My Debt Diary

Debt Payment Progress Report 15 – 22/02/19

February 22, 2019

Every two weeks I will be sharing my debt payment progress report with you. I’ll share my new debt total and some of the things I have done to make this happen. It will help me record my journey and it will also help me to stay motivated!

Debt Payment Progress Report – my new total!

As of February 22nd 2019 my new debt total is £11,753.58 (My starting debt total was £16,814.29)

That means that since I last updated you two weeks ago I have paid off £2406.49 My new total debt payment to date is now £5060.71, which I have calculated to equate to 30% of my debt total. (I should note that I have paid in more than this, however some money has gone straight to interest). The following debts now remain:

  • Loan One £6236.92
  • Loan Two £5516.66
  • Credit Card One £0
  • Credit Card Two £0 (yaaaaaaaahooooooooo!!)
Debt Payment Progress Report - new debt total on 220219

Debt Payment Progress Report – new debt total on 220219

The past two weeks have been very successful with regards to my debt free journey. That’s a massive understatement actually. Thanks to some financial help I have leapt forward. So much so that I can officially say goodbye to my second credit card. It’s paid off! I’m also 30% of the way through my total now. That feels incredible!

I won’t go into detail about the help received as it’s obviously quite private but what I can express is how grateful I am for the support. When you are moving so slowly on your debt free journey, as I have been over the last few months, it can be draining and disheartening to say the least. This boost has not only helped get rid of a good chunk of my debt, it has also rebooted my motivation.

Now I am left with two loans to pay off. Both with the same bank and both with penalties attached for paying them off early. I’m going to work out my numbers and see if the penalty is worth paying. Of course, following the debt snowball method I should throw everything I have at them and just pay the penalties in order to get rid of the loans. What would you do? I’d really love some advice on this one!

My next debt payment progress report will show a far smaller number, most likely my minimum payments on the loans minus the interest I have to pay. If you’ve been following my journey for a while now though, you’ll already know that I’m absolutely fine with that. As long as the number continues to go down, I’m happy.

You can find my previous reports here.

 

debt payment progress report fifteen - 220219 - pinterest

2 Comments · Debt Free Community, Debt Free Journey, Debt Payment Progress, Financial Freedom, Money, Money Making, My Debt Story, Personal Finance

The UK Version of the Baby Steps

January 29, 2019

Dave Ramsey’s The Total Money Makeover is a book I have spoken about many times before. His debt payment process of using the Baby Steps is an absolute favourite amongst the debt free community and it has helped many people across the world to become financially free. It is however aimed at financial practices and products in America. The tips can therefore be a little hard to navigate if, like me, you are based in the UK. Here is my guide to the UK version of the Baby Steps.

Please remember to make sure that all minimum payments are being paid no matter what stage you are in your debt free journey.

Baby Step Zero – You Need a Budget

The very first and arguably most important baby step is to set up a budget. It will be impossible to take control of your money without first understanding where it is coming from and where it is going. Sit down on your own, with your partner or with your family and get to grips with every single penny that travels through your bank account and your pockets. Make a note of everything, long forgotten subscriptions and all!

Once you have an understanding of your current situation you can then begin to tell your money where to go. Beginning with the large payments such as rent or mortgage, bills and so on, all the way down to the £1 you pay on a Sunday morning for the paper, begin to track everything that you will be spending your money on and remove anything you no longer need/want/require.

In order to be strict you have to give every penny of your income a job. Don’t be tempted to put rough amounts into your budget or leave a “just-in-case” amount at the end. If there is something left over once all expenses are paid then that can begin to contribute to baby steps one and two and can be labelled accordingly. This method is called zero based budgeting. You can read a great article on it here.

Baby Step One – Emergency Fund

With a budget in place we now need to put a small financial buffer in place. It is time to save your emergency fund of £1000. I’ve written a full blog post about it here which explains the concept in detail. In summary, you want to save a pot of money as quickly as possible and store it in a safe but easy to access place such as a instant access savings account. Dave recommends saving £1000.

Your emergency fund is to be used only for emergencies and you have to be strict with this. It is not for shopping or booking a holiday because the funds haven’t quite arrived in your bank account yet. It is for things like a boiler breakdown or unexpected car repairs for a vehicle that you can’t live or function without.

