Seeking feedback/advice

[BobbyMarley]

Age: 30
Spouse’s/Partner's age: 30

Annual gross income from employment: 80k base salary + 10% bonus and roughly 5k RSUs
Annual gross income of spouse: 51000

Monthly take-home pay: 7000 pm total (excluding bonus and stock)

Type of employment: PAYE, spouse is public sector

In general are you:
(a) spending more than you earn, or
(b) saving?

Historically a very good saver, though breaking even the last year as renovating house and now overpaying loans.

Rough estimate of value of home: 750k
Amount outstanding on your mortgage: 494k
What interest rate are you paying? 2.8% with BOI 5 year fixed (~2050 pm)

Other borrowings – car loans/personal loans etc
PCP 1 - 500 pm @ 0% (roughly 21k left, ending May next year with 15.5k balloon)
PCP 2 - 250 pm @ 2.9% (roughly 12k left, ending April 2020 with around 6.5k balloon payment)
Home improvement loan - 300 pm (20k borrowed at 7.5% over 7 years, 19200 outstanding)
Term loan - 120 pm (6k borrowed over 5 years at 7.5%, 1k left - overpaying the last few months)
Loan from parents - 5500

Do you pay off your full credit card balance each month? Always
If not, what is the balance on your credit card? N/A

Savings and investments: 15k between current accounts and savings accounts (varies between 10k - 15k over course of a month between pay dates)

Do you have a pension scheme? DC - 5% matched by employer - 50k total in funds. Spouse has the older pre 2011 public sector pension.

Do you own any investment or other property? No

Ages of children: No kids

Life insurance: 300k dual life cover( level term), 200k joint mortgage protection, 160k critical illness (indexed) - totals 135 pm. My employer also provides 4x salary death benefit and income protection.


What specific question do you have or what issues are of concern to you?
Moved house last year and had to put about 60k into renovations, a lot more than initially planned which diminished most of our savings, and forced us to take on more debt than I'd like. Just coming out of the phase of spending on the house (for now at least, there will need to be another round in a few years) and left with monthly repayments for all debt of 3220 which at ~46% of (base) net income is way higher than I'm comfortable with. Planning to pay this down as quickly as possible to more sustainable levels, also hoping to start a family in the next year or two so want to free up more disposable income before that. Also I'm now overpaying the term loan (120 pm) by about 1100 pm, will have it paid off at the end of this month. Currently considering a few options that I'd be interested getting peoples' feedback on.

Option 1:
After paying off the term loan this month, save the monthly overpayment + the 120 freed up (1220) up until April next year, totalling about 12k, and use this plus either bonus or if needs be a small 3.5 loan to buy out my car at the end of the PCP, freeing up 500 pm. (if 3.5k loan needed, overpay and clear it in the 3 following months). Then save the 5500 owed to my parents over the next few months and pay them back. At that stage save the 6.5k for the balloon payment on the second car and pay that off, freeing up another 250 pm. After than overpay the 20k renovation loan as much as possible (may have to factor childcare costs etc at that stage).

Option 2:
Similar to option one, but also switch mortgage to EBS in the next few months, getting 500k @ 3% (but potentially extending term to 32/33 years to keep the monthly payments down) - fixing for 5 years. Use the 10k from the 2% cashback to pay back parents and as part of balloon payment on my car. Note I fixed for 5 years a few months back so there's a 2600 breakage fee as of today (though it was only 900 a week or 2 ago ).

Option 3:
Same as option 2, but borrow 520k when switching to EBS, and use this extra 20k to pay off the home renovation loan also, freeing up the 300pm at a cost of an extra 68 pm on the mortgage (assuming increasing term to 32 years).


Appreciate any thoughts/feedback/comments on how we're doing, the options listed above (or any others) and any other general financial advice. Thanks!

 

[David1234]

Hi Bobby,

Fair play for looking for advice on this, although I'm not sure you will be happy with my response.

