First world problem

[Theflamingos]

I have name changed as I am giving out quite personal information here.

I also realise that we are extremely fortunate.

I just wondered how people allocate their money? We are in the process of moving and taking on a larger mortgage and I am now panicking that we have bitten off more than we can chew.

Our current situation:
Income after tax (joint) £9,000 per month
Bills and food £1,500
Personal spends, clothes, Christmas etc £1,500
Holiday fund/ house repairs etc £1,000
School fees £2,300
Pension and ISA's £2700

We have at present a large amount of cash savings that will be used on the house purchase - at the moment it is great to have that security as it would keep us going for years if we were made redundant.

Future budget would be something like this:
Income £9,000
Bills and food £2,800
Personal spends etc £1,500
Holiday fund/ house repairs etc £1,000
School fees £2,500
Pension and ISA's £1,200

I am panicking because the mortgage payments will be quite high - partly this is our fault for making the term 15years to keep inline with our current mortgage - is it worth seeing if we can change this to 20 years to reduce the monthly payment? DH is keen to have the mortgage paid off ASAP (we are virtually mortgage free right now but we have outgrown the house).

School fees - I wish in a way we had not started down this road. The fees only ever go up whereas our pay does not. We used to get decent bonuses each year but this year we will get nothing. We do have two years' fees squirrelled away which we are not counting in our house buying budget but it is still a worry and a huge financial commitment.

Holidays - this figure has not changed for years and DH refuses to spend more on holidays despite the cost increasing as the DC have got older, however even he is now complaining at what holidays cost in school holidays! Also, the new house needs a bit of decorating done (which we have budgeted for in the house buying costs) but I fear that we are stepping into the unknown, in this house I know the boiler is reasonably new and well maintained, for example, we could end up having to spend more than anticipated on the new house.

At the moment we have quite a bit of slack as we save a lot but I can already see that this will be reduced and after a few years this will be eroded further. I can ask to increase my hours as I am PT which could bring in an extra £1-£1.5k a month but there would be additional costs for wraparound care.

Our ISAs have enough in to cover emergency funds if we lose a job etc but they are meant to be for retirement really (we were late to the party on our pensions and neither of us have a great workplace one).

I also worry that DC get more expensive as they get older - they are 8 &6 at the moment.

We are 42 and 45.

Is this madness?

Please be kind.

Surely you’d prioritise a large enough home and therefore the mortgage above personal spends and Christmas? I’m pretty spendthrift myself, but I’m sure you could shave a good few hundred off the £1,500 each month allocated to that, as well as the what I assume must be a pretty lavish grocery bill?

I get that some people are more cautious than others, but at the sorts of figures you’ve stated there, it’s hard to see why you wouldn’t, if you have genuinely outgrown your current home, upsize and then scale back on non-essentials accordingly.

Personal spends and christmas is a tricky one - I try to keep track of spending but it just seems to go!
The DC each do a few activities each week which cost about £100 a month each, DH and I spend about £100 a month each on gym/ yoga classes - £400 already gone.

Clothes - I don't spend what I consider a lot on myself, maybe £100 a month? The DC about the same, maybe more including school uniform. This month we have had to get my eldest a coat, my youngest some winter shoes and waterproofs for them both - over £100 gone. DH rarely buys himself anything but he did get new glasses last month £250. There always seem to be something?

I booked tickets to a local winter lights thing, £75 and a visit to Father Christmas £45 for December.

We usually have a few days out each month - farms, zoos, museums - plus perhaps a meal out per month. Another £200 just gone.

Haircuts for us all £70 last month.

I know I spent quite a bit on Halloween things - crafts for half term, new costumes, going to a pumpkin patch - probably £50+

Netflix, Disney, amazon prime, audible.. we have quite a few subscriptions. Hmmm.

It just all seems to add up... some months we spend a lot less (and lockdown was great for savings) I don't feel we do anything extravagant (perhaps we have a warped sense as our DCs' friends are all pretty wealthy and are always off on expensive trips). I am sure we can cut back though - I just worry that we will end up not being able to afford anything as the cost of living goes up but our pay stays the same.

Food - we spend about £100 per week on supermarket shopping and then one or two takeaways per month so I budget £600 for that (including cleaning stuff and toiletries).

Christmas and birthday - I put £100 a month away for presents and extra food shopping, parties, new outfits etc. I think in reality we spend more than this though especially as there is usually a birthday every other week for my DC's school friends.

