Long Post: get yourself a cuppa and some biscuits.
Coronavirus: Poorest forced to borrow more to get through crisis
The above headline caught my eye this morning (link) and although it doesn’t actually say how many people were included in their survey, one in four poorest households are having to increase their borrowing compared to one in eight of the richer community.
Budgets are my thing. Hubby and I are officially in Severe Poverty according to the Government’s website. Of our income, we are lucky to put anything by as savings, and this month we have had some hefty bills for the vet, car insurance and our quarterly water bill on top of the normal monthly expenditure.
We are more fortunate than most as we have no rent or mortgage to pay, own the car outright, have no loans or overdrafts and no balance owing on our credit card.
Despite the Banks and Finance Institutions offering breaks in interest application or loan repayments, there is money to be made in debt, and the only true beneficiary is the lender.
I have been in the position of many today, borrowing against one credit card to pay the minimum plus interest off the other, and although getting no further in debt, I wasn’t getting out of it either.
Partner of the time was self employed, so if he didn’t work, there was no money coming in other than my wages and the bills still had to be paid. There was no such thing as ‘payment holidays’ if you were struggling, though obviously in the ’80s there was no Virus to blame, and the buck stopped at me as I ran the household budget. However, the lending companies answer to ‘struggling’ was simply to put the card limit up, and I found myself with two maxed out credit cards with limits of £5K EACH, an overdraft of £800 and no savings to fall back on.
I have faced bankruptcy twice, but on both occasions have managed to get myself out of trouble over time, self discipline and anger at getting myself in the predicament in the first place. In the second instance, I had a good Bank Manager and some equity in a property, even though my solicitor of choice cost me thousands by not pushing the point for a court order to sell and I had to wait two years before everything was eventually settled.
The problem now is that no-one was prepared for the lockdown and furlough system to be in place for so long. I wonder how long it took those poorer households with £1900 in savings to put that money by compared to the higher earners’ savings of £4700. When you consider the average family’s monthly food bill is about £500 (source), when there is little money coming in, that’s a lot to find. Add bills and other monetary commitments, savings do not go far and any interest on them isn’t worth spit.
There are two and a half of us, and our annual food bill is around £1800. The above charts are for a post I did at the time about food shopping. For the record, our food bill for 2017 was £1767.95, 2018 £1761.43 and last year £1763.69. Todate for 2020, we are up to £1208.54 but that does include £260 of extra shopping when the virus hit (and no, that was not on a surplus of toilet rolls!)
I am currently working on the budget for 2021/2022 as this year is ‘covered’. That doesn’t mean to say we can relax as the same bills (plus inflation) will still have to be paid next year and that is what I’m working on.
Our outgoings are fixed, life insurance, gas/electricity, telephone landline for our internet, council tax, and water, plus the annual bills of car insurance and car running expenses such as fuel, maintenance and road tax, household insurance, food of course, medical care including eye tests and vet bills.
Knowing what the costs are for the current year, I add 10% on all of them, and that is what I have to cover for the next year. The joke is our income does not go up by 10%, and last year we took an additional hit of £2000 on an already stretched budget when Hubby lost 60% of his disability allowance.
Once I know what is expected to go out in the coming year, I can work out a monthly plan and thus spread the cost. However, this is not by going into the red periodically, more of allowing a small monthly surplus to tide us over on those more expensive months.
I realise this is us, and not thousands of families struggling in today’s current situation. We don’t drink or smoke, entertain or have kids to worry about, and are used to just having ‘enough’, which are the basics, a few treats such as the occasional DVD or steak dinner cooked at home, and a little cushion for emergencies, such as Maggie’s two hefty vet bills this year (a potential third has already been put aside) and new glasses for both of us.
The hardest thing is to get started on preparing for the next year whilst still struggling with the current one. It’s a juggling act, taking what has to be paid and removing or reducing the ‘mad’ expenditure on nothing in particular or a bit of what you fancy. When there are two incomes coming in, it’s not as difficult as when you are a single parent or an individual. All I can say is if you can manage to save a few pounds here and there, it does mount up and can take the pressure off later.
Our tweakables are food and petrol as they are the easiest to reduce if need be.
I am lucky in that I can make what we have coming in stretch, but I can’t do anything if it’s not coming in in the first place, and that is the dilemma facing so many households today.
If it helps, these are our three questions before we spend any precious ‘excess’
Do I want it? (on the boat: Can I eat it?)
Do I need it? (on the boat: Can I wear it)
Is my life going to end if I don’t have it? (on the boat: Where am I going to put it?)
If you can answer No, you don’t need to buy it and can put that money aside instead. Maybe saving for a rainy day is going to make a comeback.