I really think your level of debt is too high. Even with your combined good salaries I am surprised you were able to borrow so much. I'm sure others will disagree but I don't think you can afford your current lifestyle. Having to borrow from your parents when you have a house worth €750k and have 2 very expensive cars in the driveway does not add up to me. You seem to have over stretched yourselves and this could end very badly if one or both of you lose your jobs due to your low level of savings. Whilst this may sound drastic I recommend selling your house, paying off your expensive debts and purchasing a more affordable home. This will enable you to free up some money on a monthly basis and build up your savings.

I don't mean to be overly critical here but have a look back over some of the posts from 2009-2012 in the money makeover thread. They are full of people who all had good jobs with great earning potential and things went terribly wrong. If the past allows us to do anything it is to learn from mistakes others have made.

 

[PGF2016]

I don't see someone who has bought and renovated a house being willing to downsize.

Where is the 3.8K that's left after loans are paid going? With no kids you should be able to live comfortably on a lot less than that and pay down debt and save a decent emergency fund.

Also, if you're not comfortable with the debt get rid of the expensive cars. Get on your bike or public transport.

 

[goingforgold]

I don't mean to be overly critical here but have a look back over some of the posts from 2009-2012 in the money makeover thread. They are full of people who all had good jobs with great earning potential and things went terribly wrong. If the past allows us to do anything it is to learn from mistakes others have made.

While I don't disagree with this and think there's a lot of merit in the advice, I also agree that it's unlikely the OP will downsize right now. Also I believe the OP is in a fantastic position all things considered. They are 30, great incomes, net worth of ~215k (exc. pensions) and two really good jobs (one public sector with job security and pension).

I think OP needs to use savings to clear PCP 2 and term loan asap, thus freeing up 370 pm in cashflow. They then need to not borrow anymore and do a spending diary to live within means. To get to such a high net worth at 30 would imply they are or have been somewhat savvy when it comes to money management, so I would advise that they get back to that way of thinking and they'll be more than fine.

 

[BobbyMarley]

Thanks very much for all the replies guys, I appreciate all the feedback. I'll try to address all your main points below.

I really think your level of debt is too high.

I fully agree, that's why I'm planning to heavily overpay and clear the various loans over the next couple of years to put us on a more sustainable footing.

.
Having to borrow from your parents when you have a house worth €750k and have 2 very expensive cars in the driveway does not add up to me. You seem to have over stretched yourselves and this could end very badly if one or both of you lose your jobs due to your low level of savings. Whilst this may sound drastic I recommend selling your house, paying off your expensive debts and purchasing a more affordable home. This will enable you to free up some money on a monthly basis and build up your savings.

Selling the house is definitely not an option I'd consider, having looked for over a year prior to buying it I'd dread going back into the current property market, and downsizing would defeat the purpose of trading up to have a home suitable to raise a family in. Also moving to a more affordable house far away from work is not something I'd really contemplate unless really stuck, will happily pay a higher mortgage for a smaller house near work/work opportunities to avoid an extra 12+ hours commute a week each. I agree about us being vulnerable if one of us lose our jobs, having always had a safety net of at least 6 months living expenses stored away up until recently, this is something that concerns me and I'm keen to up build this back up again as soon as possible (possibly I should split between building up savings and overpaying debt until savings back up to healthy level??). As to having to borrow from the parents, yeah again I agree that with our income it seems a bit mad to have to resort to that, unfortunately it was another unexpected renovation expense that came up and caught us off guard (btw we were definitely naive as to the cost of the immediate renovations we'd need to do when buying the house, planned 20k worth, had to spend about 60k, will chalk that one up to experience)

Where is the 3.8K that's left after loans are paid going? With no kids you should be able to live comfortably on a lot less than that and pay down debt and save a decent emergency fund.

Also, if you're not comfortable with the debt get rid of the expensive cars. Get on your bike or public transport.

