The day I paid off my debt

Today I made the final payment on my credit card. It felt scary to do it. I had all kinds of anxiety thinking things like “I’m going on holiday at the end of the month, do I have enough?” Well, the answer is yes, I do have enough. It’s a feeling I’m not used to having, but I have enough because I’ve sorted out my financial life.

 

There have been so many times in the past 6-7years where I’ve been struggling to get through the month, or worse just spending recklessly It’s deeply ingrained anxiety that I’ve lived with for years and now, finally, I have managed to break out.

 

Maybe the magnitude of what I have achieved has not sunk in yet, but I was expecting to feel different. People say it is like a weight being lifted. I agree it does feel that way. However, today the weight on my back was very light compared to the one in January of this year. I have been breaking chunks off every month since then and the weight of debt has been lightening. Today was the last piece and one I’ve been looking forward obliterating for a long long time.

 

Now I have done it and, yes it feels great. I must be 100% honest and state I am not debt free. I still have my car loan and at this point, I’m happy paying that out until it ends in Feb 2020 (I love the car too much) and the car is now worth more than the loan. But all the other debt is gone.

 

The road into debt

 

To mark the occasion, I would like to reflect on how I got myself into the mess I found myself in. As with any story or struggle, it is not one that happened suddenly, but gradually over time.

 

I took out loans for sensible things like education to pay for my law conversion course. I then borrowed a lot to take 10 months out of work to study for the Bar. All worthy endeavours, but expensive. Add to that a general issue with not saving enough because there was always pressure to spend to go to weddings, holidays, drinks and meals out with friends resulting in me struggling to save any money.  I’m glad to say that those days are in the past.

 

Additionally, I had to take out loans to fund a project in the building I live in which is a leasehold property. Of course, the project overran and increased in cost. That has been a struggle and a drain on my resources, however, it looks like I won’t have to pay anything for a while now thanks to a court ruling. That has cancelled £7000 of money that was demanded by my landlord but I refused to pay. I’m only kicking myself that I paid anything at all as I could have not paid at all and been about £10000 better off.

 

In 2016, I lost my father and grandmother within 2 months. That also led to a spiral of spending pointlessly – I bought, or rather entered a PCP agreement to get a BMW to cheer myself up. It did cheer me up and gave me great freedom as I had not previously owned a car for 6 years. Sometimes you have to live a little… but yes I could get a cheaper car.

 

After completing my studies last year, and I started earning again in September 2018, I began to think about the debt. I couldn’t see a way out. I got a tax refund and paid off the rest of my government student loan (£2400) before I started the new job so it wouldn’t come out of my salary.

 

I then came across an article on FIRE in the NY Times which really inspired me. I heard about all these people, some younger than me, who had retired. I couldn’t believe it. How would I ever get there?

 

I started in earnest and made some rookie mistakes. I wrongly started investing in the stock market around November 2018. This was a mistake I realised when reading Mr Moneymustache’s post about debt emergency. The debt should have been my priority. https://www.mrmoneymustache.com/2012/04/18/news-flash-your-debt-is-an-emergency/. I cannot agree more with his philosophy here and urge you to do the same.

 

His philosophy changed my mindset completely. This was a blazing emergency and I needed to change my life no matter what. Over the course of a month, I started to add up all the cards, loans and overdrafts I had. It was frightening. I was about £39,000 in debt (£15,000 car loans, £16,500 unsecured, £1500 overdraft). This was unsustainable. I was paying around £800/month on loan payments alone.

 

I used the tools at my disposal and paid off one of the loans with my savings, then paid off a loan with a 0% credit card offer to save around £500 of interest a year. I also made a stretch plan to pay that card off by June. I cut my expenses back by hundreds a month. https://playingwithfire.uk/2019/02/

 

Every time I got paid, I put the money into the credit card (£1500-1800 a month) so I couldn’t spend it and held on tight for the rest of the month. There were some dark days as I had only a few pounds left in my account at the month’s end. I stopped going out, eating out and skipped holidays. I cooked meals at home (turns out I love cooking). It was not the best fun I have to admit. I viewed it as a sacrifice to get me out of the hole I had dug myself over the years. When things got tough I looked toward the day I would be free and that kept me going. The first few months were the hardest as they were during winter. Lots of PS4 games were played and thank God for Red Dead Redemption 2. As things got easier I allowed myself the odd meal out and the odd pub visit.

You probably want to know about the numbers. Well, I get £4005 a month after tax in salary, another £500 in rent from renting my spare room out (tax-free), and £500 to cover expenses from my girlfriend (she lives with me in London).  My monthly expenses are about £2700 all in (and could be less, to be honest). I tried to put every spare pound into paying my debt. I never could find the full £2300 as I always overspent but I got close each month and maybe with the Emma app I will!

Here I am, still in June having achieved it. I have paid off £16,600 in 5 months and had a further £6400 of debt cancelled as it was unlawful. Gone. Done.

Screenshot 2019-06-30 at 14.05.22

debt graph jul19

I thought it would take literally years to do this. But treating paying my debt off as a blazing emergency worked. All my efforts for these 5 months have gone into saving money and paying it down as soon as I got my paycheck.

 

It’s been an incredible journey and one I’m glad to have shared and held myself accountable to by writing this blog. It had kept me focused on the goal.

 

I couldn’t end this post without thanking my girlfriend who has taught me so much about frugality and self-discipline these past few months. She has supported me through this period of change and now we can have a healthier and happier life together.

