Saturday, 11 January 2014

Frugal Bytes - Moneysaving Questions from Readers

Reader Questions about Money Saving and Frugal Living

Hi NYK,

Pennies make pounds
This seems a bit rude to ask, but as the saying goes, if you don't ask, you don't know! So apologies up front.

How did you manage to save your emergency savings?

Do you keep your 'emergency savings' separate from other savings?

Would you recommend a certain amount for emergencies?

Any advice on this would be gratefully appreciated!



NYK Answers

I love questions and am forever researching 'stuff', so thank you for asking and rest assured that I don't find it rude in the least, it is a huge pleasure to be able to answer. Apologies if I waffle on a bit, I'm rather passionate about frugal living. :)

Many years ago, while in debt, I got together a bunch of friends in similar situations and we compared our budgets. At that time, we all had very different household incomes, ranging from under £10,000 to over £30,000! The amazing fact that I learned from what became a regular get-together was that we practically all had the same amount of disposable income after paying everything we owed - mortgages, rent, council tax and all other debts!  It was amazing! The magic number worked out at £4,000, so that's the origin of my target budget. Now, in 2014, the figure is simply the amount I know I can comfortably live off and be happy to do so. It's also the minimum amount that I know I need to earn in order to live debt free! If push came to shove, I have sufficient flexibility within that budget to make alterations and also afford the Council Tax.

After living on the £4,000 budget for many years, the debts slowly and painstakingly reduced until, in 2007, I finally became completely debt free. At that point, I had two options for remaining debt-free:
  • Live within my increased means or
  • Continue as though I still had the debts, but pay the equivalent amount into savings. (At that point, I had no savings.)
2008 arrived and I had decided to stick to my previous budget and frugal lifestyle while starting to seriously save. (That's when I took the 'Living on £4,000' challenge onto the Moneysavingexpert forums.) With no debts, every penny over £4,000 got banked and all other spends had to be paid from extra income or else things made to pay for themselves.

Fast forward to 2011, we scraped up enough to buy this cheap fixy-up for cash, but it completely wiped out every penny of the savings - my son even chipped in all his coin savings!
Plus point - we had no savings left but nor had we any rent to pay, just council tax and insurance for our own house.

Sticking with the £4,000 household budget, we are now slowly renovating the place while also saving for emergencies. I know I need £4,000 to run my household for a year, I know I realistically need another £1,000 to cover Council Tax and I know that incidentals may be needed along the way, so my goal is to have at least £5,500 in emergency savings and increase that by at least the rate of inflation each year, seeing as bank interest no longer affords us that luxury! THis, again, is what has prompted the latest edition of the Interest Beater' challenge in the forums.

Emergency savings are totally separate from 'normal' savings, so no mistakes can be made and I can't be tempted to spend from this pot. Initially, I needed to invoke all my will power to ensure every penny was saved. In saying that, I am using an instant access ISA, 'just in case'.

I hope this helps explain the way I view my finances, both in the frugal forums and here on the blog.

Feel free to continue asking questions and I do hope you will join me in the latest frugaldom challenge, as we hatch another great Billy Can plan and prepare to do some money magic.

NYK, Frugaldom

8 comments:

  1. What makes up the 4k can you break it down a bit please?

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    1. Hi Justine, if you look back a few posts to Friday, 3 January 2014, you'll see a post with the title, "A Happy and Frugal New Year to One and All for 2014 - Welcome to 2014 and a Brand New Frugal Living Challenge!" In that, I have listed everything the budget covers and how I spent the £4,000 in 2013. If you look at yesterday's post with the chart in it, you can click on the chart to see this year's figures. If they're too small to read, I'll post a copy of them here tomorrow. You can also find them in the Annual Challenges section of www.frugalforums.co.uk

      Hope this helps :)

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  2. I am a new reader of your blog and want to tell you how much I am enjoying it. I will read a few more to get into the swing of things before I contribute a comment but want you to know I am a born and bred Frugal girl, just like you

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    Replies
    1. Welcome to the Frugaldom blog, Marilyn, and thank you for introducing yourself. :)

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  3. We have a Billy Bills account and a Sally savings account. A fixed regular amount goes into both then when pay day comes, anything left in our current account, goes into Sally. Amazing how quickly it all adds up.

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    1. That's what's so magic about frugality - it allows people to do so much more in their lives, especially once there's no debt to worry about - frugal can always be fun. :) We can't do much by way of fixed amounts owing to the unpredictability of self employment, but I do have a small, tax free savings bond (£15 per month) with life assurance attached and look upon this as a sort of back-up funeral plan.

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  4. Hi. I don't have an emergency fund as such. My pension goes into my bank account, I let it build up by stopping spending, and keep it at a comfortable level. I have no other savings. It depends what you call an emergency. a few years ago my central heating and hot water packed up, I didn't consider that an emergency, I just managed without it for three and a half years. Eventually I was able to get a grant to replace and repair it. If something breaks in my house, I work out another way of doing things. Like having a strip wash in a bowl of water.

    My emergency would be if my cats became ill and needed a vets visit, I self insure them. If the roof blew off my house or if something happened to damage the structure of the house, that would be an emergency, but I have house insurance for that. If my car packs up and needs a repair, I have a bit put by for that, but it wouldn't be an emergency because I can get the bus.

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    1. Emergency savings are for anything expensive that may need access to cash in a hurry. With no fixed monthly income and family spread out all over the country , a sudden death costs cash and any day not working as self-employed is a day of no pay. Sudden loss of income through accident, illness or just needing to be elsewhere for a while. Offspring announcing impending marriage - even on a budget, a wedding catering for 100+ guests costs a small fortune. Otherwise, I look on this as a year's back up of living expenses in case I need / have to take time out for any other reason. With the best part of 20 years to go before I'm entitled to State pension, assuming it still exists then, and nothing else in place to supplement it, I can think of all sorts of emergencies. The cost of moving house in future, the decision to buy a car, the opportunity to do something 'big' or go somewhere fabulous. While interest rates are this low, anything earned on a few thousand pounds won't cover the cost of a funeral plan or life insurance, so the emergency fund will also be handy in the event anything untoward happens to me before old age catches up with me - I know my kids couldn't afford to pay for my funeral and I won't ever expect them to do so. (No buses here, so a vet call out would be necessary if it was pet-related. Other than that, I'm just thinking back over expensive events that I hadn't previously budgeted for and births, deaths, marriages and even my divorce all cost a small fortune.

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