Proven ways for unforeseen expenses
Even if you are a master of organization and your home budget is always up to date, there are often unforeseen situations, unplanned expenses - a child's illness, renovation or more serious car repair. It is worth preparing for such an emergency in advance.
Today I show my 4 proven ways to sleep well.
If you're with me on Instagram, you probably already know that from mid-March until now, we've been fighting a flooded house. We did not expect it at all, this event disturbed not only our rhythm of the day, but also whole weeks, not only in private life - also over a month of our family business. There were still more renovation problems, and dust and dust were literally everywhere - even in twisted jars, when the renovation team worked in our house from the early hours of the morning to late at night. Despite the chaos that prevailed in our lives, we were calm about our finances thanks to several ways that have been functioning in our lives for a long time.
Taught by living in a block of flats and paying rent to the cooperative, today, when I have my own house, I also put it off on the renovation fund, only on my own sub-account. Thanks to this, when it is necessary to repair the chimney flap, I do not have to strain the home budget or - what is worse - postpone repairs and expose the building to losses. On my account I have set aside some funds for this purpose. How much? Our house is 4 years old, so I put away every month about 60 pennies for every 1m2, which gives an average of PLN 100 per month. So since we live here, I have saved PLN 4500, of which PLN 1000 was spent on the repair of one chimney and PLN 600 on the repair of the other chimney. Due to the fact that the building is aging, from the fifth year I will be putting away at least PLN 1 for every 1m2.
Similar fund as for renovation I own on all seasonal or annual fees higher than PLN 500, such as car insurance and inspection or heating the house in winter, as well as holidays or holidays. In a situation of total disaster, such as flooding, when the accumulated repair fund is insufficient to cover the costs of repair, I can use other purposeful funds on an ad hoc basis.
Home or car insurance, as well as our liability insurance or the increasingly popular sickness and life insurance it is usually a reasonable expense, and in the event of loss of health, flooding or damage to property we are at least partly secured.
The downside is the time we need wait for compensation to be paid and the fact that the first valuation and first service often differ completely from reality. For example, in our company, hydraulic repair works on flooding - repairing the water connection to the cistern in a plasterboard construction - were valued by the insurance company at PLN 3,50 - the cost estimate was the plumber's hourly rate of PLN 14 per hour and we were reimbursed PLN 3,50 for 15 minutes of his work. Nobody told me where I would find a plumber at such a price, who would come, repair even a small fault and leave for PLN 3,50 in total, i.e. for the price of one bus ticket in the Tricity.
Therefore, of course, as with everything, the amount of compensation awarded can also be appealed and it is worth to take advantage of it.
Let's also remember that insurance has a corrective and compensatory function, so it cannot be a basis for enrichment, and the total sum insured may not exceed the value of the damage, even if we are insured for the same insurance in several insurance companies (except for insuring our health and life).
3. Loan from family and friends
Do you know the saying - Do you want to lose a friend, borrow money from him? I am sure that many families and friendships work well, despite and maybe thanks to mutual help, borrowing material goods and money. Still, I think it's always worth thinking twice before going to your loved ones for a loan. It's a big request, and since it's only a request, we must always be ready to receive a refusal, which is never pleasing to anyone.
The advantage of a loan from family or friends may be that they will not ask about our repayment options, but it may also be the opposite. In the case of real problems with its repayment, we actually endanger our relationships with loved ones. This can also work the other way - the person from whom we borrowed money can find itself in a difficult situation and ask for early or immediate repayment of the loan, so we must be ready for such a scenario.
However, not all of us have people in our lives who would never refuse a loan and would not be afraid to ask for such a request. Even with that opportunity it is worth considering whether it is better to keep more independence and borrow money on the financial market.
It is also worth remembering that the loan agreement has legal and tax consequences. Almost every loan should be taxed with the tax on civil law transactions, whose rate is 2%, while if the tax was not paid in due time, the rate is as high as 20%. Therefore, before we borrow money from someone or someone, it is worth to carefully read the current regulations (in 2017 they have changed).
4. Bank loan
If you value your privacy and independence, there is a good chance that when you need financial support, you will sooner use the bank's services than ask your family or friends for help.
This solution has many advantages.
