Mihaela in Bulgaria's diary

[MishainBg]

Hello!

This is my diary to keep me up with my spendings and income.

About me:
Married, 1 kid age 2 and a half
We both work in IT, he is in hardware, I'm in software
I also have a part-time photography business
We live in Sofia, Bulgaria
We own our flat, we don't have a car
I'm a vegetarian, we don't cook meat

Income a month:
Salaries: 2900
Photography: that depends a lot on the month

DEBT
credit card - 1450
leasing of a lens - 600
mortgage - 36 000 (EURO) ~73000

Outflow a month
Mortgage: 570
Lens: 55 (6 months to go)
Credit card: 70
Utilities in the summer: 60-70
Utilities in the winter: 250-300
Internet, TV, phone: 50
Public transportation: 50/100 (in the winter)
Groceries: 350-400
Weekly allowance for lunches at the office (we don't always spend it all): 40x2x4 = 320
Food orders: 50

Up until now we had a nanny for about 720 a month, but we let her go, our son starts kindergarten. We're still unsure if he'll be accepted in a public one (60-100) or he would have to go to a private one (350-600).

Right now I'm thinking of cutting down food orders and bring food from home for lunch. With this I want to repay the debts until march.
Also I am debating whether I should invest any money in some kind of mutual fund so we can get a better interest than a deposit for about 2 years and then put the withdrawn money in the mortgage. I'm a bit afraid with that refugee crisis and have some appocalyptic views of the future, so probably investing is not the best option right now in our region...I really don't know.

[Chris]

Also I am debating whether I should invest any money in some kind of mutual fund so we can get a better interest than a deposit for about 2 years and then put the withdrawn money in the mortgage.

What are the terms of your mortgage? Why not put the excess savings directly toward paying that down?

[bradley]

So looks like your savings rate is about 40-45%, which is great. What's the interest rate on your card? I'd focus on slashing the credit card debt before anything else if it has the highest interest rate.

[MishainBg]

Also I am debating whether I should invest any money in some kind of mutual fund so we can get a better interest than a deposit for about 2 years and then put the withdrawn money in the mortgage.

What are the terms of your mortgage? Why not put the excess savings directly toward paying that down?

The banks wants us to have 1 years repayments as savings to be able to negotiate the terms again. We already did it this January from 30 years to 20 years, but the money we had was not saved by us, it came from our wedding, people gave us money instead of gifts. So that was why I was thinking for kind of investment, to be able to get a bit more than 1 year's repayments. I'll show it in math now, because I'm not sure how is my English

They want us to have saved 12x570=6840 so we can negotiate whatever period we want (I'm thinking 10 years). I've found a very good investment fund (my father used to work for them and recommended the company), where I can get 5-20% depending if I choose a conservative, balanced or high risk portfolio. I highly doubt the 20%, may be I'm not such a risk taker
The earliest we can negotiate again with the bank is Jan. 2016, they allow it once a year. The terms in the beginning were 38 000 euro 30 years @7.25 interest (we started November 2012). We negotiated in Jan. 2015 for 20 y (37167)., now in September it's about 36735 Euro left @6,5 interest. That goes a lot faster than when it was 30 years! Now we pay every month ~570BGN (they convert it to Euro).

So looks like your savings rate is about 40-45%, which is great. What's the interest rate on your card? I'd focus on slashing the credit card debt before anything else if it has the highest interest rate.

We were not saving much up until now, because we had a nanny. This is our first month without her.

The card is 18% a year! It's a lot, but I was a very bad impulsive buyer
I think I can repay it really fast with the money left from the nanny, and then concentrate on the 1 years saving for the mortgage negotiation and probably negotiate some time around Jan-Feb 2017. Does it sound like a good plan?

Thank you, guys for your comments and advises!

[nmirela]

Hey there again!

Good luck with all your goals. I'll keep my fingers crossed so that your son gets into the public kindergarten!

I have the exact same problem with the mutual funds and with the "apocalyptic view" of the situation in our region
I actually do have some money in a low risk one [mainly bonds] when rates on deposits went waaaay down south starting two years ago. I don't know the rates in Bulgaria, but for some savings deposits here interest dropped to as low as 0.7% - which, considering the banks' own taxes, meant at times owing money to the bank for keeping your money there!!!!!!