The 3.8k has been covering our general living expenses and bits and pieces with the house (paint, furniture etc), along with the overpayment of debt. As the stuff with the house has been winding down the last couple of months, I've been increasing the debt overpayment in tandem (1100 pm currently). One other thing to note, we seem to be at the stage where tons of our friends/family are getting married, including a family member's wedding abroad and our own wedding last year. This obviously is/has been a drain on the finances, but one that should hopefully stop soon (or a least become a lot more infrequent!!). As for the cars, they are both needed, but as I outlined in 3 scenarios in the initial post, I hope to have them all paid off in full by early 2020, and plan to drive them until they give up after that (no new car loans).

Also I believe the OP is in a fantastic position all things considered. They are 30, great incomes, net worth of ~215k (exc. pensions) and two really good jobs (one public sector with job security and pension).

Thanks for the positivity, overall I guess we're in a good position relative to a lot of our peers, but definitely vulnerable at this point in time with our debt level.

I think OP needs to use savings to clear PCP 2 and term loan asap, thus freeing up 370 pm in cashflow.

The term loan will be cleared within the next week, if PCP 2 was a normal loan I'd definitely move onto that next as its the next smallest, but its not due to end until early 2020, while PCP 1 ends Apr/May next year and I don't want to have to borrow again to finance the balloon payment (not dipping into current savings for this). I know PCP 2 is costing 2.9% interest while PCP 1 costs 0%, but my logic is I'd need to borrow at probably 6-9% to finance the balloon on PCP 1 if I focus on PCP 2 now (my reasoning may well be faulty here so please correct me if there's a better alternative).

They then need to not borrow anymore and do a spending diary to live within means. To get to such a high net worth at 30 would imply they are or have been somewhat savvy when it comes to money management, so I would advise that they get back to that way of thinking and they'll be more than fine.

I'd have always been a good saver up until all the expenses of the last year (house, renovation, wedding, honeymoon etc.), saving 2k+ pm (& spouse 500pm) on lower income levels, so hoping to get back near there in a couple of years once all the non home loans are cleared. I'm quite disciplined on the day to day living expenses and probably a bit OCD when it comes to tracking expenses and hunting for deals (I have spreadsheets tracking my spending going back 5 years). My spouse on the other hand, would be, ahem, a tad less disciplined.... to put it diplomatically


Of the 3 options I outlined in the initial post, any opinions on the relative advantages/disadvantages of each? Option 3 is appealing as it'd reduce our monthly debt commitments the quickest, though I'm very wary of adding any more to our mortgage, with interest rates likely to go up from next year (though I'd fix again for 5 years so as to be insulated from this until 2023, at which time, all going well, my spouse's salary will be 10k+ higher based on increments & public sector pay deal, and I'd expect my salary to be substantially higher based on demand in my industry - though can't take this for granted; so with the other debt repaid should be able to handle a few % points increase in mortgage rate). Option 2 also looks viable, though it'd leave us in roughly the same position after 5 years as option 1, as we'd lose the 1% cash back from BOI, and that plus legal fees plus breakage fee + the extra 0.2% interest would negate EBS's 2% cash back. Option 2 would allow us to repay my parents a lot sooner though, and while there's no urgency from their point of view in paying them back, I'd rather have it repaid yesterday. Thoughts?

 

[Gordon Gekko]

It’s hardly reasonable or constructive to advise someone who has just bought and renovated a house to sell it.

There is nothing wrong with prudent people with decent incomes having a temporary period where they’re stretched on foot of purchasing a home.

The OP is already working to steady the ship; many of us have done it ourselves. I’d love to reside in an ivory tower where I bought a house for €200k and lived on pasata from Lidl. But life isn’t like that; people have periods of financial strain; good advice is about helping them to restore their position.

 

[dishwasher]

We were in a similar position to you 10 year ago and have come out the other side so fully understand where you are at.

Firstly I’d recommend the book Barefoot Investor. It’s a personal finance book from Australia but advice is mostly transferable. The most useful thing is that it is a framework for getting both parties in the relationship on the same page, communicating and working together on financial goals.

