Baby Step 1

Hi, and welcome to the 2nd installment of my Dave Ramsey Baby Steps series for the UK.

You can find the first in the series (Baby Step 0) HERE, and today I’ll be explaining Baby Step 1.

Before we start Baby Step 1, I personally think it’s very important to have written a budget. If you need help on how to do that, I’ve written a post about that HERE.

 

What is Baby Step 1?

Baby Step 1 is the starting point to our financial plan. It is to save £1000 CASH in the bank. Or if your household income is less than £20k a year, that amount is reduced to £500.

This is our Baby EF (Emergency Fund). Now, don’t panic. Later on in the Baby Steps, we will come back to this ‘Baby EF’ and add more money to it, but right now, we just need to focus on saving that £1000/£500.

The aim is to save this money as quickly as possible, so that we can move onto the next step. So, we can sell any unwanted or unnecessary items that we have in our home (clothes, furniture, shoes, music equipment, ANYTHING goes) or cut out anything we can from the budget (this is why I feel it’s crucial to have written a budget before you start this step). Be lethal. As Dave Ramsey himself says, “sell so much stuff that the kids think they’re next!”.

Why have an Emergency Fund?

According to The Money Charity, around 9.45m (35%) of UK households have no savings whatsoever. That is a scary thought, that 35% of households in the UK don’t have any savings for emergencies.

As you can probably tell from its name, the EF is ONLY for emergencies. Things that we cannot see coming and unexpected life events. It is not for things like Christmas, Birthdays, Days out etc.

The fact is, that unless we have an emergency fund to cover emergencies, we WILL end up getting into more debt than we currently have. Life happens, and we need to be prepared for it.

Imagine that you lost your job, or that your car was in an accident, or you had an urgent plumbing problem in your house. Without that EF, how are you going to pay for the expenses that will occur? Well, if we don’t have the cash to pay for it, we’ll end up using credit cards, loans or other forms of debt. When we have an EF, we have that small safety net.

Many people find Baby Steps frustrating and pointless. Once they have decided that they want to pay off debt, they want to get straight into that Baby Step. But for the reasons I outlined above, Baby Step 1 is absolutely crucial.

I hope that has explained what an emergency fund is, and why you need one. I’ll be back later in the week with a post about Baby Step 2.

Claire.

 

 

Preparing for Christmas In October

 

I know it’s only Autumn and Christmas is about 9 weeks away, but I always like to prepare for it ahead of time. While some people look at my early prep and roll their eyes, there are others who think that by starting in October, I’m leaving it too late.

There are several reasons why I plan ahead of time for Christmas, and why I think you should too.

 

  1. First, and most importantly, you need to make sure that you have enough money for Christmas. If you have Sinking Funds (see HERE for more info on Sinking Funds) then you are more than likely safe in the knowledge that you have exactly the right amount of money for your family to celebrate Christmas. If you don’t, then by the time October rolls around, you only have 2 paydays to pay for it.

Making Christmas a Debt-Free time of year is so important, you don’t want to be paying for Christmas 2018 in December 2019! If you don’t have Sinking Funds (and even if you do!) then its not too late to write a Christmas budget, but you’ll need to keep it realistic. Maybe scale back slightly, or only buy for the children in the family, for example.

 

 

  1. It means that you have time to find bargains. You don’t have to run around a week before Christmas, paying full price for everything because you don’t have time to look for bargains, coupons, vouchers or good quality second-hand items. You’ll also have time to make any handmade gifts and change them if a mistake is made. This really does help with the budgeting aspect of Christmas, and making sure that YOU are in control of Christmas, instead of the other way around.

  1. You have time to enjoy the festive season instead of being rushed and stressed. You can relax the week before Christmas Day, because you have bought and wrapped presents, cooked food ahead of time and planned everything that needs to be done. You can enjoy spending time with your friends and family, go to festive activities, spend quality time at home, because you know everything is taken care of.

So, those are all the reasons that I think EVERYONE should prepare for Christmas as early as possible. In 2019 I’ll be preparing as early as January!

When do you prepare for Christmas?

Till next time,

Claire.

 

 

 

 

 

 

Debt and Mental Health (UK)

 

 

 

I really want to preface this blog post by saying that everybody experiences mental health issues differently. People with exactly the same diagnoses can have polar opposite experiences.

Also, if you are struggling with Mental Health issues, please reach out for help. I have linked some mental health resources and helplines at the end of the post.

 

 

We all know that managing our money can be difficult, even when we are healthy and our lives are calm and running smoothly. So it makes sense that it gets even more difficult when we experience mental health problems, and approximately 1 in 4 of us do.

 

Issues like depression can make us blow the budget as we aim to try and make ourselves feel better, and problems such as bipolar disorder can find us spending like a millionaire when we are in a manic phase.

 

It is no coincidence that poor mental health is very strongly correlated with high levels of debt (Approx 50% of people with debt, also have mental health difficulties).But the opposite can also be true, that high levels of debt (or ANY level of debt) can cause mental health issues.

 

66M people live in the U.K.  That means that 16M of us currently have some sort of mental health issue. And out of that 16M, 8M are in debt.

 

BUT I FEEL ITS CRUCIAL TO NOTE THAT DEBT IS ALWAYS, ALWAYS, ALWAYS SOLVABLE. The solution may not be a quick or easy one, but it is still possible. There are plenty of charities and organisations that can help you if you are struggling with debt and you have a mental health issue.

 

Sources of help (This list was taken from The Royal College of Psychiatrists);

 

National

The MoneySavingExpert website also has a wonderful FREE booklet to download which explains the topic in more detail. You can read and download it here https://images6.moneysavingexpert.com/images/documents/mentalhealthguide_new_march_2018.pdf?_ga=2.42162853.1413502628.1535804009-1252977763.1534859923

And there is a wonderful blog post on Debt and Mental Health that is well worth a read,over on My Debt Diary

 

Until next time,Claire.