Our other bills will also go up - council tax will be more, gas and electricity, insurance. We will have to ask our cleaner to work more hours in a larger house too. House maintenance worries me.

The mortgage will be about £1,000 a month more per month.

I think at the moment we can (and do) spend without really thinking about it - there always seems to be enough but once we move and the DC get older this won't be the case anymore.

You are right though @ComtesseDeSpair we need a bigger house - we live in a 3 bed 1930's semi (one bed is a box room) and we are both now wfh for the foreseeable future. We put the DC in private school and thought it would be ok as we would have a mortgage free house but this year has changed all that, we have spent so much time at home we are all completely fed up here.

I know this isn't what you want to hear, but can your children move to a state school for the rest of primary? Will you be able to afford private secondary school? Can you save the fees you're spending now to put towards secondary in future?

@Plexie DH is dead against that and would keep the DC in private school to the bitter end - I am more relaxed and tried to get him to agree to "state until 8" but we are at that point already. DH would not agree to move our eldest as he is in yr4 and only has two more years left at this school (after this one).

We have enough saved to pay the fees up until the end of 2023 and we save more than we need each month (we pay the fees annually so we get a small discount) but then we will have senior school to think about as they are more expensive than prep and we lose the sibling discount for our youngest.

School trips also get more expensive- I have to pay £400 after half term for DS's residential next year. The year 6 trip is almost £1k!

Usually we both receive bonuses - after tax around £35k between us which we have been saving for the past few years and so although we don't "budget" for them we have got used to receiving them. DH has been told already that he won't get his and I imagine my employer will use Covid as an excuse not to pay (even though my department has brought in more money than usual). Neither of us have had a pay rise for 10 years!

I guess I am just weighing up the pros and cons of having a bigger house, having to reduce our expenditure and me working longer hours.

I know we are fortunate but I don't want to get to the point that we can't actually afford to do anything.

I think one thing that is certain to go up is your food spend. Our main shop is done online (£130 per week) with occasional top ups of bread mainly. My kids now eat vast amounts and like to experiment with recipes.
Why not actually record all the little spends and add up all the birthday pressies etc so that you can work to a budget

I hadn't even thought about that @gassylady 😬
Already my 8 year old eats as much as I do at mealtimes.

I have gone through our last 3 months of bank statements today to try to work out where all the money goes - it has been an eye opener! It is all the small transactions that really add up. I am also going through our subscriptions and see if we actually use them.

I have drawn up a budget, reducing our monthly discretionary spend by £250 to see how we go. I am also going to see if we can cut down to one takeaway a month and perhaps take food out with us rather than going to cafes - I think I could shave another £100 off there.

I am also eyeing up the spend on the cleaner (£36 a week) I think she is cheaper than divorce.... but maybe I can reduce to every other week? I have one day a week at home (I work 3 days over 4 shorter days term time, 3 full days over 3 in the holidays) so I do have the time to clean the house then (I already do as the cleaner comes on a Monday and I have Fridays off so I get the house nice for the weekend).

I have also been looking at figures if I were to increase my hours - tax and NI are a real pain, aren't they? 😂 if I increased my hours by another day (by working 4 full days all year round) we would end up with about £180 a month extra after paying for wrap around and holiday care.... Hmmm, not sure if it is worth it at the moment.

The next question - would you extend the term of the mortgage to reduce the monthly payment? We are going for a 5yr fix and can overpay by 10% so if we did get a bonus next year we could knock a chunk off. Or would you use any bonus to top up pensions/ISAs? We are saving quite a bit into pensions, my work one is rubbish so I put £500 in my own one and DH does his via salary sacrifice - we want to be in a position to be able to retire at 60 (DH's dad died young and he wants to be able to retire early).

I am having serious cold feet about the move, although spending today stuck indoors with the DC is not endearing me to this house.

Aargh, sorry for the long post, I have been devoid of adult company for a couple of days 😂

Whilst I understand why people want to be mortgage free, right now rates are so low that I don't see the point (assuming you are at a reasonable LTV of 50-75% and not a tight 90% and assuming that your monthly repayments are manageable). So I probably would be making sure to reduce the required payments on the house - you can still overpay if you get a windfall.

Saving on a £36/week cleaner seems a false economy to me...

It is really impossible to say whether or not you are saving enough. Are you on track to retire at 60 with reduced pension and isa contributions?

And finally...how tight will it be if something goes wrong or someone loses a job?

