Household income reduced suddenly. High costs.

[colin79ie]

Age: 46
Spouse’s/Partner's age: 44

Annual gross income from employment or profession: 96000
Annual gross income of spouse: Ad hoc 4000

Monthly take-home pay 4550

Type of employment: e.g. Civil Servant, self-employed;
Private sector PAYE.

In general are you:
(a) spending more than you earn, or
(b) saving?
Saving 1000 per month into CU. This is to cover university costs and our 'rainy day'. Current balance 3k.
Child benefit into CU. Approx 2k. Up until 2 years ago this was paid into a savings account which was then used to clear a loan so the benefit was redirected into CU.
300 per month into Zurich savings 5 year plan. This was aimed at our 2nd child towards uni expenses. Current value around 5600.

Rough estimate of value of home; 140000. (Home is in NW and affected by defective concrete blocks, so value is zero!).
Amount outstanding on your mortgage: 56000
What interest rate are you paying? 4.75%
5 years left.
2 loans here. Main mortgage is tracker 4.75 with 30k remaining.
Small equity release 26k . 9 years left.
Monthly about 850 for both.

Other borrowings – car loans/personal loans etc
No other loans

Do you pay off your full credit card balance each month? Yes. Rarely used.
If not, what is the balance on your credit card?

Savings and investments:
Very little. About 5k in CU.
5 year investment account for 2nd child. 300/month. 5.5k approx.

Do you have a pension scheme? Yes. Current value 225000. Employer pays 5%. I pay 3.5% + avc of 11%.

Do you own any investment or other property?
No

Ages of children: 19/15

Life insurance: death in service 2 X salary
Specified illness cover me only, 120000. 80/month.
Mortgage protection for both of us. 20/month.


What specific question do you have;

For years we struggled month to month as I was on very low salary and having 2 young kids, so we managed as best we could and never missed anything payment wise. However, saving for college etc was just not affordable. As we gained more salary, we built up a savings of around 15k. We were paying 450/month in car loan so we used the savings to clear the loan and now save that 450 for uni costs into CU.

Our modest 'rainy day' fund in the CU was hit heavily recently due to unforeseen expenses so has been reduced to 3k.

My wife has recently had to stop full time work and just does the odd part time job when possible. So my salary is the main/only income for the moment.

I am now finding that the cost of uni is beginning to outweigh the savings each month and despite saving 1000, it's slowly creeping down. If we had another unforeseen we would then be in trouble.
Uni is costing a lot. We pay accommodation fees quarterly@ £150/week + living costs etc. Uni is in NI.

My question is how to free up cashflow for this expensive period of uni and high cost of living. Energy is costing us 200/month now.
Would it make sense then to pause the AVCs and redirect that into savings to build up our fund again?

Just for info, we don't lead extravagant lifestyles, rarely go out and can't afford holidays etc. Christmas was a struggle and having to dip into the CU.

Other outgoings include:
Phones and broadband. 120/month for everyone and the home.
Entertainment, 40/month. (Netflix and Spotify)
VHI 185/month.

Car Insurance, car tax and house insurance is paid out of CU annually.

I can't seem to figure out where I am going wrong. Am I saving too much for the future pension and leaving us struggling now?

 

[ClubMan]

Saving 1000 per month into CU. This is to cover university costs and our 'rainy day'. Current balance 3k.
Child benefit into CU. Approx 2k.
300 per month into Zurich savings 5 year plan. This was aimed at our 2nd child towards uni expenses. Current value around 5600.

Are you saying that you have €10,600 saved?
It doesn't make sense to be saving like this when struggling to meet regular/day to day expenses.

Rough estimate of value of home; 140000. (Home is in NW and affected by defective concrete blocks, so value is zero!).

I don't understand. The house is worth zero or €140k?

Amount outstanding on your mortgage: 56000
What interest rate are you paying? 4.75%
5 years left.
2 loans here. Main mortgage is tracker 4.75 with 30k remaining.
Small equity release 26k . 9 years left.
Monthly about 850 for both.

