What would you do with 40k to make money?

[Kevinisnotacatname]

Name changed for this but been around here for yonks. I have no private pension (long story) and was due to inherit nearly 300k so it wasn't something I worried about. My dad then left nearly all his and mum's money to a woman he'd met 2 years before he died. I now have 40k total with the inheritance and a little savings.

What would you do to make this money work for you? I can't afford to make real risks really as this is all I have. I'm looking at starting a private pension now (I'm 48) but the most I can put into it is maybe £100 a month. I'm also wondering if something other than a pension might be a better option?

I've been googling so much I've confused myself so thought I'd post on here. I know I know, I should have started a private pension years ago but I can't turn back time. I don't own a home, I rent and I would not be able to get a mortgage.

Honestly? I'd use it as a deposit for a small flat or the cheapest house you can find. Then work your socks off to put as much away as possible paying off your mortgage and putting in your pension.
I know the horse has bolted for you but if other women are reading this without a pension - get a pension! You should not ever, ever rely on your partner or inheritance. Especially nowadays as so many peoples inheritance gets swallowed up in care fees of older family members.

(Why can't you get a mortgage?)

My uncle got a mortgage and bought his first home in his late fifties or early sixties. He retired at the beginning of COVID in his early seventies. He did inherit from his mum which cleared his mortgage, but that was just under £90k and he lives in London. Maybe relocating to a much cheaper area would enable you to get a mortgage.

I can't get a mortgage as my credit rating isn't good enough. (Another long story but exh absconded the country leaving me with a lot of joint debts and a house I couldn't afford to keep up repayments on)

Ooosh you relied on inheritance?! Wow. Lesson to anyone reading never rely on inheritance for anything!

How have you sorted your credit rating? Unless you're currently bankrupt you can still get a mortgage. If you're in an IVA you can still get a mortgage, if you're a discharged bankrupt you can still get a mortgage. You sound very passive about life, time to get motivated.

Financial advisor.

my first thought would be a rental but I know nothing and if you can’t get a mortgage..:

What's best partly depends on housing costs where you live, whether you're able /willing to relocate if necessary and what you earn.

There are plenty of places where your £40k would be as much as a 50% deposit on a small house or flat in a reasonable area which, combined with a mortgage on even a NMW level income, could be affordable over the next 15-20 years, leaving you mortgage free in retirement.

Otherwise, you might be in a position where this money prevents you from being entitled to top up benefits when you're above state pension age, so you might as well spend it improving your lifestyle now. But if you do have a reasonable lifestyle on your current income, it is probably worth starting a pension, after all, you have nearly 2 decades to save.

But it's impossible to say, without more details about your circumstances - income, housing costs where you live and if you can move to a cheaper area. Also, there could be changes in tax allowances, benefit entitlements etc etc before you reach pension age.

The alternative to a pension would be to put most of the money into a S&S ISA over the next couple of tax years, which would have a similar outcome to a pension if you're likely to be a tax payer in retirement, which you would be if you did have any private pension as the state pension takes up just about all the personal allowance, be more flexible because the money is not tied up (although you will be able to start taking money out of a pension when you're 57/8).

If buying a property isn’t an option, I would put 20k of it each year into a stocks and shares ISA, investing in some big safe long term growth fund. Any gain you get would then be tax free. You can later on change your investments into ones that offer a higher yield, which would act a bit like a pension annuity.

Cross posted on the credit history. When was this? Do you still have debts? I'm assuming not, as you'd just pay them off with the £40k, but your credit history isn't blighted forever and non standard mortgages aren't that much more expensive.

It could be that you put the money in the best savings account for 2/3 years, then look at buying a cheap property somewhere when your credit history has improved - all adverse information drops off after 6 years.

1. Make sure you have an easily accessible emergency fund that would cover the cost of your lifestyle for several months. Thoughts vary on this whether this should be 1 months net income, or even 12 months. Whatever makes you feel comfortable in your circumstances.
2. Decide on whether you can tie up any remaining cash, often best rates are available on fixed terms or notice accounts. Don't obsess over the term "ISA". Basic rate tax payers need to earn £1,000 interest before tax is payable, and if an ordinary account offers 6% but an ISA offers 4% tax free, you may well be better off paying tax on a higher amount than no tax on a lower amount. Do the maths. Martin Lewis has a great comparison site for all types of accounts.
3. If you are willing and able to accept losses and risk to achieve higher returns, you may wish to look at stocks and shares ISAs if you don't max out your ISA allowance with cash. Think 3-5 years minimum and assess whether losses will concern you and affect your lifestyle.
4. Its never too late to start a pension. Contributions are paid in with income tax relief and benefits can be taken with 25% tax free. Even if it doesn't provide you with the earth, if nothing else its a way of getting free money to add to your personal contribution, it may supplement your income or even just provide a nice lump sum. Something is better than nothing.
5. Please ignore anyone pushing Buy to Let etc. Its very inefficient for tax, very illiquid, stressful, and you'll be leveraging (borrowing to invest).

