I wrote this post in April but it is a reflection on our debt-free journey back in February 2020.
There is something surreal about time passing by so quickly. It just got to me that if I did not make a few notes of what I did in February, kill me but I would not be able to tell you.
There was Mr.L fishing trip – something which is always certain in our yearly calendar. We also made a trip South to see our dear friends who recently moved out of London to enjoy country life. Mr Little One had his first eye test and I said bye bye to my nails as I cut down on few of my optional expenses. There was also a farewell lunch with one of my friends who relocated to Singapore for the next 2 years. Me and her used to pick a date once a month to go together to do nails, sometimes to enjoy lunch and talk about life, projects, money, careers and whatever we felt like talking at the time. I used to call them Power Lunches because they always lifted my spirit. And who does not need it, especially on the debt-free journey!
That said, if I was to choose one theme for February it would be my dream house.
” Your housing payment, including property taxes and insurance should be no more than 25% of your take-home income”
While back, maybe in 2016 if I recall correctly, there was a development I spotted in papers which at that time was only in a project phase (London, Zone 6). There was just land and nothing else to see at the time. Fast forward 4 years, some of the houses had been already completed and there is a show house which anyone interested in buying can visit. I booked an appointment for one of the Saturdays and we all went together to see it. Mr Little One made himself quite comfortable in the toddler room 🙂
As you may already guessed we are currently renting. Visiting the show apartment though prompted me to look into our yearly budget to see how far are we from buying. I then run a few different budget forecast options. It was based on an assumption that our earnings stay on the same level.
Stay As It Is Scenario
This showed us how much money could we save until the end of 2020 if we did not cut on any cost and continue living the lifestyle we have.
Aggressive Cut Back
I also run a scenario with quite aggressive spending cuts. This was not a popular decision.
Moderate Cut Backs
Then, it was something in the middle which was actually quite a good option, in my opinion.
How Much Cash Do We Need?
I also called a mortgage broker who advised we would have no problem with affordability. So now, there was only a deposit which we would have to safe for (£26,500) and the Stamp Duty Tax (£16,500) making it total £43,000. There are other cost such as solicitors, etc but they are around 2k and very little in comparison with the deposit and stamp duty amount.
It will takes us more or less 2-3 years to save for the deposit and stamp duty. I am glad that we are not 10 years away from buying a house but there is still considerable time before we are able to get our own place. I mean shared with a bank 😉
Although we fit within the lender’s affordability I also want to make sure that the house payment does not exceed 30% of our take-home income. It should be fine with 30 years mortgage but when we look into 15 years mortgage the 30% housing cost to income ratio becomes a slight problem. Waiting a couple of years may also give us an opportunity to work on our incomes. Or to decide against such house and buy something cheaper. One way or another, once we are sitting on a pile of cash we can then look into other options. For now, this house serves as a carrot for me to continue our financial journey.
As with anything that you really want there may be a rush or an urge to save and buy as soon as possible. We were also tempted to postpone paying off the debt. Then, I draw a picture in my mind standing in the middle of an empty living room in the dream house having just pick up the keys and not being able to buy chairs because we still would have debt payments. I just frankly do not want to be in such situation. Like they say:
“There are no shortcuts to any place worth going.”
Covid-19 and other factors included, we also have no idea how life will look like in the next 2-3 years. Sometimes, you may also be tempted to neglect financial planning simply because you have no idea what the next 3 years will bring. Whatever it will be I trust I do not have to convince you twice that it will be a lot easier with solid financial fundaments such as:
- zero debt
- security fund of 3-6 months worth of expenses
- other savings which you can use to make your dream come true
And who knows, maybe one day we will be able to our dream house with cash.
In February, we saved £432.11. We decided to keep it in our accounts until we save £4,000 and then pay one of the debts in one go to close this account completely. I would normally not stack up cash but would use this money towards extra debt payments. However for various (personal and not mathematical) reasons we decided to make minimum payments and the extra debt payment would be our final debt payment under this debt accounts.
In The Meantime
This is how I looked after myself in February. I also hope you do look after yourself – whatever it is that brings you joy make sure you fit it in your day.
Until next time,
Whether you are a property owner or not I would love to learn from your experiences having saved for the down payment? Or maybe you had some help from a bank of mum and dad? Or totally opposite, you decided to keep renting and using savings to go travelling?
What is your next dream for which you need some financial resources? Let’s keep planning together 🙂