I think you can afford the house, even at 15yrs is still good. No need to worry, you are already paying attention to what you are spending the money on, once you are in the new house, you can see how the first few months go, if it's tight, you can think about increasing your work hrs. You are right about things adding up, they really do, it's great to have everything written down in a budget and you check it daily to see if you are on the right track and where to reduce. Check out Dave Ramsey's everydollar app, budget.

Agree rates are low at the moment and sounds like space is useful with WFH. It is just easy to get used to spending without thinking. We have recently got netflIx and really got good enjoyment from it in lockdown. But do you really all those subscriptions. Our local library membership gives us free access to lots of audiobooks and magazines, might be worth checking out. I too would keep the cleaner, trying to get my husband to agree to one at the moment

Money is going to be very tight tight if you have to start paying a mortgage and you carry on with your present budgeting. I don't think you can afford to buy a house from my quick calculations of your incoming and outgoings.

I dont think its a huge amount to spend on a mortgage tbh. I understand everything adds up and the more you earn the more you spend, at least that's true of my family. Our outgoings seem enormous, but then our income is good. I'd consider increasing the term of the mortgage to 20 years if needed and if it helps you rationalise it. You can always pay it off early. DH and I will be paying our mortgage off until we are 60; I don't think that's uncommon for such an expense.

Finally I always bang on on this type of thread recommending that people see a financial planner NOT an advisor. The aim is to look at where you are now versus where you want to be and help you get there.

Thanks - I think I will look for a financial planner. I need help seeing the wood for the trees, DH seems to think we have loads of money (he takes no interest in finances, all he is concerned about is school fees and paying the mortgage off).

It is true we do have (currently) cash and an asset - my FIL died 3 years ago and left DH some money which at one point DH was just going to squirrel away for school fees/ retirement but has now decided that a new house would be better (plus it means his mum can come stay with us without feeling like she is putting us out).

The new mortgage will be £1,300 a month. We are borrowing £210k - the house we are buying is £1.4m selling for £1m (our outstanding mortgage is about £45k) we have an extra £325k or so saved (inheritance) that we are putting towards the purchase (and to cover all the Stamp Duty and fees).

We tried to find a house for £1.2-£1.3m but there seems to be a huge jump from houses like ours to 4 bedrooms. Then we saw this one and fell in love with it.

We can afford it but only if we don't save so much. We have some savings:
£75k saved for school fees
£80k in ISAs (which would ideally be for retirement but could also be for emergencies)
£300k In pensions (which sounds quite a lot but it really isn't enough if we want to be able to retire early). At the moment we add about £25k a year to this and I am not sure how long that could continue for or whether we should be saving more.

I think it just feels like a backwards step - when we bought our current house 10 years ago it cost £595k and we had £350k deposit between us - we are borrowing a little bit less now than our original mortgage. At that time we actually had more money coming in because I worked full time, we did not have DC and we could have easily afforded the house we are now buying - I kick my past self!

Now, it feels like we are spending more than ever with little hope of earning more.

If I were you, I’d extend the mortgage term. You can overpay each month if you want to (up to a total of the 10% a year limit), but aren’t committed to doing so. Not sure of your exact figures but that should reduce your fixed payments by about £300 per month, which you can then choose to pay into the mortgage but gives you the flexibility to use elsewhere if you need to.
This is what we’ve decided to do. I did all the calculations and was worried about over committing to payments in case of a change in circumstances. This gives us the ability to pay down the mortgage but also access that £300 a month (on a month by month basis) should we need it.

+1 to extending the mortgage term. In practice, these days most people will remortgage 5+ times throughout the life of their mortgage, so it really makes no practical difference. In the next remortgage cycle in 5 years or whenever, you can always reduce the term again if your other finaicials have changed.

I'd look to reduce your discretionary spending & saving proportionally to cover the additional mortgage - sounds like a house with more space will really benefit you right now, with both WFH & the age of your children. Especially as one of you must have a fairly demanding job to earn at that level - a solitary office area is really a must have.

Yes, not having a dedicated place to work is difficult for both of us - DH has set his office up in the front room which is fine because we have an open plan family room at the back but it means he can't relax if we sit in there in the evenings.
I work from the kitchen table, which again is fine but it means I have to set it up and pack it away each day.
The new house has a separate office and will also have a spare bedroom and so we can each have a permanent workspace. Neither of us will be going back to our offices any time soon - DH's company are getting rid of their Central London office altogether (although we aren't far from one of their other offices) and mine is saying q4 2021. The garden is huge too so we could put an office out there.

