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How Much Should I Keep by in Savings for Emergencies?

It is wise to have some money kept by in case you are suddenly short. Although an overdraft or credit card could help us out if we do need money in an emergency it is not a cheap option. It is also not always an option for everyone, it depends whether you have those facilities available to you. Therefore it does seem wise to keep some money handy.

It is worth keeping money in an account which is easily accessible. This means that you can get to it quickly if you need it suddenly. You may want to also keep some money in a less easily accessible account where you can get a bit more interest on it but still get it fairly quickly if you need it. But how much is a good amount to keep in each account?

Emergency money is likely to be needed if you have a bill that needs paying and you have run out of money or if you need to replace a broken white good or something like this. The amount that you will need for something like this is not likely to be very high. It is probably wise to think around £500 to £1000 to keep for this sort of situation.

However, it is also worth thinking about other situations where you might be short of money. Imagine that you are made redundant or ill and unable to work. You may find that you will struggle for a lot longer. It is often advised that you keep 6 months’ worth of money to help with this situation. This means to cover six months’ worth of bills, rather than six months’ salary. This could vary greatly in amount depending on your specific standard of living. It may seem a lot of money to save, but it will give you security of knowing that you will be able to manage if something unexpected happens.

Of course, if you have debt, then it may be better to actually use the money to repay this rather than saving up. For example, if you have a credit card which has money owing on it, then it makes more sense to pay that off rather than save. If you keep the card, then that will be your emergency backup, should you need it, as long as you do not spend too much money on it. The same goes for an overdraft, pay it back as soon as you can as it is very expensive and you will be able to use it in an emergency should you need to. Ideally you should pay off your expensive debts and then start to save money so you have a backup fund and no debts. Some debts are cheaper than others so look to pay off the ones with the biggest APR’s first.

Obviously saving up like this can be difficult. It is worth trying to do what you can to keep motivated. If you are saving for a holiday or something else specific then it is easy to be more motivated to reduce spending and save money because you have a treat in the future that you will be buying with the money. However, if you are saving for an emergency it does not have the same motivation. It can seem rather boring and almost annoying that you are putting money away just in case something happens and you may not even need it. However, it is extremely unlikely that you will never need to use it as there are often things that we need money for over the years. White goods do not last forever, homes need repairs, bills come along unexpectedly and Christmases and Birthdays pile up. It is worth thinking about the relief you will feel if you need money and you know that you have it there when you need it. Knowing that it is there can bring great peace of mind and so it is worth focusing on that as much as you can. Knowing that you have a nice chunk of money sitting there in case you need it can bring as much happiness as saving up to pay for a holiday and until you have achieved it you will not know how it feels so will just have to imagine.

Is it Wise to Pay a Mortgage off Early?

There are many people these days that are thinking of paying off their mortgage early. However, is it the right choice for everyone?

The first thing to find out is whether you are allowed to pay the mortgage off early. Most mortgages will allow this, but for some you may have a fixed interest rate period where you are committed to a contract and not able to make overpayments. With some mortgages you will have an early redemption fee. This is a charge for paying it back early and it could be quite high and so it is worth finding out how much it is. If the charge seems very high, then calculate how much money you will save in interest by paying the mortgage off early and this should allow you to be able to work out whether it is worth paying it off early or not. With interest rates low at the moment the amount you pay in interest may not be that much and so if you have a small term left you may find it is better to wait and not pay it off early. However, if you have a long term left and a small fee it will be worth paying it off early. It is definitely worth working it out though. Knowing how much you could save, will help you to feel motivated to pay it off.

Deciding to payback the mortgage is one thing, but how you go about it is another. You will need to make sure that you have the funds available to do so of course. You may have savings that you can use or you may be just deciding whether it is worth making overpayments to pay it off earlier, but still in the future. Either way consider whether this is a good idea. Think about where the money is coming from and what you would have otherwise have been doing with it. If you have it in a savings account, think about what you will fall back on should you then need some extra money. If you will be making monthly payments, think about how you will afford those payments and whether you will need to go without things in order to do so.