Given your stage in life and plans for kids, I think your priority should be to free up as much monthly cash flow as you can, so IF you can get approval for option 3 and the cashback outweighs the break fee and legal expenses the I’d go for that. Also calculate how many years it would be before higher rate in EBS with up front cash back net of break fee and legal costs is more expensive that staying with BOI. Fixing is a good idea in your situation as it gives you certainty.

But I’d only do it in the context of you both commiting to a budget and savings plan that builds up savings to fund maternity leave and childcare costs. This means stopping any further spending on the house and trying as far as is possible to live on one salary and save most of the rest as that will (hopefully) be taken up on childcare or career break.

 

[David1234]

It’s hardly reasonable or constructive to advise someone who has just bought and renovated a house to sell it.

There is nothing wrong with prudent people with decent incomes having a temporary period where they’re stretched on foot of purchasing a home.

The OP is already working to steady the ship; many of us have done it ourselves. I’d love to reside in an ivory tower where I bought a house for €200k and lived on pasata from Lidl. But life isn’t like that; people have periods of financial strain; good advice is about helping them to restore their position.

I'm not sure I would fit an Ivory tower into my €200k home but i'll give it a shot.

OP my post was to shine a light on the unnecessary situation you are in. Through very substantial borrowing, reckless in some parts, you have stretched your very good incomes to a point where it is causing you concern. The fact you are working in an industry where your skills are currently in high demand and with your spouse working in the public sector with good pay jumps on the horizon would alleviate some of the initial worries.

I am not 100% how the PCP payments work but in May when the balloon payment is due what is your obligation here? If you can walk away from the car then you could consider buying something for circa €5,000?

 

[elcato]

As an aside, I'm curious as to why you say both cars are needed when you say you are working close to where you live. Surely one car would be enough.

 

[Gordon Gekko]

We need to avoid taking advice that’s appropriate for people who are struggling and repackaging it for people who aren’t.

It’s perfectly normal and acceptable to go from prudent saver to stretched borrower for a time when you buy your forever home. The OP seems a prudent sort and is already overpaying debt and has no credit card debt. I wish them well but would recommend that they start focussing on their pensions in tandem with deleveraging.

 

[David1234]

We need to avoid taking advice that’s appropriate for people who are struggling and repackaging it for people who aren’t.

It’s perfectly normal and acceptable to go from prudent saver to stretched borrower for a time when you buy your forever home. The OP seems a prudent sort and is already overpaying debt and has no credit card debt. I wish them well but would recommend that they start focussing on their pensions in tandem with deleveraging.

A prudent couple do not purchase 2 very expensive cars combined with a mortgage in excess of the recommended maximum of 3.5 times their salary when they are considering starting a family.

I too wish them well but I do not want to be picking up the tab for this type of careless borrowing down the line.

 

[PGF2016]

It’s perfectly normal and acceptable to go from prudent saver to stretched borrower for a time when you buy your forever home.

Normal - yes. Acceptable - that's debatable. Stretched now. Kids potentially coming soon. When will the OP not be stretched?

Fair play to the OP for having such a salary at their age and for recognising they're a bit stretched and attempting to address it.

 

[David1234]

Normal - yes. Acceptable - that's debatable. Stretched now. Kids potentially coming soon. When will the OP not be stretched?

Fair play to the OP for having such a salary at their age and for recognising they're a bit stretched and attempting to address it.

Agree here and whilst I may not agree with the OP I can understand not wanting to sell the house.

Going back to your initial question I would do the following.

Tighten your belts. Now that the house costs have settled do yourself up a budget. Luxuries should really be kept at a minimum while paying down expensive debt.

Keep a 5.5k emergency fund. In the unlikely event of your parents calling in this loan it will enable you to pay it back on demand, it will also act as a buffer if required.

Use the balance of your savings to reduce your 2 most expensive home improvement loans. Use any surplus cash at the end of each month to further pay down these loans.