Is that 4.75% on both the main mortgage and the top-up?
Can you move your mortgage to get a lower rate?
Could you extend the term to reduce the ongoing payments (at the cost of higher total interest costs)?
Do you qualify for a remediation scheme (pyrite/mica schemes)?

Do you have a pension scheme? Yes. Current value 225000. Employer pays 5%. I pay 3.5% + avc of 11%.

Again, if you are struggling to meet day to day expenses then it may not make sense to be saving through a pension other than to the extent that you need to in order to benefit from employer matched contributions.

Energy is costing us 200/month now

Are you with the best provider/tariff for your situation?

Entertainment, 40/month. (Netflix and Spotify)

Do you really need the subscriptions?

VHI 185/month.

Cover for whom?

Car Insurance, car tax and house insurance is paid out of CU annually.

Are you sure that you're getting the best value here?
Probably not if they are arranged through the CU.
Do you shop around for insurances, utilities etc. on a regular/annual basis?

I can't seem to figure out where I am going wrong. Am I saving too much for the future pension and leaving us struggling now?

Have you analysed your outgoings (daily, monthly, annual) in detail in case there are savings to be made?

With €4.5k (or more?) coming in each month in curious as to why/how exactly you're struggling and what the main essential outgoings eating into this are?

Could you increase your income?
Rent a room? Student accommodation?

 

[ThisisMax]

I would put all of the above on an excel sheet and really analyse where 4.5K goes per month?

What is the weekly cost of Uni - fees, spending, accomodation? Is your child able to work part time to cover this? I say this as someone who had parents who could not afford to send me to college so I worked in Uni and did a dgeree and a masters and worked my way through. They probably need to contribute.
Mortgage could be re-fixed? Is there a break fee?

You have about 10k in savings so earmark that for uni/ budgeted per month.
How long is left in university?

Income 4550 after tax, pension etc.
-----------
120 Phone etc
1000 Savings
300 Zurich
850 Mortgage
600+ College (need to clarify exactly what this cost is)
80 Ilness Cover
20 - Mortgage Protection
185 VHI

Total Spend: 3155
Less Salary of 4550 gives you 1395 for food, utilities (200 ish per month)

I would:

Get your kid to work in Uni and during summer with intention of banking money towards next years fees. Loads of work around.

Your wife needs a job - cannot afford to not work - if she can - even part time for 30K a year would radically change things. If illness etc then can she get some illness benefit from Social welfare?

Look at changing mortgage, or extending term. Putting both together?

You need to stop the zurich payment - you need cash right now.

I would pause AVC's.

You need to stop the 1000 per month savings and keep everything in one pot.

You need to set a budget for college every month into an account - fees, rent, spending money but your kid has to contribute to this. this seems to be your big unknown.

Your youngest will be in college in three years so oldest should be done by then and a year later half your mortgage will be cleared. You will still have half a mortgage for 6 more years but will have €450 more a month freed up to pay towards college.

 

[Purple]

You have to earn at least €400 a week gross to keep your child in University. They need to get a part time Job.
My daughter works 20 hours a week and is studying full time. She earns around €250 a week. I'd have to gross an extra €500 to give her that. It means she's self sufficient including the cost of running a car.

 

[ClubMan]

Income 4550 after tax, pension etc.
-----------
120 Phone etc
1000 Savings
300 Zurich
850 Mortgage
600+ College (need to clarify exactly what this cost is)
80 Ilness Cover
20 - Mortgage Protection
185 VHI

Total Spend: 3155
Less Salary of 4550 gives you 1395 for food, utilities (200 ish per month)

Don't forget to account for the effective monthly cost of annual outgoings - e.g. motor tax/insurance, home insurance etc.

The ISI Reasonable Living Expenses figures can also be useful when assessing household finances.

