Advise me on investing as an average earner

[Peonyyyy]

I keep seeing that I need to be investing, but I’m not a high earner. I work part time (gross annual £34k) and my husband earns £40k. I also have a side hustle but the income from that varies widely, can be anything from an extra £10k a year to just £2k. We have two children, nursery fees and a house with a mortgage. We also pay around £200 a month for a PCP car and have student loan repayments. We live in the south of England and our mortgage is £1200 a month. We have about £150k left on our mortgage.

How would you advise I invest some money for both myself for retirement/later years and also for our children?

is it realistic that we could make a good amount of money or is all this stuff I’m seeing online only worth it for high earners? Pretty clueless about this stuff but I want to learn. I want to feel ‘comfortable’.

thanks in advance!

Do you have emergency savings? If not, build that first.

Do you have a company pension? Will your employer match higher contributions?

I would be investing at least half of your side hustle. Take a forensic look at your outgoings and be brutal in cutting down on stuff. Think about buying a cheap car. You are paying £200 a month for something you will never own.

As for the investments themselves, I just invest in VWRL via Vanguard. Thats basically a basket of shares of companies from all over the world. Set up a direct debit and forget about the investments. Don't be logging on every day to see if they are doing alright.

Investments are proper long haul savings, think 30+ years so top priority is getting a pension or, increase you work pension contributions.

If you need the money in next 10 years, forget investing but focus on cash ISA savings as the tax wrapper is great.

Check you have emergency savings first, but then make sure you are asking to your pension as the tax relief makes a huge difference. When you get pay rises put anything above inflation into your pension.

How much would you recommend saving for emergencies?

savings are really low atm due to two maternity leaves (same for my husband as we contribute to the household equally based on a percentage of our income) we have around £4K each currently.

pension - have a company one but not sure if they would match increased contributions. Thank you, I will check on that!

Workplace pension is the place to start, as your employer will contribute and you get tax relief.

I'd aim to get 3 months pay into an emergency fund.

You might consider a Stocks & Shares ISA if you want to invest but that is very much for the long term and if you need financial security now a normal instant access saver is likely better, you can earn up to £1000 interest before paying tax on it (less if you are a higher rate tax payer). MSE is a great place to check out competitive saving rates: Best savings accounts: 5% easy access or 5% fixed rate

This is great advice thank you. We both currently pay £150 a month into a NatWest savings account (we have one each) as it seems to be the highest interest rate at around 4% which is better than all the ISAs last time I checked.

But yes I have nowhere to put my side hustle money as £150 a month is the maximum on this account allowed.

would investing that be better than a cash ISA?

We may move house in the next 3-4 years, so I guess need to think about money for moving costs.

3 months salary in cash savings. Then as much as possible in a S&P isa invested in a basic tracker. Dont try to beat the stock market, just track it.

@parietal how much does this usually yield % wise? Is it better than just ISA savings?

Don't invest any money you may need in the next 5 years. Stock markets are for the long term - ideally 10+ years. All shorter term savings should be in high interest cash accounts.

With the work pension, check what it's invested in. Often they default to quite a conservative fund, and they usually derisk even further as you approach retirement which isn't necessarily the right approach now that fewer people buy annuities.

https://ukpersonal.finance/flowchart/

This flowchart is quite helpful for thinking about whether you're ready to start investing.

Global stock market returns have averaged 8-10% gross over the last 30 years, but the key thing is that these are long term investments and they can be volatile. It's therefore wise to get your emergency fund in place before you start investing, in case you suddenly need to access some money at a point when your investments are down.

Also second @BinturongsSmellOfPopcorn 's advice to see what your workplace pension is invested in. The point of the default fund is that it's supposed to be not a disastrous choice whoever you are, whether you just started work at 18 or are about to retire at 67. If you are on the younger side, it's likely that you will do better with a fund that has a higher % of equities and takes a bit more risk.

Honestly, I would wait until you’ve built up your cash savings bit. The market is particularly risky at the moment, especially if you’re just going to buy an index fund and not research what you’re buying. Even Warren Buffett is sitting on a big pile of cash right now.

Someone I know did some sort of increased contribution to their company pension but now wishes they’d done a sipp. More flexibility about taking it from 57yo, get tax back, potentially better growth.

Wow I need to pay attention to this thread, I definitely don’t have 3 months savings ! I earn in a similar bracket as well and will be planning another Mat leave. Thanks for starting this thread OP

Definitely don’t do this. S&P is high risk

I recommend looking up Dave Ramsey and reading some of his books or watching his you tube videos. For you the advice is likely to be:

1. get a small emergency fund £1000
2. Repay all of your debts except the mortgage
3. start investing 15% of gross income in pensions
4. repay your mortgage
5. start investing in ISAS /other savings vehicles

so you actually have some foundations to build before you start investing.

Over the last 20 years the S&P has returned an average of over 9% every year.
yes it’s volatile and not for short term
investment but in the long term a good tracker fund will outwith investment returns on cash every time.

you could invest in S&P funds via your pension and get tax relief on the contributions as well.

Did @parietalmean S&P or was it a typo for S&S?

Agree with all this except pay off your mortgage before investing in ISAs.

Yes I wrestle with this one too!

I’m not sure that’s standard advice otherwise most people wouldn’t have ISAs until they are approaching retirement. Is that really what Dave Ramsay says?

Yes, this is Dave ramseys baby steps. The idea is you accelerate the mortgage repayment before investing (with the exception of 15% to pension).

His model works but has a couple of controversial points. One is above and the other is pausing pension payments until your totally debt free (excluding your mortgage)