What to do with extra £400 per month

[Smarshian]

We have been struggling for money a bit for the last year. I have now found a new job which will mean we are about £400 a month better off.

We can cover all our essentials with our current earnings and managed a short caravan break this year, but things like meals out etc have had to be cut and we both will need to replace our cars soon and we haven’t had anything spare to put away for that.

What would you do with the extra?

I'm going to go against the grain. It seems like you are ok for savings(not great but ok). Constantly having to scrimp is miserable, having a bit more spending money makes life much more enjoyable. I would save 100 and spend the other 300.

Pay off credit card - 3 months @£300-350

Start saving into ‘car fund’ - £250 pcm. Starting with £500 it will build up quickly.

Add £50-75 extra to long-term savings.

£75-100 per month on more fun stuff.

Buying a car these days seems a false economy as they lose value immediately - in my opinion look at leasing - you pay per month but every 3 years get new one and anything that goes wrong is under warranty, I don’t get why people spend say £10k in a used car any more when for £300pmonth you can get a really nice car

If the savings aren’t in the kids names, I would move that money to them ASAP. It’s the only way you’ll get much interest. Alarmingly there are some whispers of negative interest rates so I would seriously consider tackling the debt first in case that rate of interest goes up given that your emergency funds already amount to £7.5k. Personally I Would also try and overpay on the mortgage for a bit especially if you’re on a lower fixed rate as when that ends the interest will inevitably go up. I appreciate it all sounds very boring! Our DD’s ‘30 free‘ hours have just kicked in and will admit to going nuts the first month finally being able to afford a tumble dryer 😂 so you could always give yourselves a month off? Congrats on the job!

£200 premium bonds, £100 paying off credit card & £100 spends.

"Yes we are paying interest on the credit cards. I’m not even sure how much to be honest.
Just checked and savings amount to approx £7.5k"

Why on earth are you paying interest on credit card debt and sitting on £7.5k of savings?!

Pay off the credit card in full now.

I'd pay off the credit card first - to be honest, in your position I'd use savings to do that and just get it out of the way. Then use the extra money next month to top up savings again.

Let yourself go a bit nuts at Christmas if you want to - you've been scrimping for ages, it's been a hard year, so I'd treat yourselves and the kids, and also donate £100 or so to a local food bank.

In the new year, take a look at how much you're going to spend on cars. Check out second hand places and decide what you want to go for and what sort of price range. For £5000 or so you can get something reasonably decent, depending on what sort of size you need. That way if your car suddenly needs replaced, you'll have an idea of where to go, and what you're looking for, so you won't waste money by panic-buying something that's not suitable.

I'd set aside money for both cars and then look to build up about 10k of savings. Possibly set up trust funds for the kids, put £100 a month in there and the remaining £200 in your own savings (make sure you're using your full ISA allowance - your bank can sort you out).

Sounds like your kids are still young, so I'd keep on managing money carefully, and don't get them used to splurging on stuff they don't need. That will make things a bit easier in the long term.

When you no longer have Nursery fees, you can spend a bit more, but I would still be inclined to save - what if you want to move somewhere bigger, replace a kitchen etc?

I overpay on the mortgage every month

Save, save, save. The only way to prevent struggling is having enough savings to cover crisis' and emergencies. You have 2 months income, personally I'd save until that was 3 months (and then that's not for cars that's for job loss), then I'd aggressively pay down that cc debt. Next I'd start a car savings fund. And once those are done top up that emergency fund to 4, 5, 6 months income.

Just read the extra, if you have 7500 in savings, get the cc paid off.

After that, car fund. Then boosting savings.

£300 - pay Credit card and then it will be cleared by Christmas
£100 - a few little treats, takeaways etc

Post Christmas
£ 200 - car fund
£100 - general fund
£100 - everyday living Etc

Congrats on your new job.

Is the job secure OP? Do you have a probationary period to do first?? If the answer to either of those is yes then you need to save it until you are sure it is secure enough and you have completed the probationary time. Going mad for Christmas might be lovely but would be pointless if you are let go in January.

Another one saying pay off your 1K credit card right now from your 7.5K savings. Absolute no brainer as you are sayin interest on the debt and won't be earning much if anything on the savings. That in turn will free up whatever your monthly credit card payment has been to add to your extra 400 a month.