Reasonable Living Expenses Calculator - Back on Track

backontrack.ie

 

[Premos]

Actually, with an income of 4500 and accommodation costs of 1550 as well as 4 adults in the household, I am not surprised that the budget can be a bit tight.
I would advise analyzing in detail your expenses (I used to do an expense diary when I was on a budget) and reviewing what can be improved. It can really help to see how much things actually cost you on a yearly basis.
I would try to have a realistic saving target. For me, your rainy day fund is quite small as it only represents 2 months' income while you are the sole earner. But €1300 a month is not realistic for your income. While you call it saving, it seems to be dipped into on a regular basis, more than only rainy days. If you dip into it, it is not really savings, it is a fund for yearly/big expenses.
In my opinion, that your budget is stretched is not surprising as you are supposed to live on the €1395 left after the basic to cover everything else (food, car repairs, petrol, insurance, clothing, entertainment, house maintenance...) for 4 adults. I think it is simply not realistic or accurate.
You need to know exactly what you spent and can work from that.
When you know exactly what you spend, you can decide how to reduce some expenses and what could be your saving target and your AVC target.

 

[mathepac]

Ask for till receipts for ALL expenditure, no matter how small. Avoid using or carrying cash and pay by card, credit card or debit card and say "YES" when asked if you want a receipt.

Categorise and tabulate all expenditures at the end of each day. Don't leave it for the week-end, you'll have lost the receipts and / or forgotten the transactions.

 

[Allpartied]

As suggested by Clubman, you could increase cash flow by extending your mortgage to the maximum allowed. This would , probably, be about 24 years, based on your age.
The mortgage cost could then be reduced to around 330 Euros per month, even on the high interest rate you currently pay. If you are able to get a lower interest rate with another provider, it would be even lower.
I am in a similar position to you with my children now at college. We also suffered an income drop, due to unforeseen circumstances. We have a larger savings fund than you have, but I can clearly see how difficult it can get.
We extended the mortgage and " saved " 500 Euros a month. We put this into a savings account and, if we don't need it, pay off a lump sum at the end of the year. You might still be able to pay off the mortgage, in five years, if you do it this way, but it gives you an extra safety net.
I have three children in full time education, all in Dublin and they absoloutely have to work. They work all summer and, at least, one day of the weekend. They can contribute to accomodation costs, travel and books, laptops, etc.

 

[thedaddyman]

Do a full tax review as well to make sure your tax credits are now being utilised to the maximum and also to see if there is anything you can claim back. A lot of people with health insurance often forget they can still claim back for uncovered expenses

Secondly, given your wife has given up work, has she any SW entitlements or have you looked into that?

 

[colin79ie]

Thanks everyone for your replies.

I have some legwork to do but in summary the advice seems to be;

Stop paying the AVCs and divert that 858/month back into net income and add it to the 1000/month.

Stop paying the Zurich fund and add that to the 1000/month.

Approach the bank to see what can be achieved with the mortgage.

Record everything and see what is going where.

don't understand. The house is worth zero or €140k?

The house (if not defective) would be worth about 140k. Because it has defective blocks, it has no value. I can't sell it, it has no equity etc.

Is that 4.75% on both the main mortgage and the top-up?

The main mortgage is a tracker. Currently at 4.75%. Cost is 549/month
The top-up one is 2.9%, fixed for another 18 months . Cost here is 275/month.

Again, if you are struggling to meet day to day expenses then it may not make sense to be saving through a pension other than to the extent that you need to in order to benefit from employer matched contributions

I have considered this already as somewhere to look.
I currently pay 858/month AVCs. If I stop/pause that , how much roughly does that add to net salary given the tax relief?
I will leave the min 3% to get the employer part.

I'm also due a 2.5% salary increase in May.

Are you with the best provider/tariff for your situation

Yes. Best discount I could get. I change providers every year to the cheapest.

Cover for whom

Cover for 4 of us. Basic hospital cover. Again, changed annually for best value.

