mortgage/savings/pension?

[LittleRobots]

My husband is self employed and earnings are very very variable. High daily rate so some months are great but some months simply no work.

We are in an excouncil terrace and had hoped to move but out financial situation isnr strong enough for that.

What do we do with the extra money we have on months that feel like a windfall? We've lived fairly hand to mouth before. No pension as self employed (which scares me - but I keep readig they're not foolprrof either). So I wonder about buildig up savings. We have about 3 months bills worth at the moment. Or is it better to overpay mortgage? (Current one is over long period of time to be cheaper if we were struggling).

We might be talking nothing one month, a few hundred another or on rare occasions a thousand.

Any advice?

The other thing I've though of is getting gas installed, but I'd like to make our financial situation less precarious too.

Also the 3 months pay is sitting in a redundant isa. Should I be gaining interest or is it not possible with low interest rates or should I say be putting 50quid in each month so it grows towards uni fees??

And then I think house interest is more than savings interest so should we just overpay......

My brains a muddle as we've never had the money before to think it through and we've no idea what the norm is.

Given that income is very variable, I would build up more of a buffer, so say 6 months worth.

Pay off any debts, other than mortgage.
Then over pay mortgage. Depending on the provider you may be able to overpay a lot, others may limit it to a certain percentage.

Paying small amounts off the mortgage can reduce the length quite a bit, so it is worth doing once all other debts are repaid.

Given current low mortgage rates, other debts (if any) will be higher percentage and thus should be paid off first.

If you are unlikely to touch the money you could use an ISA for the savings. Nationwide has a Regular Saver ISA which gives a bit better interest rate. Some banks also have regular saver standard savings accounts which can pay quite well, if you comply with their terms which may mean paying fixed amount each month and not withdrawing for 12 months.

When you're working self employed the biggest priority is making sure you have plenty of money saved up from the good months ready for when you may not get work.

As cindy has said build up six months worth of salary so that should the worst happen you have that.

Thanks. We have managed to avoid any debts so far luckily. So general advice is to save upto 6 months then overpay mortgage rather than increase savings?

Have a look at your mortgage : does it have an "overpayment fund" facility - like an offset - where you effectively save into your mortgage in good months and draw back down what you need in bad months?

If not, ask them
as an offset could save you a LOT of money in the long term, while leaving you with access to your cash

cash ISA rates are dire and with the limit at £15,000 they are easy to pile money into once you have it free
get a good 6 month buffer on the mortgage
pay off all unsecured debt
pay down the mortgage

TBH I'm putting money into a pension for the first time (SIPP, using tax breaks of my own company) - I'm nearly 50

I do t think it's got an ofset doobry but the financial advisor guy we got it through said to speak to him if we wished to overpay and he'd let us know the best way to do it.

No debt - no borrowing at all, so get 6months savings. Avoid isa. Overpay. Worry about pension in ten tears?

The other thread talks about a savings "pot" for holidays, car etc. Would we just save/pay as we go and put all extras in themortgage rather than an extra pot?

I am pretty much following the Dave Ramsay baby steps.

1. £1000 starter emergency fund
2. Pay off all debt
3. Bigger emergency fund of 3-6 months expenses held in current account rather than investment (lots of good high interest current accounts)
4. 15% of income to go towards retirement - pensions/ISAs
5. Pay off the house!
6. Invest, build wealth and give some away!

We'd be at 3 I guess. And not in a position for 15% of income to go into pension. So i guess iI was thinking of overpaying
It's a 30 year mortgage and I'm not in my 20s....

Oh good high interest?? I didn't think that existed anymore... I'm with a basic bank one and think I only ever get pennies.

Pensions are a good idea if you're self employed as paying into one will reduce your tax bill

You can get a current account called 123 I think its with Santander, which pays 3% interest but only if your balance is over 3k.

Otherwise look for an instant access savings acc which pays the best interest and wrap it up in an Isa. I got one last week with nationwide which pays 1.6% but that was for existing customers of over 15 years.

The only accounts paying more than that are fixed rate bonds but your money is locked away.

Can't you end up losing it all though? Whereas paying towards the mortgage gives something concrete? I honestly don't know about pensions. When I worked it waspublic sector (but not enough years to amount to Anything.) I'd be terrified to scrimp and scrave to pay into a pension and then lose it.

You lose the money you pay in tax too

Viva - so I'd save more in the long rub by reducing mortgage? I guess we could have 3-6grand in it if we saved a "oh heck" fund.

You would save money in long run by reducing mortgage. But get a bigger buffer of savings first. Ideally at least six months of living expenses/bills.

Then look at overpaying mortgage.

I don't know enough about pensions to say if it would be worth while or not when self employed. I've always been lucky that employer has contributed as well. I suspect how worthwhile it is depends how old you are. Dh saw a financial advisor when he was 40 as he hadn't started a pension and the bloke told him that there wasnt any point now, that he'd be better off buying govt bonds I think.

Money saving expert forums would give good advice.

You must get a pension. It should be part of your essential monthly outgoing. Yes, there are other approaches it is possible to take but from what you describe here you are better off just getting started with one (or two) whatever else you do alongside.

Does your husband have his own limited company? if so pensions become a slightly different thought as 'his employer' can make contributions for him. This becomes a cost to the company, reduces the corporation tax bill, the money goes into his pension rather than to the revenue.

Thanks everyone.

No not a company. Just self employed.

I used to work part time for 8 years and full time fir 4 I think. So nothing really in total in terms of pension I think.

I don't think we could do the santander account as we dont have a reliable monthly wage. More like a large cheque after a big job then a gap.... Then a small one perhaps. There was a v lean month earlier in the year but also one v good one.

I'm not great with all the uncertainty but he loves the work and is good at it. It pays well on the days he gets...

You must get a pension. It should be part of your essential monthly outgoing.
Fundamentally disagree with that.

Many DC pensions have had negative returns over the last 15 years (and the future is going to be like the present, not the 80's and 90's)

with the ISA limit at £15k its possible to build up significant buffers for later life without tying it up for many years.

Retirement as it has existed for the last 50 years is changing - because people are going to have to carry on working

I'm only paying into a pension because I can get tax back and then pull the money back out in 5 years
and its a SIPP with stuff all fees
and I'm putting wodges of spare capital into it that would be getting nil returns elsewhere

earlier in life I did not have the money
and my piddly little amounts would have been eaten up by fees

But a stakeholder pension has small fees.

modern stakeholders have low headline fees
but the hidden trading fees are still a stinker
UK pension fees are three times what Germans pay ...