First - you do not have to confide in anyone about your material or financial situation nor embarrass anyone by asking for a loan. You will not hear that your need, or maybe the big dream that you want to finance in this way, is not worth it. The bank, when giving you a loan, coldly assesses your creditworthiness - that is, the ability to repay the loan installments on a current basis and, above all, makes a decision on this basis.
Secondly - you don't have to think about how to secure a loan legally whether to write the contract or if and on whose behalf and in what amount to pay the tax on the loan, because all formalities in the case of a bank loan are taken by the bank.
Thirdly - you borrow money in advance, so you know not only the loan amount, but the detailed repayment terms. The agreement you enter into with the bank will also specify what will happen if you are late with the repayment and the special conditions under which the bank may demand early repayment. Black and white, all your arrangements are written down, which allows us to sleep peacefully, which is difficult to say in the case of a loan from friends or family. Nobody will call you in the middle of the night and say that you have to suddenly give money back because you need it for something else.
The disadvantage of a bank loan It may seem that before the loan is granted, the bank will consider our creditworthiness, i.e. the ability to repay the loan with interest on an ongoing basis and in the absence of it will refuse to pay the loan or reduce its amount. On the other hand, if the bank negatively evaluates our creditworthiness, you may need to think about whether we can really give back the money borrowed? While the refusal results from the fact that we are on sick leave, for example because of pregnancy, such an assessment may be misleading, but very often the refusal allows us not to get into even greater financial trouble.
It is not an art to borrow money on the market today, but the trick is to do it right.
What do you need to know about the loan to choose the most advantageous?
Who lends - a bank or just an ordinary company?
The key word for a loan is a word for me bank. If you are considering a loan, I recommend especially the banking ones - banks are public trust institutions whose activities are strictly controlled by banking supervision - this is an institution that monitors the activities of banks in the interest of their clients, and ensures that banks comply with banking law and other important regulations. When we borrow money outside the banking sector, we are deprived of this protection.
The total cost of the loan
You need to calculate the total cost of the loan know all the costswhat you will have to pay to get it. Some of these costs are quite obvious to us, as is the interest rate - the bank is not a charity and lends money for profit, but the interest rate is just one of the many costs that may apply to us.
Therefore, before you take out a loan, ask about:
A. Interest rate
The interest rate, or nominal interest rate, is a component of the loan price - but it is a value that does not include commission, preparation and insurance fees, or any other fee that makes up the total cost of the loan.
This is the basic fee that the lender will charge you for the loan. It can be expressed as a percentage (of the amount borrowed) or as an amount (fee given in PLN).
The commission usually increases the amount of the loan and its repayment is also divided into installments.
C. Preparation fee, application fee, verification fee ...
Fees incurred before a loan is granted, usually not refundable in the event of a negative decision, are the perfect place to hide the high cost of borrowing.
As I have already mentioned, there may be many fees for granting a loan, these are just a few of them. Before you decide to take out a loan, be sure to ask for ALL charges that you must be charged, preferably for loan agreement template.
Under banking law, there is no such thing as compulsory loan or credit insurance. How does it look in practice? Very often, banks design their offer in such a way that in order to take advantage of its most attractive terms, an insurance fee should be paid, which banks indicate as collateral for the loan.
I do not want to say that loan insurance is always just an additional cost for which nothing is behind. However, if we decide on the bank's offer, which consists in taking out insurance, be sure to check whether we have a chance to use it at all.
What do we need to know about insurance?
In what situation insurance will work - To be sure whether a given insurance is an added value or just an additional cost, we always ask for the General Terms and Conditions of Insurance (GTC), in which situations are described in which our insurance will work and in which the insurer will not take responsibility for paying off our loan.
How much does it cost and how much can it give us - I have already seen insurance, the cost of which exceeded any benefits received. Its purpose was only to hide the bank's costs under the name of insurance ...
Is it group or individual insurance? - in the case of group insurance, the party to such insurance is the bank, which does not necessarily want to receive the payment of funds under it, sometimes it is more profitable to claim them from us.