Probably not if they are arranged through the CU.
Do you shop around for insurances, utilities etc. on a regular/annual basis?

What I mean is, we use the CU savings account to pay for these items. It comes out of the 1000/month account. It's not arranged through the CU. We do make the effort to shop around every year.

As suggested by Clubman, you could increase cash flow by extending your mortgage to the maximum allowed. This would , probably, be about 24 years, based on your age.

I need to look at this. However, I have some insight into the situation locally with defective block houses and the experience is that the banks are not playing ball on anything mortgage related. Moving mortgage is not an option.

 

[ClubMan]

Thanks everyone for your replies.

I have some legwork to do but in summary the advice seems to be;

Stop paying the AVCs and divert that 858/month back into net income and add it to the 1000/month.

Stop paying the Zurich fund and add that to the 1000/month.

Approach the bank to see what can be achieved with the mortgage.

Record everything and see what is going where.

I would do the last one first.
And you can probably get a good picture using existing data such as annual/monthly household bills, card payment transactions, honestly estimating other day to day expenditure.
A more detailed spending diary is good but whether or not you buy the occasional expensive coffee or takeaway really doesn't matter in the greater scheme of things - unless it's actually a very habitual and regular occurrence.

Once you have a clearer picture of where your monthly income is going on daily, weekly, monthly, annual expenditure it can help to prioritise the other options for optimising outgoings (and the possibility of increasing income remains too).

From what you say there are probably no major savings to be made on stuff like utilities and insurance etc. so, if any are to be made, they'll have to be made elsewhere.

Either way it makes a lot of sense to understand your incomings and outgoings in more detail first.

 

[Allpartied]

Cover for 4 of us. Basic hospital cover. Again, changed annually for best value.

With the abolition of Inpatient charges, is this cover good value for money.
The public health system is not dysfunctional, it is very good in some areas. Particularly the major illnesses or those that require significant intervention.
We don't have any private health insurance and we did get stung for 800 Euros of Inpatient charges, last year, but this year, even that charge would be gone.

 

[ClubMan]

With the abolition of Inpatient charges, is this cover good value for money.

Would cancelling private cover only to later face a loading when taking out cover again be a factor here too? I don't really understand how it all works but just mentioning it in case.

The public health system is not dysfunctional, it is very good in some areas.

I wholeheartedly agree. I've had several dealings with the public system in the past few years (even though I have health insurance) and was always impressed by the service provided.

 

[colin79ie]

This is one thing I would like to keep. Although a basic plan, it has afforded is faster investigations in the past in private hospitals.
Agree the public health system is good once you are in, but it's getting in is the problem.
I'll give you real world example. I had a medical issue investigated and sorted within 3 weeks in a private facility using my insurance. I had a discussion with the consultant and he told me the public wait time is 2 years min. He told me people simply die of a very treatable condition due to waiting.
Gone off topic here, but I'll keep the health insurance. It will reduce when the kids finish uni .

 

[RichInSpirit]

Hi Colin. Could you and your wife combine your tax credits more effectively? For 2 PAYE earners the higher rate doesn't kick in until €80000 combined . Whereas it kicks in at €49000 for a married couple on a single income.
Maybe it isn't possible in your current situation.

 

[T McGibney]

Hi Colin. Could you and your wife combine your tax credits more effectively? For 2 PAYE earners the higher rate doesn't kick in until €80000 combined . Whereas it kicks in at €49000 for a married couple on a single income.
Maybe it isn't possible in your current situation.

My wife has recently had to stop full time work and just does the odd part time job when possible. So my salary is the main/only income for the moment.

 

[thedaddyman]

In terms of the house, what are your options under the remediation scheme for MICA

 

[colin79ie]

In terms of the house, what are your options under the remediation scheme for MICA

Hmm. It's a mess at the minute. While there is a scheme, it's prohibitive. Looking at around 50/60k outlay to repair house at present. Timeline is years away at least.