Mulling over my options with regard to tax credit changes/pensions/mortgage/salary changes

[bananaistheanswer]

I've been trying to figure out how all the recent changes I am currently going through will affect my overall financial position. I am going through a number of changes, and while I did think I knew what I should do for the best, I've expanded my enquiries and realise that there are a number of options I could take. So, I'm just typing this all out to see if looking at it spelled out might help me make the right choice.

Tax credits - I have lost £50 from each 4 week payment, but looks like that will go up to £112.00 once my new salary details have been confirmed.

Maintenance - will be receiving an extra £70 per month for 6 mths (due to back payments) then it settles on a net inc, excluding back payments, of £41, so helps a little to offset the reduction in tax credits.

Net salary - due to contract changes, my net salary will inc by £120 per mth. This is actually pension payments from an old agreement, and my intention was to pay that into my new pension set up as I would rather keep paying that than pocket the money. Alternatively, I could pay the extra towards my mortgage to try and bring it down/reduce loan period.

Savings - been trying really hard to save money as I have no savings at all. So far, each time I build up a few hundred pounds, something comes up and I have to use it, so might help if I can put that money somewhere I either can't use it, or at least it's difficult to access. So far, I've been trying (and failing) to put £75 away for DD's future, and managed to spend the lot when something has come up. Need to put that somewhere I can't get to it.

I try and put away £100 per mth for emergencies, but as my emergencies have been rather frequent this year so far, it's all gone. Starting from scratch again.

Now, according to turn2us, if I pay the £120 p/m into my new pension, then my tax credits won't change as pension payments aren't included when working out tax credits. It would actually work out as £166 p/m gross, so more into the pension pot along with whatever the tax relief is (I think? I'm never sure exactly how much goes to my pension). If I pay that £120 into my mortgage, I also pay an extra £80 in tax/ni p/m, and lose £112 in tax credits. I really want to make a dent in my mortgage, so was thinking of paying the £100 p/m savings into that, instead of putting it into a savings account where I end up using it. And if I do that instead of using the pension money, then the tax credits works out better for me.

So, I think the better option would be to pay the extra salary being received into my new pension, and pay the extra/savings onto my mortgage rather than put in a savings account. I also need to find somewhere to put DD's money, and not touch it! I'll be trying to put the £75 away, along with paying back what I've used, but then not sure of a build up of funds will then affect tax credits. If it does, not sure of the limits?

Not looking for or expecting replies but if anyone has an opinion, feel free to add.

Checking the mortgage overpayments - if I pay the extra £100 towards my mortgage, it will reduce the overall term by 7 years (currently have 23 years to pay off) and save me £9710 in interest.

If I pay £123 on top of what I currently pay, I'll be able to pay it off by the time I'm 50 (far more appealing than in my 60s).

Just checking out pension calculations - this is a bit trickier as I'm not too sure what my pension pots sits at. I've several pensions with different employers so not sure how much I have. On the up side, I've only 7 more years of work to qualify for a full state pension when I retire . On the down side, that must mean I'm actually older than I realised

If I pay the £120/£166 into my new pension, with a gues at my current pensions sitting at around £30K, I could end up with £400ish per month on top of the state pension. Won't get the state pension until I'm 67 though.

If I had saved CB since DD was born, I'd have saved her £19000 for when she's 18. As i haven't done that, I'd have to put away £135 p/m for the next 12 years to get that amount. So, an extra £60 p/m. Can't really afford that just now. Will think of maybe upping that later when I'm either working more hours or earning more than I do at present/paying less childcare. I'll also be able to pay more once my car has been paid off (4 years) and my sofa (3 years).

You will need some 'current' savings for rainy days because, if you don't have them, the next emergency simply puts you in debt and that can be very expensive. I personally find that having a fund in an online Cash ISA where the interest doesn't get taxed is a good place for this sort of money. Three months' expenses isn't a bad benchmark.

Paying extra off your mortgage capital is a good move if the interest you are being charged on the balance is higher than you can get by leaving it in a Cash ISA or other savings account.

A private pension makes a lot of sense. If you have bits and pieces in various places it is well worth getting up to date statements and possibly talking to an independent financial adviser to see if they are best left where they are, transferred to a new provider and how much they are currently worth. Then you'll have a better idea how much to top them up with.

If you want to put money away for a child and don't intend her to touch it until she is 18 have a look at some of the Junior Stocks and Shares ISAs on offer (assuming she didn't qualify for a Child Trust Fund). Contributions can be varied, stopped or started as you please and, as the money is invested on the stock market, there is a good chance that over the long-term it will perform better than a savings account. The limits on how much can be invested are pretty high. BTW... CB is there to be spent on raising your child and that's what you've done. Don't feel guilty about spending it therefore, and don't prioritise putting money away for her if it leaves you short.

Tax credits are calculated on household income. Savings and maintenance payments are not included.

Thanks cogito, that's given me some more food for thought.