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Money Times - April 25, 2017

Posted by Jill Kerby on April 25 2017 @ 09:00

WHEN A GENERAL FINANCIAL SPRING CLEANING ISN’T ENOUGH…

I have a hugely ambitious younger friend, the mother of three children, who I will call Louise, who is emboldened by the fact not only is her house now out of negative equity, but she and her husband have also finally, voluntarily come off the mortgage forbearance plan they agreed with their bank.

Four years ago, they were in danger of losing their home, a four bedroom semi-detached house they bought in 2005 near Lucan, Co Dublin. They had moved there from a smaller, Dublin city terraced house in Fairview, their first home, which had simply grown too small when baby number three arrived. They made a significant profit on its sale, but still had to take out a €400,000 tracker mortgage on the spacious, modern house in Lucan.

And then the crash happened. And then in 2010, her husband lost his job. (She works for the HSE and became the only breadwinner for nearly two years.)  They eventually fell into serious mortgage arrears, borrowed money from both sets of parents, wracked up serious credit card debt. Eventually, with the assistance of a good financial adviser they came to an agreement with their lender: they’d pay interest and capital on one half of the loan, a small amount of interest only on the other half.

Four years later, they’ve reverted to paying the entire mortgage again. They are both earning good salaries again, and having “taken our finances by the horns” are far on the long road to financial stability.

My friend and her husband are the post-2008 success story that I relate when people ask about whether it’s possible to see the proverbial ‘light at the end of the tunnel’, amidst a personal finance disaster.

For many unfortunate people the crash did mean losing their homes, either voluntarily or involuntarily. But foreclosure figures remain comparatively low in Ireland and even halved in 2016, compared to the previous year, all the while over 33,000 are still in two or more years of payment arrears.

MABs, private financial advisers and the official insolvency service have helped tens of thousands of debtors and their homes. Even the nuclear option – bankruptcy is now discharged in just one year.

My friends came close to tossing the keys back to the bank, before they finally went for proper, professional help (something, I helped steer them to.)

Anyway that was then, this was now. “Mark and I have decided we’re going to have a really nice holiday – here in Ireland – in August with the kids. We’ve found a fantastic summer rental place in West Cork and my sister and her family are going to share it. But we figure we need €2,500 for the two weeks – our share of the rent, food, surfing classes for the kids, pony rides, eating out, fishing trips, the lot. And we don’t have it.”

I knew I wasn’t being squeezed for a loan; this couple have determined to live within their means (or as close to it) so no more credit cards, no more unnecessary borrowing; no more “unthoughtful” spending:  when they filled out the Standard Financial Statement, the form required by their bank as part of their debt restructuring, they discovered that they’d been spending as least €50 - €60 a week on takeaways and other fast food, “because we’d come home tired from work or a bit later than usual and after picking up the kids, we couldn’t be bothered to cook.” Towards the end, that was another €3,120 going onto their credit cards.

My friends are very careful spenders. They have a budget. They DIY everything they can, from car and home maintenance, gardening, and even haircuts for the kids. They still treat themselves and their children, but they only after they pay all the bills and most important put away regular savings into credit unions accounts and their pensions.

“At first I thought we were being very self-sacrificing,” said my friend. “We were swallowing our pride by admitting that we just couldn’t keep up the pretence of being ‘well off’. But we had huge credit card bills even when we earned €150,000.”

The toughest realisation, she said, “was when we realised it was always a pretence. We were in serious trouble with debt and incredibly stupid lifestyle choices before the crash. It got worse after 2009 – we nearly broke up.”

So what’s up now, I asked? 

“We’ve both decided to spend nothing for 30 days, so we can get up to the €2,500 we need for the holiday. Aside from food and the usual bills. Not. A. Penny.

“You always say you’re looking for good personal finance stories. And that you’re always spending too much.” (I do, but I only spend MY money.)

“I want you do to it with us.”

Stay tuned.

 

Please send your queries to Jill c/o this paper or by email: jill@jillkerby.ie

 (The new TAB Guide to Money Pensions & Tax 2017 is now out. €9.99 in good bookshops. See www.tab.ie for ebook edition.)  

 

 

 

 

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