For example, very often unemployment insurance is offered in addition to a loan. It sounds very good, but on the condition that we have an employment contract at all, and not a contract of mandate, our own business or maternity allowance, or we are on a pension or retirement pension. This insurance will only work in the event of termination of the employment contract due to the fault of the employer, and will not protect us in a situation where the employment contract expires, we will terminate it on the basis of our notice or by agreement of the parties, or we will be released due to our fault - disciplinary. So if you run a business, such insurance will only be an additional cost for you, because you know in advance that no one can terminate your employment relationship.
Other popular insurance, sold with loans, is life insurance or accident insurance. Always remember to read the GTC.
The Actual Annual Interest Rate (APRC) is the total cost of the loan, expressed as a percentage - it was created to quickly and easily compare costs of individual loans and credits.
By default, the APRC takes into account all costs (commission, interest, compulsory insurance and other additional fees) that we have to incur when taking a loan. RSSO talks about costs on an annual basis. Therefore, it seems to be an ideal measure for comparing various loan and credit offers and with this assumption it was created, unfortunately it does not always work.
Although the money lending institution is obliged to clearly inform the client about the amount of APRC, e.g. in advertising materials, this is not an ideal indicator, which gives us a reliable comparison of different offers in 100%. Why?
Depending on whether the loan is repaid in installments or in full at the end, whether we borrow money for a year or for a shorter period, whether the interest rate is fixed or variable, our APRC may mislead us when comparing such different offers.
As I have already mentioned, this is an indicator on an annual basis, so comparing two loans for different periods, including shorter than a year, we can get into a big mistake (in the case of loans shorter than a year, the shorter the loan period, the higher the APRC).
In addition, various institutions compete in introducing hidden fees that are not included in the APRC.
How to calculate the APRC?
The formula for the APRC is relatively complicated, while on the Internet you will find many APR calculators, but - which is very strange - the same data entered into them can give significantly different results. Therefore, I advise against using them.
F. Loan security
When paying us money, the bank often requires additional security from us, for example in the form of a blank promissory note, mortgage or surety. However, there are many loan offers on the market that do not require additional collateral for a certain amount and are worth looking for.
In addition, some forms of security - such as a mortgage - have costs that will be on our side.
G. Additional requirements
The requirement to set up an account with the lender's bank, to produce and maintain a payment card or credit card are just some of the hidden costs of loans.
How to choose the cheapest loan? The total cost of the loan
If we want to choose the best loan for us, we should always calculate the total cost of the loan yourself.
When choosing loans for a detailed comparison, it is good to use the APRC indicator as a preliminary selection criterion, but then you should calculate the total cost of the loan for each of them - this is the most effective way to compare several loan offers. It consists of adding up all installments and fees that are not included in the installments. The lowest final amount will show us the cheapest loan.
How to calculate the total cost of the loan in practice?
Although you can try to calculate the total cost of the loan yourself at the stage of reading the bank's offer on its website, you will not learn about hidden costs. That is why I suggest choosing several offers based on the APRC banks and contacting the bank advisor who will present you the full offer for the amount borrowed and how will the amount and number of installments as well as the amount of all additional fees be given.
Bank Pekao has on its offer until April 30.04.2018, XNUMX Transparent Loanin which the interest rate is only 5,99%, as is the commission for granting it at the 5,99% level.
We will not find there any compulsory insurance, no preparation fee, application processing fee or verification fee, we will not have to set up an account in the bank or obtain a payment or credit card.
In accordance with the idea of calculating the total cost of the loan myself, I asked Bank Pekao to calculate the installment for each 12 month borrowed PLN 1000:
Amount to withdraw: 1.000 PLN (that's how much we get on hand)
Loan period: 12 months
Installment amount: 91,55
The total amount to be paid by the Consumer: PLN 1098,55 - PLN 1000 loan =
Total cost for the year 98,55 PLN; monthly cost 8,21 PLN
The loan is transparent PLN 8,21 per month of the total borrowing cost of each PLN 1000 per year. These are pre-determined conditions and financial resources for unforeseen life situations.
8,21 PLN per month for each borrowed 1000 PLN is in my opinion a small fee for peace, comfort and automatic avoidance by third parties of assessing whether our needs are worth borrowing or not. For maintaining our privacy in a difficult moment or when we fulfill our dream, for which we do not want to wait for personal reasons.
And what ways do you have for unforeseen expenses and home financial liquidity?