 

What now?

 

The next stage could be to sell my car. Then I genuinely would have no debt (other than my mortgage). But I do like that car… no, I love it.. but selling it is the sensible thing to do. Let us see.

 

Next month I shall start building a buffer of savings of around 3 month’s worth of expenses. On my current budget that is around £7000-8000. I will target about 4 months to get there.

 

 

 

Emma, my new best money friend.

Budgets are fantastic tools to allocate your monthly income against certain items and keep on track with your spending. I have used budgets for many years and they have indeed helped me manage my money better.

I have an Excel spreadsheet that has my income at the top from which I deduct all my expenses, leaving me with a remainder figure. At the moment that remainder is in theory quite large thanks to all the cutbacks I have made in my quest for financial freedom. But the quandary I find myself in is that the remaining money I actually have left always seems to fall short of this hallowed total.

When I budget, I have all the usual categories such as utilities, car, entertainment etc but I have two overarching types of outgoings which I call ‘fixed’ and ‘unfixed’.  In the fixed category I have expenses such as electricity direct debits, council tax, and mobile phone account. The unfixed category is the one that I have eating out, groceries and lunches. The idea is that these expenses will vary on a monthly basis and are unfixed.

The thinking behind these two categories was to differentiate between fixed regular monthly payments that I must make every month and unfixed discretionary spending that I have always struggled to keep track of and control.

Over the years I have tried to keep track of these ‘unfixed’ categories and have always failed. I either get bored or don’t want to take the time to track my expenses. I have had various short periods of time where I have tracked it but that has always fallen away and I find myself back at not tracking these and simply assigning some broad sweeping category called ‘eating out’ or similar. Even if I did the exercise of adding up my expenses, by the time I get round to it, it would be too late and I’d have already spent the money and blown the budget.

I have long since been on a hunt for a tool that can assist me with assigning expenses to my budget and actually keeping track of what I’m doing as I go.

Enter the app called Emma. I downloaded Emma for my iPhone about three weeks ago and have been using it on a daily basis.

The idea is that you give it access to all your accounts and credit cards and it keeps track of everything and automatically assigns items to a budget you input into Emma. I must say so far so good. After some initial troubles getting my Barclay Card account on there, it has been very easy to use. I can open it and see my balances live and also all my outgoings. It does little reports every week to highlight spending and alert you to areas you may have splurged.

I put the budget data from my Excel sheet into it without much trouble whatsoever. On the pro version, there are more budget categories, but to be honest, I feel I can live without them for now. I can see me buying the pro version at some point

I have not had such up to date spending data ever. I can see that I have £51 left of my ‘eating out’ budget with 8 days to go until the end of the month. With that kind of insight into my spending, it really does help me make real decisions on my spending.

Emma also removes the hassle of logging into multiple accounts to check balances and has that data in one place. I think this is one of the best features and certainly makes that leap of faith that one must take to give over all your banking passwords worth it.

Another useful feature in Emma is it works out how much money you have left before you are paid again. I think this is the clever bit as it features prominently on the first page as a huge reminder of what not to spend.

In the era where most transactions are via contactless payment, this is a great tool and one I would highly recommend to anyone wanting to take control of their budget and expenses.

There is also an investments section that is clearly a very useful tool in the same way that the bank accounts are. Sadly, none of my investment accounts is supported and I have not really delved into this section in great detail. However, for the simplicity of having all your pension and investment account in one place, I think Emma is great.

I am at a point after 5-6 months of trying FIRE that my finances are in good shape. I do believe that if I had met Emma before, I would have become far more aware of my finances and taken action much sooner. By action, I mean living with my means, actually knowing how much money I have to spend and feeling in control.

I would thoroughly recommend giving Emma a try.

Summertime is coming (allegedly)

Here we are in mid-June already. The 12C and pouring rain would lead anyone to believe it was mid-March, but that’s the UK for you.  It’s been a busy few weeks for me as I have travelled to Luxembourg several times for work and also had numerous new ideas and ventures come my way.

Firstly, the debt situation has continued to improve. I now only have £1440 of credit card debt left to pay. I was immensely proud of myself for getting this far and feel like this period of hard-core debt reduction is nearing its conclusion. That is getting me excited about starting to invest and save money.

I have been sitting back and reflecting on the journey since January this year. I had roughly £17,000 of loans, credits card and overdrafts. Now, of that, only £1440 left. I can’t believe it. I will write a dedicated article to mark the day I become debt free which I hope is fast approaching.

Secondly, I have started a side hustle. After the bitter disappointment of having 20+ rejections for pupillages, I realised there was nothing stopping me from setting up a legal advice consultancy. So, along with a former classmate, that’s exactly what I did. I have set up a legal consultancy specialising in construction law. I’m hugely excited about that and look forward to our first clients. Fingers crossed!

Lastly, in parallel, I have been quietly sending out my CV to various companies which have yielded me several interviews. It is always hard to know how much to ask for, but I think asking for at least 20% more than what I am currently on was a good guide. There are other factors to consider such as job security and type of work I will do. However, I do think it is my time to maximise my return and cash in. The more I earn, the quicker I will reach financial independence.

The situation at my current work has barely improved and I think I don’t need the stress of not knowing whether the company will be around much longer in my life. Working somewhere you are almost surprised when you receive your paycheck is no way to live.

So it’s been a very productive few weeks for me. I truly believe that focusing on the fire goals has allowed me to focus on other areas of my life for the better.