It’s a civil service job so pretty secure. I know you’re probably right about the credit cards but I just feel better having some emergency funds available.

@Smarshian

It’s a civil service job so pretty secure. I know you’re probably right about the credit cards but I just feel better having some emergency funds available.

But if you pay off your credit cards now, you definitely save on the interest you would have been charged but then have the balance available on the credit card as back-up IF an emergency arises.

Can’t believe no one has mentioned pension!

@Smarshian

It’s a civil service job so pretty secure. I know you’re probably right about the credit cards but I just feel better having some emergency funds available.

If the genuine emergency comes up, you can use the card again. In the meantime, it's cheaper to pay the card off with savings because the card will be costing a lot more in interest each month.

As for what to do with the money, I'd save a lot of it in the short term, so you have money available for annual and irregular expenses like insurance, maybe a more expensive holiday than you have now, Christmas, car repairs etc. It doesn't have to go in fixed pots, you just have to prioritise.

So pay debt off, maybe allow yourself an extra £100 pm for days out/meals out etc and then look for a car for DH for maybe around £3k? That should get him a decent one that will last a good few years.
I don't think you have to panic about replacing yours in the short term, 100k is nothing these days, maybe in 2-3 years time?

Buying a car these days seems a false economy as they lose value immediately - in my opinion look at leasing - you pay per month but every 3 years get new one and anything that goes wrong is under warranty, I don’t get why people spend say £10k in a used car any more when for £300pmonth you can get a really nice car

But you'll need to keep paying that £300 pm forever, whereas if you pay £10k for a car, it's yours forever, and will last a lot longer than 3 years - if you borrowed £10k it would take about 3 years to pay back at £300 pm, but after that time, you still have a decent car and no car payments, but with your example, your car disappears unless you keep up payments for a new one or pay probably £5k to the lease company to keep it.

Why are people recommending premium bonds? They’re shite

We’re currently mortgageless so are putting £800 a month away for the next house we buy.
I think it’s best to save, especially in this climate when the shit could hit the fan at any time.

@Doodar

Why are people recommending premium bonds? They’re shite

They're as good as you can get these days.

I won £1000 last month.

Both in public sector jobs and both been at risk of losing our jobs in the last ten years or so. We get sick pay/redundancy( both over ten years service) etc but we still have that Emergancy fund.
My partner has been through so many job consultations and dept changes/ restructure, luckily only redeployed/job description tweaked etc.

But other jobs have been lost and more recently planned before covid

So it would be very wise to keep up the saving, try and pay off the card ASAP and leave a little extra for fun. Once the card is paid off i would increase the fun money a little, as long as I was still saving too.

if you borrowed £10k it would take about 3 years to pay back at £300 pm, but after that time, you still have a decent car and no car payments, but with your example, your car disappears unless you keep up payments for a new one or pay probably £5k to the lease company to keep it.

The thing is, you borrow £10K for 3 years and after 3 years have a car outright no payments. But you have to start again saving for a new one for when that one gets unreliable. So you spend another 3 years saving up. Meanwhile, your existing car gets older and costs a bit (or a lot) in maintenance - it’ll be 9-10 years old probably by then. If you’ve got a lease car you’re paying the same but the car doesn’t have costs and it’s always new.

It’s riskier if you have a change in circumstances because you’re tied into the lease payments. But really, the more I look at car finance the more I think secondhand isn’t always more savvy - whichever way you slice it you need to put a chunk of cash per month into a depreciating asset, and I can’t ever seem to get that below about £200 per month on average lifespan of our cars. We’ve always done secondhand in the past but I’m not sure we will again.

Pay off your credit card with savings straight away. That's mad that you're paying interest on it with money in the bank. Then for the next three months put £300 back into savings to (more or less) make the £1k back.

Then I'd split £300 between savings / mortgage overpayments and a pension or LISA. Even little bits help with the latter three over time

Paying down my mortgage. Especially as savings rates are so dire.

You haven’t got much left on cc so pay that off first. Once that’s paid I’d do £150 car money, £100 savings and £150 family spending money. You want w nice amount to spend on extras each month so you don’t resent working but still have enough for saving extra too.