So, I took all my saving deposit money and put it in the lowest risk fund. [I really hate risk when it comes to my hard earned money. So far - last year the interest for the fund was about 6.5% but this year I don't think it will get better than 5. You don't want to know how my heart sinks every time the fund drops some percentage [you know, in it's usual ups and downs]! And during the past months, with the Grexit and all.... it has done that a lot.

I don't think I'd have the nerves to put my money in the next higher risk fund - which is currently at about 11% per year, as for example, in 2008 that same fund dropped by -35%! Yes.... I know, it would have been a wonderful opportunity to buy in 2008, but with fluctuations like that, I am not sure I could pay the medical bills for my health

[sky]

This would be my strategy if I were in your position:

I would save up the 6,840 and renegotiate the mortgage loan interest rate, not the term. Do you have the right to make additional payments toward the mortgage loan without penalty? If yes, leave the term at 20 years but try to push the interest rate lower.

Then when the mortgage refinance is complete and the interest rate is lowered, I would use all of the savings account toward paying off the credit card. I would also use all of the monthly savings to pay the 18% credit card until it was at zero.

Once the credit card is at zero, I would save three months expenses and keep it in a savings account as an emergency fund. Always keep this emergency amount, if you use some of it, replenish the account first before saving for investment.

Then keep saving and when you get a good amount of money in addition to the emergency fund (+/- 2,000 E) start looking for investment opportunities.

[nmirela]

@sky I don't think Mihaela was looking at mutual funds as a place for investment, but rather as a place to gather the 6,840 lev more efficiently. Rates for saving deposits are abysmally low right now in Romania, and I suppose in Bulgaria too, and in some cases it might even cost you money to keep your savings in a bank!

I am a bit intrigued as why you'd rather postpone finishing the credit card debt for so long (almost a year of paying 18% interest if we think how long she'll need to gather the 6840 lev). The way she puts it, the credit card debt could go in just two months if she put all the money she used to pay the nanny towards it. So, by Nov. she'd be free of it. And then by Dec. she could get rid of the lens lease as well.

I guess my rule is "smaller debt first" (especially when it's the highest interest too) and then snowballing the rest, so that's why I'd be interested in the reason behind your thinking.

[sky]

I would recommend paying down an 18% interest debt first, but if one could reduce the interest on the much larger mortgage principle, the monthly savings might be greater. I did not read the credit card balance. Probably the best way to prioritize would be to compare the interest saved by each of the strategies and go with the greater savings.

[sky]

I see that I misunderstood, I thought the required savings for the mortgage refinance could be achieved in Jan 2016. I agree that the credit card should be paid first.

[CelticTiger]

Hi, I would like to say, you are awesome! My childhood hero Stiliyan Alyoshev Petrov is Bulgarian. I'm a Celtic fan. My uncle is a Villa fan. This man has so much valour it is unbelievable. The first thing I have to say is you are doing amazing thinking of the possibilities. Getting out of debt and FI/RE can vary on personality. YOu are saving 40%+ so eventually you will meet all goals. Well done! keep it up!

[MishainBg]

I am back!:)
Savings for September: 400BGN
We spent a bit more on some home stuff, because we had to fight nasty bugs and change a few things around the apartment. The kid is accepted in public kindergarten!!

For October:

Income: 2900
Outflow:
Mortgage: 570
Utilities for September: 120 (some more to be paid, ~100)(includes phones&internet)
Lens&CC : 130
Kindergarten: ~100
Public transportation: 100 - it's getting colder and rainier and my husband will leave the bike in a few weeks.
Groceries: 350-400
Weekly allowance for lunches at the office : 40x2x4 = 320 - will save a bit on that, because I will be working from home 2 weeks and will make myself bring lunch from home. My husband's lunch is paid by his office, so he spends that allowance usually for groceries, but anyway, we get it and save it )
Food orders: I hope no food orders this month!!

[Ydobon]

You spend over 11% of your income on office lunches? That's very high! Even if we buy lunches, that's more than double what we spend.

We usually take something with us where possible, but surely you can get a sandwich or similar for less than this?

[nmirela]

You spend over 11% of your income on office lunches? That's very high!