If you do have to use your emergency fund don’t be disheartened. It has saved you from having to borrow even more money and should make you feel stronger financially. It’s not a set back! Once the emergency is handled top your fund back up as quickly as possible.

Baby Step Two – the Debt Snowball

Once your emergency fund is securely in place it’s time to put all of your focus on your debt. There are many different approaches to this, however the method that myself and the baby steps follow is the debt snowball. To begin with, compile a list of every single debt that you have. This can be a very challenging task if you have been hiding from your total but please do take the time to do it.

Now that you have your full list of debts, order them from smallest to largest. This is the order in which you will attack them. With all minimum payments already being covered it’s time to look at our budget and that “left over” amount that you uncovered at the end. Whether it is £1 or £1000, this is the money you are going to use to get rid of this debt once and for all. Let’s say for example that we have £100 left over in our budget.

To begin with you might have something that looks like this:

  • Debt 1 = £1500  minimum payment = £57 +£100 “left over”
  • Debt 2 = £2700  minimum payment = £88
  • Debt 3 = £3600  minimum payment = £121

Paying the minimum amounts only on Debt 1, it would take you over 26 months to clear the total and that is without interest. Increase this to £157 however and this debt will be cleared in 10 months. Much better!

Now we snowball this amount and add £157 (minimum payment of debt 1 + “left over”) and throw it at Debt 2. Of course debts 2 and 3 would have reduced by a small amount each with minimum payments, but this is just to show the method.

  • Debt 1 = cleared
  • Debt 2 = £2700  minimum payment = £88 + £157
  • Debt 3 = £3600  minimum payment = £121

Paying the minimum amount only on Debt 2, it would take 31 months to clear the total. With the added help of the £157 snowball it would take only 11 months!

You see where I’m going with this? Let’s snowball the payments from Debt 2 and throw them at Debt 3. Now, instead of paying £121 to Debt 3 each month you’ll pay a whopping £366 instead.

  • Debt 1 = cleared
  • Debt 2 = cleared
  • Debt 3 = £3600  minimum payment £121 + £245

With the minimum payments only it would have taken 30 months two clear your third debt. With the snowball method it will take you only 10 months.

This example is based on debts which have no interest to attached to them and each individual situation will be unique, however the principles to follow never change. Use the same approach and you will clear your debts far sooner than you once thought possible!

Baby Step Three – Your Full Emergency Fund

To begin with you set up a small emergency fund to give you a bit of a safety barrier against the unexpected costs that life likes to throw at us. Whilst it can be really helpful and reassuring to have, £1000 won’t last you too long if something like redundancy or long term illness was to occur. This is where the full emergency fund comes in.

Now that every penny of your debt is cleared (YAY), turn your focus to saving 3 – 6 months worth of expenses. To keep things simple you might choose to use the snowball amount that you have been throwing at your debt and put it straight into savings instead. The amount you save is an entirely personal choice based on your own circumstances. The main objective is to have enough stored away so that should something unfortunate occur, borrowing money doesn’t even cross your mind.

Baby Step Four – Invest

With your debt paid off and a healthy emergency fund in place it is time to think about the future. No matter your age it is incredibly important to put long term savings in place for your retirement and the sooner you can do this the better.

Whether you have a work place pension in place, investment in stocks, a lifetime ISA or a combination of different investments it is key to find something that will grow well and remain secure over a long period of time. I don’t personally have the knowledge and experience to be able to advise the best approach to long term savings and investments. Research into the options that will suit you personally is the best way to begin.

Baby Step Five – Saving for Family

In the American baby steps this stage focuses purely on saving for university funding. In the UK we are lucky not to have the same fees involved in further education, although it does still cost a lot of money. There are many stages of life that are costly however and if you have a family you may decide to save money in order to help them out with things like university, wedding and first home expenses in the future.

As with investing, this is a very personal step unique to each individual and so it is best to do your own research.

Baby Step Six – Paying off Your Mortgage

If you are a home owner then you will most likely still have one debt left; you mortgage. Whilst it is considered a “normal” debt as few people have the money to buy a house outright, this doesn’t mean that you shouldn’t aim to pay off your mortgage early.

In the UK it is possible to overpay your mortgage by 10% each year without penalty. I took a quick look at a mortgage calculator to see what impact that might have on my own mortgage for perspective. If I was to overpay as much as I could each year I would be able to pay my mortgage of 8 years sooner than anticipated. 8 years! The thought of being able to liver mortgage and debt free, with only a handful of bills to pay is incredible.

