Poor health, poor wealth?

As someone with bipolar disorder I have always had an uneasy relationship with money. No matter how much I earned it never lasted anywhere near as long as it should have. I had credit cards, store cards, bank loans and an overdraft. I paid the bare minimum back each month and within days the same amount had been used. Every time I exceeded a limit that limit was increased.

The one occasion I explained to a bank about the overspending and chaotic recklessness in the manic phase of bipolar disorder to a bank they ignored me, encouraged me to rack up debts and then punished me. Due to their lack of care I ended up in debt and increasingly ill to a point where my working life was effectively over.

Never underestimate the lack of an even basic knowledge of monetary matters can have on your health.

Finding myself on very basic benefits and trapped in a prolonged cycle of bipolar disorder I struggled to get out of debt. The people I owed money to, in particular the bank, were not kind. The bank declined to actively pursue the debt but also refused to write it off. It took several years to become debt free and I have stayed debt free. During a check with the bank holding the debt recently they revealed that they had no trace of the debt. It must be said that people who are in debt, irrespective of whether they have mental health problems or not, deserved to be treated with dignity and respect.

In 2010 my health had deteriorated to a point where I was forgetting to charge the keys and cards for my gas and electricity meters. I had no home contents insurance. Financially, though not in debt, I was not in the position I should have been in. My back was against the wall and so I called a friend, Richard Latteman, who is an Independent Financial Adviser (IFA) in Bromley, Kent. I told him what had been going on and that as my health deteriorated so did my handling of my finances and that I need someone to take charge of them. He told me about the process of Lasting Power of Attorney (LPA) and what that entailed. The basic process was that I could appoint him and/or other people as attorneys to manage my money at a time when I couldn’t and that they could speak to creditors, utility companies etc at times when I couldn’t. A solicitor can do the form filling for you and we registered the Power of Attorney immediately though this can be deferred until the person or their attorney(s) see fit. When you fill in the forms you’re assessed to make sure that you’re of sound mind and that someone else hasn’t talked you into doing it. You can also ask that other people are notified as part of the process and they are allowed to object if they feel that you are not making a wise move. This is then registered with the Office of the Public Guardian. There are fees for this but parts of them can be written off if you qualify as a low earner or are on key benefits.

Richard Latteman (who is my IFA) and I decided to take the process of LPA slowly and along the way we looked at my personal finance closely, going through lots of different things. The first thing we did was to find out exactly where my money goes each week. Although I have no debt I still spend money on something other than utility bills and once we’d arranged for these all to be switched over to direct debit (you get cheaper bills if you do this) then we needed to know where the rest went.

We added up all the money that was going out to pay bills each month and then took that away from my total income. The money that was left was for food, recreation, clothes etc. To find out where this was going I set up a spreadsheet to total what I was spending weekly though you can do this over any period of time you like or use a notebook to do it with. I also wrote what the items I was spending money on were. It’s quite a shock to see how much money you spend on things and how often you buy them.

Once you’ve added all the columns up it’s actually quite easy to start making economies as you really do know where you need to cut back. I still do this from time to time and, as I go around the shops, I ask myself if I really need something, is it really a special offer or will I use it twice as fast etc.

I had no home contents insurance and so at the same time as I was finding out what I was spending my money on I had to find out what it would cost to replace everything if I had to. Richard Latteman told me to imagine I had to replace EVERYTHING that had been lost in a fire. This made the total a lot higher than I had imagined but it does mean that I’m covered for everything including my extensive book & CD collection. I went on a website for quotes and was rung by one of the companies. They gave me the lowest quote and also allowed me to reduce the excess. I asked Richard Latteman why insurance companies quoted prices with excess and what it meant and he said, “An insurance excess is a means by which the insurance companies ensure that they are not inundated with silly trivial claims. Small claims take just as much time to resolve as larger claims and there is a danger that insurance company would soon get bogged down with paperwork and grind to a halt!! If a claimant has to pay the first few pounds of a claim then they will think twice before making that claim.”

Once I knew where I’d been overspending on my day-to-day shopping I could cut back and learn how to save. This is still a hard lesson for me but one I’m trying very hard to learn. It starts with the minimum amount that I keep in my bank account to pay bills that will cover me for the following four weeks then what is left out of my income goes towards living expenses. I take a regular amount from that and put it in a separate bank account. Once you start doing it regularly it becomes more of a habit and you miss the amount less.

We applied for a credit report to see just what it said and perhaps give an explanation about why I’d been refused a debit card from my bank. I had no credit history as I had no debt and therefore I had a low credit rating. Credit reports are a way of lenders to assess if you are a good risk for them to lend money to and credit reports are there to show how well you manage debt not to show that you live debt free. Lenders need to know how likely you are to default or how prompt you are at payment. Statutory credit reports show a snapshot of your credit worthiness on the day that you see it and they cost £2.00. You can pay for monthly credit reports and they show more detail. Read here to get more information about credit reports and how to access them.

I had heard about credit unions and wanted to find out more about them credit unions promote the financial well being of their members. They have a home base and collect monies at varies points in the area that they cover.  I found the one in my area to be a little limited as to places to visit them easily.

Some credit unions charge a weekly fee on their current accounts. In Bristol this is £1.20 a week that they say is to avoid expensive charges if something goes wrong. This is over £50 a year in Bristol and is basically a compulsory insurance policy against something that may never happen.

Generally there is no interest paid on current accounts and cheques can take longer than they do in the High Street banks to clear. There is no internet banking.

There is no interest paid on savings accounts but dividends are paid dependent on how well the credit union has performed that year.

Loans vary but tend to be a minimum of £100 to a maximum of £7,500. Interest cannot be any higher than 2% per month on the outstanding balance (26.8% APR). You are not guaranteed a loan from a credit union even if you bank and save with them. They still perform credit checks but should take into account the reasons why you have a low credit rating if that is the case.

For me a credit union wouldn’t be a consideration as I have a bank account that allows me to make direct debits and save. I don’t want to consider loans yet, if at all and so I felt I was better off by staying with my current bank who have been very supportive.

Social Fund or Budgeting Loans are available to people on qualifying benefits. There is no interest to repay and are paid back by money being removed from your benefits each week.

Not everyone who applies for a budgeting loan will get one. The urgency with which you need the money cannot be taken into consideration. What you can use the loan for is limited and all the details are here. Money is taken directly from benefits over a specified period of time and there is no interest to pay on the loan.

Having found out how much money I had coming in, how I could protect my finances when I was ill and what opportunities to save or borrow money were open to me my one final question was this: what could I have done, or still do, too make sure that I remain debt free? Richard gave this answer “There are lots of little things that you can do to help you remain debt freed. However I feel that there are two major things that you should do. Once these are in place and become regular habits then the minor details tend to look after themselves.

“Firstly you need to always know where you are financially. Get into the habit of checking your finances daily. Whether that is checking your notebook or going to the bank or checking online get that daily snapshot of where you are.

“You need to constantly be reassured that you are on top of the finances rather than the finances being on top of you. If you do spot any issues they can be dealt with quickly before they spiral out of control.

“Secondly find a finance buddy, a friend or a professional that you are happy to share all the details of your finances with. Then make sure you talk to them regularly and tell them how well you are doing. Give them permission to ask you hard and searching questions about your spending habits. Allow them to challenge you in the knowledge that they are doing it for your benefit”

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