Thinking in percentages doesn't always work, as a comparison, especially when we are talking countries with low wages, but high cost of living. The average (quite good actually) salary in Bulgaria is around 550 Usd, but prices for groceries are comparable to those in western countries. Granted, at first glance prices might seem a bit lower, but they are definitely not as low as the salaries.

As an example of how percentages don't work as comparison to western style of life, I live in neighbouring Romania, and here rent for a really modest one bedroom apartment is 100% of a doctor's salary.

[nmirela]

@misha:

Yaaaay for the public kindergarten!!!!

No photography this month? In Romania September is still quite a wedding season!

How's the credit card debt going? I didn't see it in the outflow. Not even the minimum payment?

Sorry to hear about the bugs! I hate it when you live in a block of flats and those nasty things creep from the neighbours, it doesn't matter how clean you keep your home.

[Ydobon]

You spend over 11% of your income on office lunches? That's very high!

Thinking in percentages doesn't always work, as a comparison, especially when we are talking countries with low wages, but high cost of living. The average (quite good actually) salary in Bulgaria is around 550 Usd, but prices for groceries are comparable to those in western countries. Granted, at first glance prices might seem a bit lower, but they are definitely not as low as the salaries.

As an example of how percentages don't work as comparison to western style of life, I live in neighbouring Romania, and here rent for a really modest one bedroom apartment is 100% of a doctor's salary.

Fair point well made

[MishainBg]

550USD is an average salary in Sofia, but almost an impossibly high salary for any other city here There the average is more like 300-350USD.

We paid some of the card, the minimum is 50, we paid 70. Not quite there, yet. The debt is ~1400.

As for food for lunch, here it's how it goes: a sandwich in the center of the city where I work is about 3-4 BGN (1.50-2EUR (EUR and USD is almost the same value here, almost 2 lv each)), it doesn't matter if you buy it from a sandwich shop or a supermarket. To sit and eat in an average restaurant from the lunch menu - 4-5-6BGN (2-3EUR). If you order from the whole menu - 6-7-8 (3-4EUR), but I never do this So yes, I don't always spend the 40, even if I go all the time to a restaurant, I would spend like 30-35 at most. I have had weeks with 0 this summer, before I even started to read about early retirement and minimal living

[henrik]

You could argue that thinking in percentages is all the more important when your income is low relative to the expenses in question:)

[nmirela]

You could argue that thinking in percentages is all the more important when your income is low relative to the expenses in question:)

Henrik, in no way did I say percentages are not important!!! All I was saying was that comparison to the western style of life is not always fair or even possible.

When, as a couple, you get TWO DOCTOR salaries amounting a whooping 700 usd, and rent is 300 usd plus 75 utilities in the summer and 100 or more in the winter, for a 400 sq ft one bedroom apartment in a very modest area, waaaaaay far from in the city center, and because of that you need transport to the job, which is an extra 100 usd for two people if you use exclusively public transport, then groceries about 200 usd per month - only buying generic brands and very little meat, cooking everything from scratch at home and you add internet and phone bills - cos you depend on that for your job - about 25 Usd the cheapest... YES!!!! percentages are EXTREMELY important! Come to think, if you talk percentages in this case you definitely need extra jobs - working probably 70-80 hours per week just to survive in bleak poverty, if you also have a child for example.

But if someone who earns 5000 Usd per month (considering again two salaries of an average couple - mind you, not doctors!!!, as the couple in my country) comes and says: you pay 57% of your family income for housing only?!? that is way too much, sure there's something less expensive than that cos we pay only 20% of our family income on housing... I am telling you in my city, less expensive than that is living with rats and roaches. Thanks, but no, thanks!

This is the thing I was talking about! Comparing situations in percentages is not always possible or fair. It hurts enough that sometimes at the end of the month after working 70 hours a week and beeing the stingiest person in town you still must borrow money to buy bread and milk for your child and go to sleep starving yourself. That's why you kind of take it personally when someone who is not in your shoes compares you to their situation. It is sort of a knee-jerk reaction. Not that there's any need to become all defensive, but some things just cannot and should not be compared. That's all!