If you are clearing the mortgage completely then it will be a big relief to be free of that burden and it can be a fantastic feeling. However, if it leaves you will no money at all to fall back on then it could mean that you will have to start borrowing again. This is not ideal, but it depends on the chances of this happening and perhaps how confident you are in your ability to build up some savings again. It is sometimes recommended that we have six months’ worth of money saved (what we normally spend not what we earn) but if you have an expensive debt, it is certainly worth considering whether it is better to pay it off.

Some people worry that if they pay off their mortgage it will be harder to borrow in the future. They feel that having a mortgage and showing that they can make the repayments shows that they are trusted. They may have a flexible mortgage where they can overpay and then draw that money back and so they almost are able to lend to themselves and may miss being able to do that. However, this may not be the case at all. Your credit record is not just based on your ability to pay off your current loans Having lots of debt will go against you and if you are paying bills on time that will show that you are responsible with regards to paying for things. Having the ability to draw money is a tricky one to argue against. It is a great facility and it could be cheaper than other forms of borrowing as long as you do not take too much for too long, as the low interest rate is a positive but if you borrow the money for a long time those interest payments will add up. You may find that you are spending more money because you have this option of borrowing and it might be wise to stop anyway.

What to do if you are Struggling with Loan Repayments

Loan repayments are really important. There are big consequences if you do not make them on time. You will often have to pay a fee and you could even have your interest rate raised. You may find that things go to court and you have items repossessed for sale to cover the missing repayments or that you go to court. If you have items as collateral such as a home or car, these may be repossessed. It can also be an extremely stressful time and it is best to avoid getting into this situation if you can. There are some tips below on things that you can try.

The best thing to start with doing is to speak to your lender and be honest with them. Explain that it is a struggle to make the repayments and they may be able to renegotiate the loan to allow you to make smaller repayments over a longer time period or give you a repayment holiday. Many lenders will negotiate like this as they would rather the loan was paid back and if they extend the term of the loan they will make more money out of the loan by the time that it is all paid off. This of course means that the loan will be more expensive for you but it could help you out of a tight spot and it may be possible to negotiate to pay more back once you get yourself settled financially again.

Another thing to do is to look at your financial situation. Consider what is happening and why you are finding things hard. It is worth looking at your income sources and seeing whether you can improve these. See if you can get a pay rise work some overtime or even change jobs to one that is better paid so that you can manage better. You may also benefit from looking at opportunities to make extra money from home. There are freelance opportunities, you could sell things or earn online. It is worth taking a look at trusted money forums to find out where reliable sites are where you can do this. It can be fun looking for ways to make money and once you start doing it, it can be quite an addictive hobby. You might find that you spend more time doing this than using other forms of entertainment.

It is also beneficial to consider whether you can reduce how much you are spending. It may be that there are things that you are spending money on that might not be necessary. This could be things such as nights out, alcohol, clothing and accessories, luxury foods, eating out, holidays, expensive phone and TV packages and you may even be overpaying on your utilities which you could compare and get cheaper. It is worth looking through your bank statements and the things that you are buying and seeing whether you can save any money. It may not be so hard as you think. Use comparison websites to help you and you could find that just a few phone calls will end up saving you a lot of money. Saving money can be good fun once you start seeing the difference that it makes. By just looking at the prices of things that you are buying and substituting with cheaper items, you can end up saving loads of money and you may notice no difference.

Cutting back and working more hours can be really hard. However, if you have a loan then you have committed to making the repayments and you will have to find a way to do it. Earning more can take up time but it can be easier as you do not have to make changes to your spending. However, if you have family commitment or find you need your leisure time to unwind from work, then you might find it easier to look into ways of cutting down your spending instead. The stress of money worries can make it difficult for you to think straight but it is worth trying to take some time to decide which course of action will suit you the best. As tempting as it is to ignore what is happening, this should not be done as it will only lead to trouble.