My credit rating is low but steadily improving over the years. I'm self employed in a business which is improving but with covid and recovering from that the books haven't got the best history at all to get a mortgage.

. I'm now looking at getting a job in the public sector now to get a better pension option but I live in an area with not huge amounts of employment. That said it is a cheap place to live. Even if I were to get a mortgage it would be a LOT more a month than my rent (which is just over 500 a month) so even if I could afford it I'd have less to put away

Does your workplace offer a pension? Is it good? If so it might be worth overpaying a much as you are allowed from your salary and using money from the 40k pot to make up the difference.

The good thing about workplace pensions is they are a. Tax efficent and b. Your employer also pays in. Using it is a non brainer bu not doing so you are missing out on free money.

https://www.rightmove.co.uk/properties/145962116#/?channel=RES_BUY

https://www.rightmove.co.uk/properties/139346051#/?channel=RES_BUY

One of these needs some refurbishment for £110k or the £115k one is ready to move into. A 15 year mortgage with a £40k deposit, would be under £600 pm, depending on the length of the fix.

And this is in a nice enough town on the edge of a city, so plenty of employment opportunities and nowhere near the cheapest place you could find to live.

But your plan to get a public sector job for the pension and stable income is a good one.

Have you actually spoken to a mortgage broker?

So far from doing lots of research S&S ISA arms a good idea but I'm trying to get ideas and opinions obviously. My rental is just over 500 a month and this year I should earn 25 to 30k. I'm on track to earn just over 30k but 25k is a low estimate.

I can't move due to family issues. I've shown informally with a friend in the industry and i could try an application but in all honestly I'm very unlikely to get approved. I can't afford a mortgage in this area anyway, it would be vastly more than I pay in rent.

Just remember the famous disclaimer, investments can go down as well as up and you might get back less than you invested. Its not a hypothetical statement, plenty of relatively conservative portfolios fell in value significantly in 2022 with the problems in the bond markets.

I'm not saying its a bad idea, but go into it with both eyes open, with sufficient contingency funds and a proper assessment of your risk appetite, capacity for loss, and commitment to long term investing through any potentially volatile periods.

I would:
*Get a savings account of 3-6 months living costs.
*Start a pension - put more than 100 a month in it, and top up your living expenses from some of the 40k.
Not sure about the rest, but id run a mile from buy to let.

I would lock the money away in a fixed term ISA or similar so I couldn't touch it until the end of the term. I would then use the end of that term as my goal to have a much better credit rating and have saved as much as possible and be ready to potentially buy a small home somewhere. Focus on getting that paid off once bought.

That is a better investment for your retirement - bcause it effectively will save you circa £1k a month in the rent costs - which may well be double what they are now, by then. Plus, I really thinik home stability is going to be real issue if things carry on. This will give you that, in the future when you need it most.

Buy a narrow boat and live on it. Then start squirrelling away money into a pension.

I think you need to take some serious action now. You can make it work, but you need some bold action today, not tomorrow!

You could put the 40k in a SIPP (self managed pension wrapper) to start a pension, you can also put some of your pre-tax salary into it.

More here https://en.wikipedia.org/wiki/Self-invested_personal_pension

Providers do vary, so get some professional advice.

You need something that will generate additional income in retirement to supplement pension. I'd go for ISA or private pension to do this.

I'd do as poster above and chuck cash in highest cash investment (not shares etc as too risky?) And that would give deadline for fixing credit rating.

I'm on the fence about owning own home at this point. Home owners have lots of lumpy costs and if the focus is mortgage free, then you will be asset rich and cash poor so these costs will be difficult to meet.

But- security of home is important as don't want to be hoping between homes when 75 every 18 months.

Hmm

One of the issues I can see with buying a property is that my rent is very low and will always be as it's hosting association. So I do have security of tenancy and the rent can only ever go up so much.

Her income is 20-30k so she wouldn't be able to contribute 40k and attract tax relief. Even if this were to be allowed, it would leave her without an emergency fund to cover any unexpected expenditure that might arise. If the washing machine packs up of she needs a new gearbox in the car, she'll be up the creek. Also, she has an employer pension option. Using a SIPP will likely attract unnecessary costs when she can attract tax relief an potential NI relief via salary sacrifice. There may be a time when a large personal contribution to the pension is suitable, but with no emergency fund and a 25k salary, and an employer salary sacrifice scheme available, I don't think now is that time.

I understand that you are trying to help, but please be aware of the facts before advising people on lifechanging decisions.