Are there any solutions to this particular situation? Most probably yes. Smaller baby steps that will take much longer than in other countries. Maybe there are some country particulars that they could take advantage of - that's worth investigating. In a way, that's why I am here. Most of the advice on frugal life on the internet does not apply to me. Either I have already been doing that all my life just to barely get by, or it just doesn't exist in my country (couponing for example). Same with most saving and investing advice. So, I just hope to see more people like Mihaela that I can relate to. In a way we do walk in similar "shoes", so it gives me hope to see her making progress.

This is why I guess we need to think about each person/ situation in particular to be able to help or get inspired.

[nmirela]

@Misha

You say you were able to save 400 lev this month. Why not throw it at the credit card debt? Or are you putting it in the fund to be able to renegotiate your mortgage? (Calculating interest, aren't you losing more if you keep the debt and just pay close to minimum every month?)

By the way, what did you decide about saving that 1 year mortgage amount? Will you put it in a regular savings account? (How much is the interest for that? -some bank here "offers" 0.3% per year, but takes a fixed 1 eur/ month fee for the account - so, unless you have more than 4000 eur in that account, you pay the bank to have your money there!)

Are you still thinking about the mutual fund option? How risky is it?

How is your son adjusting to kindergarten?
Do either of your parents live in Sofia?

How do you "tackle" your finances every month? Do you make a budget and stick to it? This is very difficult for me, because when I want to budget according to the salaries there simplu isn't enough money to pay the bills, transport and groceries, so I always underbudget, hoping we will make enough from the side/ occasional jobs to cover the "cracks". Sometimes we do, but there are many times we just go over budget - we have built a "bumper" fund for that, so that we don't go into debt, but sometimes we borrow from my mom . In the months that the side jobs are better we pay mom and then put money in that fund.

[MishainBg]

Aww, borrowing from mum, my fav! We actually don't go there for monthly budget things, but when we need something big for the apartment. Like last winter we changed the gas ...(I don't know the word:D) , the big gas thing in the kitchen that gives gas to everywhere in the house (and is not a bottle:D). That costs 2000 which we didn't have, so we took from my parents. Now everything I get from photography, goes there, that's why I don't account it We need about a 1000 more to repay that.

You say you were able to save 400 lev this month. Why not throw it at the credit card debt? Or are you putting it in the fund to be able to renegotiate your mortgage? (Calculating interest, aren't you losing more if you keep the debt and just pay close to minimum every month?)

These money I didn't put anywhere actually, because my husband wanted to spend New Years in Dublin with our friends, but we checked yesterday and now the tickets are a lot more than we saw a month ago, so that idea is over and we'll put them in the credit card on Monday.

By the way, what did you decide about saving that 1 year mortgage amount? Will you put it in a regular savings account? (How much is the interest for that? -some bank here "offers" 0.3% per year, but takes a fixed 1 eur/ month fee for the account - so, unless you have more than 4000 eur in that account, you pay the bank to have your money there!)

Same thing here I was going to say that banks here and in Romania copy from one another, but a better guess is that it's just the same banks that operate on the Balkans ) I still haven't had time to see my father and get an advice from him about the funds, but I feel like I would like to check that option. Probably diversify in several funds.

The little guy is, well, some kind of adjusting to kindergarten ) He went for 2 days and is now spending the week at home, being with a runny nose. His pediatrician said it's better to leave him at home or he will get worse in the K. He's going back next week. He likes playing with the children and the teachers say he is behaving very well, but yeah, it's only been for 2 days, so we still have to see how it's going to be when he goes for longer period )

Our parents don't live in Sofia, mine are in Plovdiv, which is about 2 hours away, his are in Kardjali, which is 4-5 hours drive.

As for budgeting, we go like this: I pay mortgage, utilities and do all monthly payings, because I have online banking, he doesn't even have a bank account He gets his money in cash, we use them for lunch money, groceries and if we need something else, like a small house repair. He could save about half of his salary, I think, if I don't ask for stupid things to buy

Another idea that has come to my mind! I have a lot of clothes that are in bad condition for wearing, or too small (I am obviously not going to be my 20 year old shape again ever ). I am thinking to give them to H&M for recycling and emptying some space in the drawers. They give some vouchers for clothes, I'll see if we can save them for when we need clothes, or if they have an end date soon, we will give it to someone who can use them. But I really need to empty my closet from stuff.