If you currently rent your home, this is stage where you would look to save a large deposit in preparation to buy and then progress with paying off your mortgage as soon as possible.

Baby Step Seven – Build Wealth and Give

You may wonder what there is left to do now that every penny of debt has been cleared and you have strong savings in place. Baby step seven is the stage where true financial freedom is achieved. You now have the ability to grow your wealth and give. After years of working hard to reduce the burden of debt and grow your security you can enjoy your money and share it.

Some would argue that you should “give back” throughout your financial journey, no matter which stage you are at. Whether it is donating to charity, giving back to your community or giving to your church for example. Once again this is a very personal decision.

 

If you haven’t yet read Dave’s book I highly recommend you do. Whilst knowing these fundamental steps is key to the process, the stories and advice shared throughout the book are also invaluable! You can find it here on Amazon. (I’d like to note that this is an affiliate link. There will be no extra charge added to your order, but Amazon send me a small commission as a thank you.)

Do you implement Dave’s steps currently? If not, do you think you will begin to in the future? I would love to hear your thought in the comments below!

The UK Version of the Baby Steps - pinterest

Leave a Comment · Budget, debt, Debt Free Journey, Emergency Fund, Financial Freedom, Healthy Finances, Money, Personal Finance

Debt Payment Progress Report 13 – 25/01/19

January 25, 2019

Every two weeks I share my debt payment progress report with you. I post my new debt total and some of my money making efforts. It can be so easy to get caught up in the day to day payments, especially when my total is going down slowly. These reports help me to record my journey and stay motivated as I look back over the progress I’ve made so far!

My new total!

As of January 25th 2019 my new debt total is £14,272.74 (My starting debt total was £16,814.29)

That means that since I last updated you about a month ago I have paid off £163.13. My new total debt payment to date is now £2541.55, which I have calculated to equate to 15% of my debt total. (I should note that I have paid in more than this, however some money has gone straight to interest). The following debts now remain:

  • Loan One £6399.46
  • Loan Two £5579.92
  • Credit Card One £0
  • Credit Card Two £2293.36

debt payment progress report 13 new total

I feel like there isn’t too much to report on this week, but in a way that’s a good thing. After a very slow November and December work has picked up a bit and so most days have been spent freelancing. There hasn’t been much time left on the side for any surveys and the like, but freelancing pays more so I’m not complaining at all. I’m not quite breaking any income records but it is far more consistent than it was before Christmas so I’m really happy.

This year I’d really like to increase my income in order to allow me to pay more debt off each month (and of course enjoy more when the debt is gone!). On quieter days I’ve been spending a few hours contacting potential new clients via email and have had a handful of responses. I know from past emails that many of these will come to nothing, however two look very promising so I’m keeping my fingers crossed.

Going into February I have a few big expenses coming up which have the potential to dent my debt payments a bit, but all going well I will have some new clients sending work over which will help to counteract them. I don’t want to jinx anything just yet, but I’m feeling really positive about the coming weeks and months. Excited to update you again in two weeks and see where I am!

You can find my previous reports here.

 

debt payment progress report 13 - 250119 - pinterest

Leave a Comment · debt, Debt Free Journey, Debt Payment Progress, Financial Freedom, Money, My Debt Story, Personal Finance

What are Cash Envelopes?

November 5, 2018

You have heard me speak about budgeting many times before on My Debt Diary. Today I want to talk about one specific method. Whilst many people choose to set up and manage their budget digitally, myself included, cash envelopes are also a popular choice. But what are cash envelopes?

What are cash envelopes?

Put very simply they are envelopes with cash in. They are a physical form of a budget with each envelope holding a designated category. Most importantly they each hold a set amount of money. You may choose to use them for items such as shopping/groceries, petrol and takeaways for example. Everyone has their own priorities and their own expenses of course.

Each month you decide how much money you will allocate to each category. You withdraw the total amount you need from the bank and place the right amount in each envelope. You might choose to hold on to enough money for just a week or the whole month. Just choose the one that feels comfortable for you. To help keep things in order it’s important to mark the category on each envelope, so they don’t get mixed up.

