Thoughts on debt
October 26, 2007Plonkee tagged me to describe how I would live my life if I was debt-free.
Fortunately, since my parents were generous enough to pay my tuition fees at University and I used to work most summers during school and University to contribute the rest, I am actually in a position where I am already fairly debt-free.
Yes, admittedly there is a small outstanding balance on one of my credit cards, but this is mainly to do with the fact that I just moved into a new house which brings an awful lot of major expenses - especially since it’s the first time I’m actually living in my “own” (if rented) flat.
Hence, I will slightly re-phrase the question and will instead give you my opinion on how to stay debt-free.
Firstly, and this is what everyone will be telling you, set yourself a budget that reflects your personal circumstances (i.e. be neither too stringent nor too generous) and try to stick to it. Now, I’m not terribly good with that sort of thing but I found that I stay on top of my finances if I simply keep track of how much I’m spending on what (more info…). You’d be surprised, trust me!
Secondly, keep a “splurge fund“. This mainly works like an emergency fund but for shopping tours. It might well be a phenomenon that women suffer from most, but I’ve certainly enjoyed the certainty of knowing that I have some money, to balance my account with, after that particular pair of shoes just had to come home with me. Just make sure that you realise you can’t actually afford an item, if even your splurge fund wouldn’t cover it…
And finally, where possible, get interest payments for your savings credited on a monthly basis. Knowing that you’re getting a reward for your savings on a regular basis will keep you motivated and will also help you develop a habit of saving spare cash - even if it is just to see the “reward” grow.
These three suggestions are entirely taken from own experience, but I’d be delighted to hear how it’s working out for you and what preventatve measures you’ve set yourself!
A splurge fund is such a great idea that I
plonkee | October 26, 2007 | 1:07 amA splurge fund is such a great idea that I may have to steal it (the idea, not your actual fund of course).
Since this is my first point I would like to
runtime | October 27, 2007 | 1:19 amSince this is my first point I would like to say hello and to thank you for this wonderful blog! Your posts/articles on personal finance are fun to read and are amongst the most informative and easy to understand that I’ve come across.
I’m in the very fortunate position of being 32 and debt free (mortgage paid off last year!); while this is largely due to being lucky enough to buy a house when prices were much more reasonable (~6 years ago), I also think it had something to do with having a current account mortgage:
Every month I could see a my repayment mortgage reducing which was a great incentive to try and spend less. If you’re disciplined a current account mortgages are a very easy way to over-repay your mortgage and save a whacking great big chunk of interest!
If I had to do things differently I’d like to have started paying a little into my pension a earlier. I started at 27, but looking at the amount of junk in my garage, I know I could have scrapped together £50 a month and started a couple of years before!
These days my main ‘problem’ isn’t so much keeping track of how much I’m spending on what, but deciding what to invest my money in, primarily to support an early retirement but also to provide for my wife and baby daughter; I’ve already read most of your investment articles and am starting to appreciate the importance of a diversified portfolio.
I’d love to hear your views on tax free saving particularly through SIPPs and ISAs - perhaps some pointers on how to apply the diversified portfolio theory to fund selection? I’ve got ‘All About Asset Allocation’ winging it’s way to me so that should keep me busy for a while!
Many thanks!
Thank you so much for your comment runtime. I'm impressed
Kirsten | October 30, 2007 | 11:02 amThank you so much for your comment runtime. I’m impressed to hear that you have already managed to pay off your mortgage as I know that my debt-free times will be over as soon as I decide to actually buy a place (rather than rent as I do now)
I will write a lot more about tax-free investments as soon as I get my outside accounts approved by my employer (financial regulation - there’s no way round it…)
I love the idea of the splurge fund! I think
Miss Millionairess | November 4, 2007 | 12:24 pmI love the idea of the splurge fund! I think I need to set one up in spite of the fact that I’m meant to be saving all my money. Like you say, sometimes you just HAVE to get that pair of shoes and will not be able to ever be happy ever again if you don’t get them…
And you love them so much more because you know
Kirsten | November 4, 2007 | 10:04 pmAnd you love them so much more because you know you don’t have to have a bad conscience!