A ‘smart financial moves’ thread

[crabsaremisunderstood]

A space to share anything and everything, big or small, that has helped your finances in some way recently. You never know - it might help another person on this thread!

My smart move was opening a Lifetime ISA 3 years ago. The government gives you 25% on top of everything you put in, on funds up to £4k a year. If you put in £1k, you get £250 extra! I bought my first house this year and wouldn’t have become a homeowner if it hadn’t been for this. For those that have already bought a first home, you can also use it to give yourself a retirement fund.

I retired from full time work a few years ago. I signed up to do NHS bank admin work and now work 2 days a week on a short term contract.

Following this thread as I don't have time to read it all now!!

@AlmondCoffee some yes, DH just divides some on his spreadsheet, I have several in my bank account and we have a joint account and we have another separate bank account solely for Xmas and holiday.

But I started out with physical pot's In the house, those tin like jars!

@Georgyporky
. that's amazing, when did you start paying off ?

As someone looking to buy a house, my smartest move has been to learn about how interest rates work and not be taken in by all the terrible, terrible advice out there that you should save if mortgage interest rates are lower than savings rates. People seem to mistakenly compare interest on the amount they would save or overpay by, when presumably you need to compare interest on the amount you would save with what would happen to your entire mortgage if you did or didn’t overpay that much. It worries me that so many people seem to misunderstand this.

It's not terrible advice, it's basic maths.

@YaffleYaffle So you're saying, for instance, that someone like Marin Lewis is misunderstanding and giving terrible advice?

As @BarbaraofSeville says, it's basic maths.

Doesn't it depend on a few things though eg what tax band you are in?
Martin has a good calculator.
My savings rate has to be 2% higher than mortgage to make it worthwhile for example.

Re paying off mortgage verses savings, it's important to look at what mortgage you are on. If a fixed rate at the moment is less than the % on savings BUT will come to an end soon with a higher interest rate AND you have a penalty for paying off a chunk too early, then I'd say it's better to pay off as much as possible within the terms and conditions without incurring fees, in anticipation of future higher interest rates. Quite often you can overpay by 10% a year without fees for example. The rest could go into a high interest savings account.

I hope that's clear !
It's also important to take into account how many years you've been repaying. Borrowers pay a lot more interest at the beginning of their loan than at the end - it's not uniform, but a curve, if you put it on a chart. So, there's more incentive to pay off more at the beginning of a mortgage term.

I asked my mortgage lender for the repayment table which showed how much we were paying in interest each month, quite interesting. It was definitely better for us to repay the mortgage as much as possible, especially as interest rates on savings for the last few years has been negligent.

You also have to take into account the interest you receive on savings, people seem to be forgetting about this. It's just the same as an offset mortgage, only better, because the mortgage interest rate is usually lower as well as the savings rate being higher.

Up until about 6 months ago, our mortgage interest has been pretty much nothing, always less than 1% and a good part of the covid period under 0.5%. We were covering the interest with money in a couple of current accounts that paid between 3 and 5%.

My point is that people compare the interest on savings with the amount they would pay towards the mortgage, when they should compare it with the interest on their remaining mortgage amount.

And that you need a compound interest calculator. Just comparing rates is not ‘basic maths’ it is incorrect.

I don’t think Martin Lewis is ‘wrong’. I think a lot of people misinterpret his advice!

Actually yes, I do agree there is misinterpretation (was similar with the energy cap message initially) but he does advise using a compound calculator for savings v. mortgage.

The striking thing about this thread and all the great tips, is how wonderful it would have been if we had been taught this stuff in school, and entered the big bad world with some tools and knowledge on how to approach household finances and saving!

But we know about Pythagorean theorem!!! That's much more useful obv!

@bonzaitree Quite! 😅

YaffleYaffle

Your three posts was sort of what I was trying to explain, especially about compound interest.
People should realise you pay interest on the whole loan amount, whereas your savings are most probably a fraction of your mortgage so wouldn't earn as much interest as you pay as part of your mortgage payments.

When we paid early, we had the choice of reducing the length of the loan term or our monthly repayment amount. If you really want to save money, it's better to choose to reduce the length of the term.

On our first flat we were paying around 300 a month just in interest (changed every month obvs[ . So by paying off a chunk and reducing the length of the mortgage we saved the number of months reduced x amount of interest we would have paid. We'd previously negotiated no early repayment charge.

No way could we get that in interest from leaving the money sitting in the bank.

The striking thing about this thread and all the great tips, is how wonderful it would have been if we had been taught this stuff in school

We had one lesson on calculating mortgage interest rates / compound interest for A level maths. Although I agree there should be a 'life economics' module as part of personal development lessons.

So just to add to my previous post I think one of my 'smart financial moves' was to negotiate a mortgage without an early repayment charge.

One of my stupid financial moves was to not 'buy' a pension year when I hadn't paid enough taxes when I was younger. I received a letter saying I had a few years to do so and it wouldn't have been expensive, but I never did. Too late now.

@LeavesOnTrees have you seen this post from the moneysavingexpert website about buying missed years from NI contributions ? I’m hoping to fill in some gaps from my teens: www.moneysavingexpert.com/savings/voluntary-national-insurance-contributions/

Just remember with the missing years that you only need 35 yrs contributions. Many of todays youth will pay far more years than that due to state pension age. I paid extra for my maternity years but realised that brought me to 21 years, I have another 30 yrs of working so will be paying 51 yrs. I shouldn't have bothered to pay extra

Good to know that, thanks @fedstool

I think this is right. The chap at Virgin Money worked out for us that at the rate we’re currently overpaying our mortgage we will save more than £20k in interest. We would not earn £20k in interest if we kept the sum we’re overpaying in our savings account. It’s all about compound interest as others have said.

The "better rate in savings" advice only works if you're specifically saving a pot to pay down the mortgage with at some point (usually at remortgage time or when a fix ends). If you're likely to use savings for other purposes the maths is different.
We overpaid our mortgage because our deal allowed 10% of the original mortgage amount each year and any overpayment built up a notional overpayment "pot" we could use to underpay if we had ever needed to. With only one taxpayer we preferred the security of knowing the mortgage would be covered until any income shock could be fixed.

This is so inspiring.

If I was able to save £200 per month and if I want to start investing it in anything other than regular saver account, where would be the best point to start? I mean, where I can learn what my options would be other than standard isa/saving account?