There are two great benefits to using cash envelopes as your budgeting method. Firstly, handing over physical money makes you think more about your spending. You watch a certain amount leave your envelope and your remaining budget diminish. It forces you to consider whether a purchase is required or if you would rather save that money for something else.

Secondly, once the money is gone it is gone. Unlike using your bank account where everything is held together there is no chipping into other areas of the budget without actually taking money from another envelope. This highlights how quickly you use up certain areas of your budget. It can also help you to budget more accurately in the coming weeks and months as you gain a better grasp on your spending habits.

What’s better, if you have money left in your envelope at the end of the month it will feel incredible. Now you can make a choice. Do you spend more on your shopping that month? Do you put it in savings? If you have debt that is the obvious choice! Even if it is only £1.50 that is left, put it somewhere. If you follow me on Instagram you’ll know how much I believe in throwing even the smallest amounts at your debt total. The point is, taking control of your money like this will give you more choices.

The cash envelope system is a great method to use if you are new to budgeting or really struggle with limiting your spending online or with a bank card. Sometimes, in order to come to terms with a completely new way of handling your finances, a new way of spending can be the perfect approach.

what are cash envelopes - pinterest

Leave a Comment · Budget, Debt Free Journey, Money Saving

Debt Payment Progress Report 6 – 21/09/18

September 21, 2018

Every two weeks I will be sharing my debt payment progress report with you. I’ll share my new debt total and some of the things I have done to make this happen. It will help me record my journey and it will also help me to stay motivated!

Debt payment progress report – my new total!

As of September 21st 2018 my new debt total is £15,700.20 (My starting debt total was £16,814.29)

That means that in the last three weeks (I missed last weeks post and pushed it up seven days) I have paid off £122.25. It also means that the first £1000 is officially gone. I’ll celebrate it with a glass of wine and a boogy in the living room this evening!

My new total debt payment to date is now £1114.09, which I have calculated to equate to 6.6% of my debt total.

(I should note that I have paid in more than this, however some money has gone straight to interest)

debt payment progress report - 210918 - £15700.20

My progress has been slow with my debt free journey since I last checked in. If you read my post about debt failures on Monday you will know I have slipped up over the last couple of weeks! In my haste to pay off as much debt as quickly as possible I forgot about the fact that I am due to pay my tax bill in January. You could say, I had my debt blinkers on.

Focus is of course good when you’re on a mission to become debt free. It is your greatest priority in life and you push to clear your total as soon as possible. This does however make it very easy to forget about irregular payments. Of course, this is why a budget is so important. Sinking funds are also a great way to combat any potential surprises and I’m starting one for next year’s tax bill so I’m not caught out again.

Thankfully I have realised my mistake in plenty of time and I now have three and a bit months to set my tax money aside, although it will slow down my debt payment and that’s frustrating. The important thing, as always, is that I keep moving in the right direction with my debt total, no matter how small the payments are.

You can find my previous reports here.

 

debt payment progress report - 210918 - pinterest

Leave a Comment · Debt Free Journey, Debt Payment Progress, My Debt Story

Finance Book of the Month – The Total Money Makeover

July 16, 2018

As part of my journey towards becoming debt free, I am making it a priority to educate myself about money. I want to have a better understanding of handling finances, financial mindsets and many other useful topics. My favourite way of doing this is reading. This is a part of my journey that I’m particularly keen to share with you as I believe you could get a lot of value from it. Here is my finance book of the month.

Finance book of the month – The Total Money Makeover

This week I would like to begin by sharing a book I have mentioned many times before already. A lot of you may have already read this, especially if you are also on a debt free journey, but I want to share it none the less.

The Total Money Makeover by Dave Ramsey is what I would describe as the most effective and most sensible approach to debt payment. The book provides you with a straightforward method to handle your money. It is easy to read and to understand. When you are already in stressful situation, possibly even a full on panic about your finances, the last thing you need is the confusion of unfamiliar words and complicated guides.

Dave’s money makeover system is made up of several baby steps, set in a specific order, that help you handle and control your money. He begins with building your emergency fund. I spoke about this here earlier in the month. He then progresses through debt payment, further saving, preparing for retirement and so on.

The Total Money Makeover is not the sort of book you read once and forget about. You will find yourself referencing it again and again. It will be relevant even once you are in the habit of handling your money well. I have just read it for the third time myself. As the title suggests, Dave’s intention is not to help you find a quick fix for your money. The steps guide you into healthy money habits that you will keep for life.

