To overpay or not??

Brendan Burgess said:
I am a big fan of appropriate rainyday funds.

But if someone has a regular income and foreseeable expenditure and an overdraft facility, they are totally unnecessary.

I hate seeing people borrowing money at 7% to earn 1%.
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The fund is there for an emergency. Hikicker's lifestyle €7,500 a month with €1,000 left over. Reducing his emergency fund to just €3,000 is too much, not even covering a month's expenditure. Or what if something in his house needed repair and cost €10,000? Should he use an OD facility to pay that or credit card at 20% APR?

Different people have different comfort levels. I have clients who know they have too much sitting on deposit but it is at a level that they are comfortable with. My job as their financial planner is to help them see the benefits of long term investing but always being mindful of what their comfort zone is.

Hikicker seems to be putting a strategy in place but it won't happen overnight. Maybe when it is up and running, the €35,000 deposit will be reduced, but give it time.


Steven
www.bluewaterfp.ie
 
SBarrett said:
]Or what if something in his house needed repair and cost €10,000? Should he use an OD facility to pay that or credit card at 20% APR?
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Indeed he should use an overdraft to fund this.

Usually you would have some notice of a €10,000 bill. When he sees such a bill approaching, he should stop overpaying his mortgage and save up for it.
If he has 3 months' notice, he will have €6,000. He will borrow €4,000 on his overdraft which he will pay off at €1,000 a month. So he borrows €4,000 @ 10% for two months i.e. €200. Using a credit card would cost him about €400.

People with good reliable incomes do not need massive rainy day funds. Someone with a patchy employment record who faces unemployment does need a rainy day fund.
 
hikicker said:
I've no overdraft or credit card and don't intend having either again.
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I totally agree on the overdraft. But you must have some kind of CC for flights etc?

I do not agree with you reducing your savings to 3K. A minimum of 6 months investment mortgage, you never ever know as a landlord what is around the corner. But you are in NE so that is exceedingly important for you. Despite you being on a good solid income.

I think sBarrett's point about what if your business goes bust, the shock to change of lifestyle, particularly as you have no social welfare buffer is relevant.

I do agree with paying a lump sum off now, and the increasing mortgage repayments to get down the overall amount owing. Particularly as you have such a high interest rate. Once the NE is gone, the strategy should be looked at again.
 
Thanks Bronte. I have a Visa Debit, If I can't afford to buy something cash I don't buy it, delayed gratification and all ;).

I read the Richest man in Babylon a couple of years back and have stuck to its teachings since then, have saved 10% of my income as soon as I got paid whilst also clearing my debts and it has served me well so far. I now have a decent amount of cash banked hence the original post. Will immediately start overpaying the investment mortgage.
 
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