In May 2019 walk away from your car and purchase something more reasonable for €4k-€5k. This can be funded using your bonus/stocks.

Overpay all expensive non-mortgage debt as a priority and this should be gone by 2020.

Once clear of all non-mortgage debt look at doing a combination of the following- (In order of preference)

1- Start building a contingency fund
2- Increase pension contributions
3- Start over paying mortgage. I realise you have fixed but most banks allow for a certain level of overpayment.

If your skills are currently in great demand make sure that you are being remunerated accordingly. At 30 your career and earning potential is your biggest asset so make sure you are getting the best possible return on it.

 

[Blackrock1]

i think some of the posts above are a bit extreme, especially the advice to downsize, bloody hell!

that said you are probably a little stretched at the moment but you are seeking to address that.

you mortgage is of a size that its an asset at the moment with the cash back deals, mine is a little higher than yours and i got cash back from EBS and BOI and now fixed with UB at 2.5% for 5 years so definitely use it to hoover up some cash back while it is still there.

Then properly look into the implications of starting a family, best case scenario you will have to budget for 6 months of no income (assume wife takes a year off and is paid for 6) and then assuming she returns to work it will be creche at 1100-1400 a month (put name down early creches around us are fully booked for children that are literally just conceived its madness) plus the associated costs of having another family member! that said you will spend a lot less on socialising.

also be familiar with costs of private maternity care, buggys, nurseries etc etc

 

[BobbyMarley]

Thanks again to all the contributors, some great advice here, plenty of info to take on board. I've actually used this thread as the basis of a discussion with my wife around our finances in general and our spending levels, she has just set up standing orders to transfer money to a savings account on the days she's paid, so she won't see it in current account (and therefore hopefully won't spend it ).

There is nothing wrong with prudent people with decent incomes having a temporary period where they’re stretched on foot of purchasing a home.

Thanks for this, yes I knew with the house we'd be a bit stretched for a couple of years afterwards, though as stated earlier maybe not this much as didn't plan so much renovation expense. The alternative was to wait a few more years before buying the forever house, but with the property market the way it is currently the thinking was that it may be out of reach at that stage.

We were in a similar position to you 10 year ago and have come out the other side so fully understand where you are at.

Firstly I’d recommend the book Barefoot Investor. It’s a personal finance book from Australia but advice is mostly transferable. The most useful thing is that it is a framework for getting both parties in the relationship on the same page, communicating and working together on financial goals.

Thanks for the recommendation, just got the audio book & will start it tomorrow. Also good to hear from someone who was in a similar position and came through it ok.

OP my post was to shine a light on the unnecessary situation you are in. Through very substantial borrowing, reckless in some parts, you have stretched your very good incomes to a point where it is causing you concern. The fact you are working in an industry where your skills are currently in high demand and with your spouse working in the public sector with good pay jumps on the horizon would alleviate some of the initial worries.

Appreciate this, I'm very aware of the unnecessary situation we're in as you put it, the car/s in particular are a big regret, though to offer some context my car was bought at a time where I had very low monthly expenses and was saving a huge portion of my salary (still wish in hindsight I'd just bought something for around 10k cash). The other car I knew was a mistake at the time but didn't have much control over that.

I am not 100% how the PCP payments work but in May when the balloon payment is due what is your obligation here? If you can walk away from the car then you could consider buying something for circa €5,000?

Yeah that's something I've been giving some thought to, though I'd be leaving cash on the table just walking away from it as it's very likely to be worth more than the balloon payment at the time, so paying the balloon payment off and then selling it may make more sense, will have to see closer to the time.

As an aside, I'm curious as to why you say both cars are needed when you say you are working close to where you live. Surely one car would be enough

That's something I've considered too, though while both workplaces are a relatively short drive, there's no straight forward public transport options (think bus into city centre to get another bus out to work in suburbs - probably at least 3x our current commute times). I've love to cycle but there's no shower facilities at work, don't think my colleagues would appreciate the whiff of BO . Saying that, I'm contemplating moving companies in the next few months, so public transport or cycling may be viable at that stage.

