mind are when are you planning that your eldest will start school and the 2020 restriction on the foreign property? If you were to sell in 2019, what would the tax implications be ? You also need to keep in mind if you take extended maternity leave after the second child is born, this will impact your take home salary for the year in question - likely to be 2019.


I am assuming you are not planning to keep your current home, but planning to sell both the foreign property and the current home.


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## Gordon Gekko (20 Feb 2018)

Hi,

What (if anything) is owed on the foreign property?

What sort of balloon payment is due at the end of the PCP period?

Gordon


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## senansmam (21 Feb 2018)

Gordon Gekko said:


> Hi,
> 
> What (if anything) is owed on the foreign property?
> 
> ...


Hi Gordon nothing on either. The way I understand it is we can get a new car when the 3 year period is up by trading in our current one. 
We would intend to get a childminder when we have 2 kids which will hopefully be about 30% cheaper than 2 creche payments.
Yes the intention is to sell foreign property and current one.


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## RedOnion (21 Feb 2018)

senansmam said:


> The way I understand it is we can get a new car when the 3 year period is up by trading in our current one.


You need to look into this as you don't seem to understand how PCP works.
You either:
hand the car back, and walk away,
Pay the residual to own the car,
Or trade it in and be on a cycle of repayments indefinitely. It's likely you will need to add significant cash to make up your deposit next time around.


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## Steven Barrett (21 Feb 2018)

Like Red Onion said, you need to do up a budget. Have a look at where your money really goes because you haven't provided an accurate account of your expenditure. According to what you provided, you have €3,280 left over. 

What about clothes, make-up, cars, holidays, eating out etc. 

Get your last 12 months statements and categorise your expenditure so you can see what is being spent on essentials and what isn't. 

The easiest way to save is to automate your savings. The day after payday, the money leaves your account and into a savings account. It becomes another bill. You will have less money to spend on eating out, clothes etc. 

If you want to move house, you have to plan for it and monitor how you are getting on. It won't happen by itself. 

Steven
www.bluewaterfp.ie


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## gnf_ireland (21 Feb 2018)

senansmam said:


> The way I understand it is we can get a new car when the 3 year period is up by trading in our current one.





RedOnion said:


> You need to look into this as you don't seem to understand how PCP works.
> You either:
> hand the car back, and walk away,
> Pay the residual to own the car,
> Or trade it in and be on a cycle of repayments indefinitely. It's likely you will need to add significant cash to make up your deposit next time around.



@RedOnion is correct here. If you are planning to pay 300 euro a month for eternity to have access to a new car every 3 years, this needs to be factored into the any budget. It will also have a direct impact on your ability to borrow money and directly reduces your borrowing potential.

The balloon payment and/or deposit due depends on the GFV of the car as per your PCP contract. This is based on a number of factors including mileage driven. At best, at the end of the PCP period you have the difference between the resale value of the car and the GFV listed on the contract. To release this, its likely you would need to pay the balloon payment to remove the PCP finance and sell the car independently. Otherwise the cycle continues until you decide to break it.





senansmam said:


> We never seem to have anything left at the end of the month.



With PCP you have decided you never want to own a car and always be borrowing to have a car. You will never own the asset. This is not the 'wisest' approach when trying to save to upgrade a house, or save for other reasons. It would be much better to purchase a second hand car and keep it for a number of years, and save your 300 euro a month. Minimising debt repayments are key in building savings (i.e. slow down the flow of money out the door)


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## gnf_ireland (21 Feb 2018)

senansmam said:


> We would intend to get a childminder when we have 2 kids which will hopefully be about 30% cheaper than 2 creche payments.


Childminder in your house is an employee and needs to be paid minimum wage + employer PRSI and is entitled to standard holidays etc.
You will struggle to get a qualified childminder for minimum wage in Dublin and likely you will need to pay ~12 euro an hour to them. We pay higher, but the person is FETAC6 qualified (she works in a preschool in the morning) and only does 3 afternoons a week for us.
I would advise you get what you pay for when it comes to childminding. If you play fair, you get stability. If you pay basic, you should expect a higher turnover

Using a childminder outside the home is a different matter, but again there are pro's/con's to each approach and needs to be considered as to what you want.


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## PGF2016 (22 Feb 2018)

gnf_ireland said:


> @senansmam
> As said above you have 4200 a month after childcare and mortgage at the moment. This is 50k a year.



4200 a month is about 140 euro per day. Where does the money go OP? My situation is almost identical to yours (2 kids, similar mortgage and salaries) and we are able to save the majority of the second salary. We're certainly low spenders but I don't see how you can't save at least 1k a month. That would still leave 100 euro per day to live off.


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## Brendan Burgess (22 Feb 2018)

gnf_ireland said:


> If you are planning to pay 300 euro a month for eternity to have access to a new car every 3 years, this needs to be factored into the any budget.



I would say that you need to stop planning to have a new car every three years.  

There is not a financial engineering solution to overspending.  You just have to cut your spending. 

Follow up on Red's advice. You will need a lump of cash at the end of your current PCP period to buy your car outright which is what you should do.  That should be your first priority to get out of the PCP cycle. 

Nor can you trade up until 2010. But a two bed house is fine for two adults and two young children.  You need to get your finances in order before thinking about trading up.

Make an appointment with MABS to find out how to budget.

Brendan


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## gnf_ireland (22 Feb 2018)

Brendan Burgess said:


> There is not a financial engineering solution to overspending. You just have to cut your spending.


In order to save more, people in general have two options - earn more or spend less.
Earning power is rarely something that can change quickly without dramatic steps, so most people have to take the latter route of spending less. To do this correctly you need to understand what you spend on today and where you overspend. Long term borrowing (such as everlasting PCP) is not reducing spending, although it can help with short term cashflow situations. I am not against PCP, but think people need to understand it and I would seriously question if the OP actually really understands PCP and how it works.

I reiterate - you need to do a complete spending review and MABS is a good place to start if you are struggling on next steps. Plenty of online tools as well


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