Analysis Paralysis at what to do with our spare money!

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We have recently paid off debt, using the fantastic YNAB and now (with our new frugal habits) find ourselves with 1200 to save/invest/pay down mortgage each month. This will probably become 1400 in the new year as we are currently on a highish fixed rate with our mortgage and we should get a much better deal.

We are at absolute zero at present - no savings at all, no debt.

I've got so much swimming around in my mind! We feel very strongly that I would like to get the house paid off within 10 years as I'm the higher earner and I don't like my job much so would like options later on. DH is older than me.

These are the things we'd like to do:
Have an emergency fund
Pay off mortgage, at least 500 per month
Save to replace elderly car (with slightly less elderly car!)
Have a holiday a year
Start to save a bit into a stocks and shares isa

I'm wondering if we should pay extra into our pensions, we both have very good defined benefit pensions so should we prioritise paying AVCs? DH's is less at present as he is the lesser earner and also older, maybe max his out and slowly increase mine?

We've waited so long to get here but now we just feel frozen at what to do next! What would you do with the 1200/1400?

Well done at slaying your debt, we paid ours down and the weight off your shoulders is fantastic isn't it?
I guess a lot depends on your age and
your mortgage interest rate. In your shoes personally I would do a bit of everything, overpay the mortgage by £500, save £500 a month for emergency and car and holiday, so just a combined savings account really with easy access (boiler goes bang situation) I would be happy to have a float of 5k myself which would not take long to build up in your new situation. As for pensions, well I am a bit ignorant to be honest, and I would probably put 200 a month into an ISA instead.

Probably the thing to watch is being really strict now you are out of debt, and start the savings regime from the get go.
Is your current house "forever" or will you need/want to move in future?
I am a big fan of paying down mortgages, if you have no mortgage then any future pension will go a lot further, currently I can only manage micro overpayments unfortunately.
Well done again on your hard work sorting yourselves out.

with DB pensions, stuff them as full as you can - AFTER you've built up the emergency cushion of at least six months of 'running costs' and more. And had some fun too.

FWIW I recommend a Santander 123 account which will start paying 3% once you have more than 3k in it, and gives a bit of cashback on bills. It can be in joint names. Current accounts are the only way to get any interest at the moment, forget savings accounts. ISAs are only worth it for a foothold should the interest rate ever go up.

I would suggest that you take advantage of all tax-free savings options first i.e. Cash ISAs. The balance will build pretty rapidly at £1200/month and you'll have just under £15k in a year. Use some for your car, some for your holiday, keep a few months' expenses back for 'rainy day' emergencies and tip the rest into your mortgage in April 2015 as a lump sum. Sometimes mortgages come with restrictions or penalties for early repayment so worth checking that out. If you keep your regular mortgage payments the same then you'll pay it off much quicker than 10 years.

I would start looking at maxing AVCs and/or stocks & shares ISAs once you've got your savings ring-fenced and made a dent in the mortgage.

Do check with your pension provider that AVCs are also defined benefit. Some defined benefit schemes are still running, but any additional money you put in through AVCs gets invested seperatly and doesn't contribute to your 'years' of defined benefit.

We've just bunged the maximum allowance into Premium bonds (£40k per person) as were getting virtually nil on savings accounts (except for a NS Bond with a max of £30k).

At least with Premium Bonds you may win the big one, and we previously had regular small wins which outstripped what we would have received in interest after tax.

do the sums based on your personal tax situation - cash ISA rates are so terrible at the moment that you might be better off in a taxed account.

Fill up your ISAs (£15,000 a year each)
Fill up your kids ISAs (£4000 a year each)
Fill up your premium bonds (£40,000 each, winnings tax free)

Plonk spare cash into the Post office savings account that is paying 2% at the moment

Thanks all. Lots to think about here. I hadn't even thought of premium bonds!

I pay higher rate tax and DH pays lower, so maybe use a current account in his name to stash the emergency fund?

Good point about the pension AVCs. I'm not sure if they count towards the defined benefit. If they are indeed invested separately is there any point in doing that over an ISA? Is it not worth the tax relief?

why put spare cash into a 2% account when there are ones that pay 3%, 4%, 5%?

Santander current account pays 3% up yo £20,000 I think. You need to use it as a current account ie wages, direct debits etc.

Ooh 4 and 5%? Where?

yy to Santander btw, we just chucked a large sum into a Santander a/c in my name.

5% TSB Classic Plus - max 2k but you can have 2 each.
Nationwide Flexdirect - 1 year only, max 2.5k

4% CLub Lloyds - needs 2 direct debits, max 5k

3% - Bank of Scotland Vantage (you can have 3 accounts, each max 5k), and Santander 123

they all need a certain amount paid in a month so you set up standing orders to move the same money around. The payment in does NOT need to be wages, just come from another bank.

if you don't have enough direct debits set up with Tesco; current account pays 3% and the instant savers can be set to pull money in, which the other account sees as a DD.

takes a bit of work, but once up and running that's it.

Max in premium bonds and ISAs here too. Will have to pull them for major home improvements though, we are going in the reverse direction as you OP! We have chosen to use savings to do this rather rather than go into mortgage debt, but it will take every last penny and serious belt tightening for a bit. Hopefully, it'll be worth it in the end! I'm all for paying down debt first, makes a big difference to the total interest you pay in the end.

We have had about that much spare per month for the past 10 years. Some thoughts based on experience:

First priority is to get 6 months savings into an emergency account. One of the "high" interest current accounts is fine to start with

Anything above 6 months savings should be split according to your personal priorities on the following:

1. Spending on things that will improve your quality of life
2. Paying off the mortgage
3. Building up savings
4. Personally I wouldnt build pension funds as you wont benefit from it for so many years, unless you are already in your 50s, we are early-mid 30s

When you have excess income, it is important to spend as well as save! Saving in itself is pointless unless you spend it to improve your life at some point

starting pensions early means you get much more from them at retirement. IF of course you live that long.

Santander is very easy to sort out online. Pay one of your wages in a month (500+) or set up a standing order for this from your existing account. Transfer just 2 of your direct debits. Get the balance to 3k over the next few months and then you get interest.

us-
We have set up a dd to overpay mortgage-took minutes to sort over the phone (some mortgages only let you pay off a certain amount if you're still locked in).Will be gone in less than 2 years.
Emergency fund.
Separate short term accounts for holidays, house and car, Christmas etc .
Long term savings accounts/investments for the future.
Premium bonds.
Company pensions and small personal pensions. I now work for myself so add to an ISA each month instead.
Agree with mijass99-spend some and enjoy yourselves too!

Thanks, lots of food for thought here.

I've been playing around with the AVC calculator for my pension. The problem is, I'm only early thirties - are they likely to get rid of DB pensions by the time I retire (earliest I can go is 50) and what would happen to my contributions / any additional AVCs? Sorry if that's a silly question.
I've got 10 years in the pension already. DH has 12 years but he's mid-forties and wage is lower so his projected pension seems tiddly compared to mine.

Totally agree with the spending angle - not so bothered about clothes & gadgets etc but am partial to a nice holiday so will be budgeting for those!