We need to avoid taking advice that’s appropriate for people who are struggling and repackaging it for people who aren’t.

Agree we aren't struggling, we're stretched at the minute with debt as a % of net income, but even with all debt paid we've 3800 pm left excluding non base salary income, so things could be a lot worse. Saying that they could also be a lot better!

I wish them well but would recommend that they start focussing on their pensions in tandem with deleveraging.

Thanks for the well wishes, agree I've been neglecting the pension, definitely want to start increasing my contribution in the medium term as our cashflow improves, may put any new salary increases into the pension in the short term.

I too wish them well but I do not want to be picking up the tab for this type of careless borrowing down the line.

Thank you also for the well wishes, not sure what you mean about picking up the tab but it won't be required in our case.

When will the OP not be stretched?

Surely in a couple of years time, when (all going to plan) all the non home loans are cleared and there's ~5000 pm left after the mortgage to pay to childcare and all other livings expenses? Admittedly would be in trouble if one of us was out of work for a while (particularly me), but don't know too many working couples our age stuck paying high rents or mortgages who wouldn't struggle in that situation (unless one of the incomes was very high relative to the other)

you mortgage is of a size that its an asset at the moment with the cash back deals, mine is a little higher than yours and i got cash back from EBS and BOI and now fixed with UB at 2.5% for 5 years so definitely use it to hoover up some cash back while it is still there.

Switching again to Ulster is an interesting idea, did you get approval for both at the same time and then switch to Ulster after the BOI cash back landed?

Then properly look into the implications of starting a family, best case scenario you will have to budget for 6 months of no income (assume wife takes a year off and is paid for 6) and then assuming she returns to work it will be creche at 1100-1400 a month (put name down early creches around us are fully booked for children that are literally just conceived its madness) plus the associated costs of having another family member! that said you will spend a lot less on socialising.

My wife would get 9 months off fully paid in the first year after giving birth (secondary teacher), we've agreed she wouldn't take the extra 3 months unpaid leave. Is 1100 - 1400 not a bit on the high side? Looks to be about 900-1000 around us. Definitely would expect the socialising budget to drop dramatically

also be familiar with costs of private maternity care, buggys, nurseries etc etc

Thanks hadn't considered this, we have a few older siblings who are past this stage with their kids so hopefully we'll get some hand me downs for buggies, cots etc.

 

[Sarenco]

I don't think you should be contributing anything to your pension over and above what is required to get your employer match while carrying debt @7.5% or while owing your parents money.

Frankly, I think you should be living on beans and toast until you get those loans paid off.

I'm sure you will right your financial ship in time with the right attitude - best of luck.

 

[Blackrock1]

Switching again to Ulster is an interesting idea, did you get approval for both at the same time and then switch to Ulster after the BOI cash back landed?


My wife would get 9 months off fully paid in the first year after giving birth (secondary teacher), we've agreed she wouldn't take the extra 3 months unpaid leave. Is 1100 - 1400 not a bit on the high side? Looks to be about 900-1000 around us. Definitely would expect the socialising budget to drop dramatically


Thanks hadn't considered this, we have a few older siblings who are past this stage with their kids so hopefully we'll get some hand me downs for buggies, cots etc.

i actually didnt we took our first mortgage with EBS, switched to BOI maybe 5 months later and then almost immediately to UB, but having approvals in place prior makes more sense.

Originally my wife was taking 11-12 months off but then the creche we chose couldnt take our little girl when we had hoped so she had to extend so look into your child care in advance is the advice! Also getting hand me downs is great but make sure your wife is on board with that.......

Finally on the childcare costs, if you are going for a full time creche check again on the prices, the costs are rising yearly, generally if you are in it stays the same but the fee for new entrants is increasing. Where my daughter was originally was 1,100 3 years ago and is 1,400 for new kids now.