You can find The Total Money Makeover here on Amazon. (This is an affiliate link. I receive a small commission at no extra cost to you if you choose to use it. Thank you!)

https://www.amazon.co.uk/gp/product/1595555277/ref=as_li_tl?ie=UTF8&camp=1634&creative=6738&creativeASIN=1595555277&linkCode=as2&tag=mydebtdiary-21&linkId=b5421f231e544a87201db271924def21

The Total Money Makeover by Dave Ramsey

https://www.amazon.co.uk/gp/product/1595555277/ref=as_li_tl?ie=UTF8&camp=1634&creative=6738&creativeASIN=1595555277&linkCode=as2&tag=mydebtdiary-21&linkId=b5421f231e544a87201db271924def21

The Total Money Makeover by Dave Ramsey

I absolutely encourage you to begin reading (or listening to audiobooks) as part of your debt free journey. Not only do you learn something as a result, but it also allows you some time to switch off from all the other goings on in life and just focus on the book in hand, literally.

Claire from The Money Freak reflects on her own experience of discovering Dave Ramsey and his method in her blog post here.

 

Finance Book of the Month - the total money makeover - pinterest

4 Comments · Finance Book of the Month, Goal Setting, Money

What is an Emergency Fund?

July 4, 2018

At the beginning of the month I set my goals for July 2018. One of the major targets I included was to set up my emergency fund. Those of you who have been a part of the #debtfreecommunity for a while will know exactly what I’m talking about. But for those who are new to the concept, what is an emergency fund?

What is an Emergency Fund?

Quite simply put, an emergency fund is a cash buffer. A pot of money that you set aside for a rainy day.

Whilst on your debt free mission, it’s natural to want to throw every single penny you have at your debt payments. You want the total to go down as quickly as possible! One hurdle we all face at some point however, is the appearance of unexpected payments. Unfortunately life waits for no one and no matter how careful we all are things pop up that we don’t plan for.

Before you get on your way with debt payment it is important to take some time to set aside some money for this very occasion. Dave Ramsay, author of The Total Money Makeover recommends that you save £1000, or £500 if you are on an incredibly tight budget or low income. (His book is an incredible financial guide and one that I will talk about in more depth at a later date.)

Whilst in the process of saving your emergency fund it is important that you still make all of your minimum payments to credit cards, loans and other forms of debt that you have. The sooner your fund is in place, the sooner you can give your debt your full focus. Once you’ve completed your emergency fund you can progress with debt payments knowing your safety net is in place.

What should I use it for?

That horrible morning when the boiler breaks down on the coldest day of winter. The dread of hearing your car give up on the way to work. An unexpected loss of income when have urgent payments to make. All of these fill me with panic when I look at an empty bank account and know anything could happen that I haven’t prepared for.

This is what an emergency fund is for. You will feel a huge sense of relief knowing that you have a pot of cash which is easy to access and can dig you out of that horrible situation immediately.

What should I NOT use it for?

Your emergency fund is NOT there for days when you’re a bit tight for cash. It should not be the go to when you have the January blues and fancy an “emergency” holiday and it is absolutely not to be dipped into for that quick coffee because “it’s fine, you’ll just pop the money back in when you get paid”.

This can be really hard to deal with in moments of weakness when your mates are off out for dinner and you hate missing out but it is so important to stick to your budget and keep your emergency fund for emergencies only. It will be tough but you will be so unbelievably grateful for the pot of money that saves you on a day when you really do need it.

Where should I keep it?

Your emergency fund should be liquid. In other words, it should be in a savings account or current account that is separate from your day to day spending money but still easy for you to access. There should be no penalties for withdrawals. It should be accessible immediately in case of, you’ve guessed it, an emergency.

What do I do if I have to use it?

Top it back up again. It is as simple as that. Once the emergency is dealt with, your emergency fund might be a few pounds down or it might be completely empty. Pause your debt payment and go back to minimum amounts temporarily. Then top your emergency fund back up to the £500 or £1000 that you originally had. Knowing how much it has saved you in an emergency will make it all the easier to fill up second time round!

Charlotte Musha has written a great in depth post about the emergency fund, baby step one, from Dave Ramsey’s perspective in this post. 

what is an emergency fund - pinterest

This post may contain affiliate links.

4 Comments · Emergency Fund, Money

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