Wednesday, 28 February 2007

in response to renting or buying @ the simple dollar

Trent at the simple dollar posted on comparing renting to buying a house. He suggested that when looking at similar standard properties,

  1. if rent exceeds the mortgage payment then a mortgage is (financially) better
  2. if rent exceeds the interest portion of a mortgage then its a grey area
  3. if rent is less than the interest portion of a mortgage then renting is better

In any case he suggests that if renting is a cheaper option, you should save or invest the difference towards a deposit. Trent does assume that your rent will only be less than the interest portion of the mortgage payment if you haven't enough saved for a deposit which, I think, depends on how you define enough.

Anyway, I've compared my planned mortgage payment and rent to see how it stacks up.

Rent = £375

Mortgage = £493

Interest on Mortgage Initially = £400

It looks like I shouldn't be buying at all, but continuing to rent. However, Trent actually states that you should consider the interest payment after 5 years as a fairer representation of the grey area. For my mortgage I have

Interest on Mortgage after 5 years = £370

Wow, thats a pretty close thing. I'm in the grey area by the skin of my teeth. Trent suggests that I consider the utilities, tax and maintenance issues to determine whether I should rent or buy. In my case, I can pretty much assume that the utilities and tax will be the same but maintenance and insurance costs will be higher.

I think this means that strictly financially speaking I'd be slightly better off renting and saving more money towards a deposit. Which goes to show that buying a house isn't just a rational, financial decision for me. I already knew that it was a marginal decision but I want a place of my own and I'm prepared to pay for it.

Tuesday, 27 February 2007

i can’t believe people gave banks this much money

The other week I watched the ITV 1 show Tonight with Trevor McDonald. This edition was about the popularity of claiming back bank charges and featured Martin Lewis of www.moneysavingexpert.com (which is a great website, by the way).

As a little background information, it is standard practice in the UK for banks to charge about £30 for a bounced cheque or for exceeding your overdraft limit or other similar activities. This is supposed (under the Banking Code) to reflect the costs to the bank of processing these – they send out standard letters and so on telling you that you have exceeded your limits etc. It is widely believed that these charges are unfair, to the extent that they are unlikely to stand up in court as the actual costs to the bank is less than £5.

If you have paid any of these charges in the last six years, there are a number of websites (here, here and here) that have forms and standard letters you can download to claim this money back. As far as I know, these charges have not yet stood up in court and the Office of Fair Trading is currently investigating the fairness of the charges and is widely expected to rule that they are set too high.

Anyway, what actually struck me during the show was the amount of money that people had paid in bank charges. Some of them were getting back several thousand pounds.

Who has that kind of money, to just throw away in the general direction of their bank?

If it was me, I wouldn’t be jumping up and down with joy that I now had a substantial bonus, I’d be feeling sick that I’d wasted a substantial amount of money because I wasn’t able to manage my cashflow properly.

Don’t get me wrong, its not like I’ve never made a mistake with the balance in my account. I think the charges are ridiculously high. I think if you’ve been subject to them you should attempt to claim them back from the banks and sooner rather than later. But, especially if you are owed a large sum, you might want to examine the reasons that you let this money go in the first place, next time you overspend you might not be this lucky.

Monday, 26 February 2007

how to budget if your name is plonkee

I could write a post telling you all how to budget. But that would be against my first principle, which is that different methods suit different people. So I will tell you how to budget if your name is plonkee – i.e. how I budget.

Before I started my first proper job, I had to guesstimate how much all the bills would cost. I picked a ball park figure of £400 per month. I then guesstimated my rent at £200 per month and my general spending at £200 per month. I decided that £300 would be saved. This was my first ever budget. I have no idea if I stuck to it as I didn’t track it at all. I do know that I managed to accumulate a bunch of money in savings.

Since then I’ve refined the system somewhat. The first refinement came in actually using the amounts that I paid for the bills to estimate them. I also switched to direct debit, so I’m less likely to mess up and not pay them on time. The second refinement was to put all this into a spreadsheet and create a zero-based budget. That is that I allocated every single pound to something – including a healthy category for spending on fun which currently stands using the spreadsheet as a template, varying according to the circumstances, and then tracking what I actually spend each month. I think I got the idea of a zero-based budget from get rich slowly.

This is how to budget if your name is plonkee.

Friday, 23 February 2007

a proper introduction

I’ve been thinking about blogging for ages. Well not really, as I’ve only discovered some good blogs recently. I’ve been particularly inspired by JD’s blog at www.getrichslowly.org/blog. One problem in trying to emulate JD is that he is a very competent writer and I am less so. I guess that just means I’ll need to do more editing.

Personal finance blogs are mostly US based. I’m going to write from an English perspective, purely because I am English and I live in England. So I’m not going to talk about 401(K)s and Roth IRAs like everyone else does. Instead I’m going to talk about pensions and ISAs. But most other similar rules apply.

buying a house - part 1

I am at the moment in the process of buying a house and its going really well at the moment

I took two days off work to go house hunting and trekked round the various estate agents in my locality. After a viewing a few places, I found my house. By this I mean that when I walked into the place, it felt like it was mine. I put in an offer on Friday 2nd February which was accepted on the same day.

What I had meant to do, was make sure solicitors, mortgage and deposit were perfectly in place before I made the offer.

What I actually did was to have the mortgage applied for but not confirmed, no solicitor and only about 80% of the deposit available. So I ran round like a headless chicken getting a solicitor through http://www.easier2move.co.uk, transferring money from savings accounts and hoping that there wouldn't be any problems with the mortgage.

So how did this great idea pan out?

Well the estate agent wouldn't take the house off the market until they had the solicitors details. Which didn't arrive till the following Tuesday. The mortgage Approval In Principle although given, never arrived - I just told the estate agent and the solicitor the details (which subsequently changed anyway). The deposit and fees money is still in the process of being put together, although there has been a bit of a saga with one of my online savings accounts.

So far, so good.

Lend me your eyes

Friends, Romans, countrymen, lend me your eyes.

This is a quick post to welcome you to my blog and to say hello to the world.

I will at some point write about personal finance topics, from the point of view of me.