DH's job is reasonably senior but he has reached that point that if he were going to get into the upper echelons of his company he would have by now. He earns about £145k and me £27k (PT). On paper that seems like loads but, like a lot of people, we have increased our expenditure over the years. My career stalled having the DC and working PT so a move to FT might not be the worst thing.

We aren't hugely materialistic, we don't wear designer clothes and we drive an old car (which we doubt we would bother to replace once it gives up as we only really use it to drive to my MIL's house and we could easily use a car hire scheme).

Private school was such a mistake in hindsight - that is a bigger commitment than a mortgage.

DH and I have a date with a bottle of wine and a spreadsheet tonight - we have to pay for the valuation for our new house this Friday and so if we want to make any changes to the mortgage we will need to do so soon.

How much can you overpay on your mortgage?

We went for a longer term but overpaid from day1 just so we had the flexibility to drop to smaller payments if required.

Similar income and kids in private school. Our mortgage is about £1200 but we have car and horse outgoing. Don't really save anything we just kinda spend as we go along.

Our 'holiday fund' has been slashed since kids started school though. No more 5* for us!

I'm sure you'll be fine op.

These threads make me feel depressed 😭

£300k In pensions (which sounds quite a lot but it really isn't enough if we want to be able to retire early)

No it’s not enough at all. You’ll need closer to £1m for £40k a year.
I think you’ll be downsizing again, but I can see why the immediate pressure to move is there.
School fees are a killer. Our income is >£200k and we are putting £80k into pensions. No school fees. You can’t do it all

I think you’ll be fine.

I’d extend the term of the mortgage so that monthly payments are lower.
I’d also say that people seem to have a decent retirement on surprisingly small amounts. No mortgage, no commuting costs, fewer new clothes, holidays out of season, cooking at home etc. If you work out how much you spend on that stuff now, it’ll probably be not v much. The state pension also kicks in later on adding about £1400-1500 per couple so you’d only need a top up. You also have a number of years in which your existing pot will appreciate in value so really nothing to worry about.

You do have a healthy cushion too.

School fees will jump up for senior school but hopefully the bonuses will also come back at some point.

Personally, I’d also hold on to the cleaner but probably try to bring the cost of outings down by taking a ‘picnic lunch’.

I do have to say, though, that living in a cheaper part of London, it does baffle me a bit why someone would spend 1.4 on a 4 bed house only to fret about affording a cleaner or lunch out...

OP if you are worrying about things like the cost of a cleaner why on earth would you upsize your house?!

Aside from that, I don’t think 1,200 is a large mortgage and 1.4m close to London is pretty standard for a decent sized house so I can see why you are keen to move. Totally get the priority school fees but like you say you’re somewhat committed to that now. I’d carry on as you are and if things get harder in the future you can always extend your mortgage to borrow a little more. In the meantime you could get stuck into your career and make some extra money yourself. Agree with poster above that 300k pension won’t keep you as you’re living now but some of that will be cushioned when you’re saving mortgage free eventually.

Good luck with the move

Main problem: Your pension pot isn’t enough. Either you are happy to maintain a fiction about early retirement, or you haven’t thought it through.

Your house does sound far too small, you will certainly need more room for two teenagers, they will spend a lot of time in their rooms.

I would definitely extend the mortgage term and don’t expect to retire at 60.

Anticipating an early demise is one thing but if you DON’T die young you will be idle for decades. Maybe try to live healthily and enjoy the simpler things in life now? Eg. Instead of expensive days out why not just take a picnic and go on a nature ramble, or a long bike ride.

One thing about your budget - you have forgotten charitable commitments and regular donations, which in our more modest budget is a big enough monthly outgoing to warrant its own line in the spreadsheet. I do believe in karma, it is important to share your incredible good fortune with others who have less, and helps you keep things in perspective.

You are spending a lot unnecessarily - eg you can clipper the boys’ hair at home, you really should not need to spend so much on clothes. Boys clothes can be bought in good condition Used on eBay. Cook from scratch; eat cheap cuts of meat braised slowly to make delicious meals; grow your own herbs, tomatoes and salad leaves; go vegetarian 3 days a week.

Also, clean your own house - you save £70 a month but also you will notice maintenance issues much more timely if you are directly doing the domestic work. Your income isn’t worth stepping up to more hours, frankly. You would make a bigger contribution running a leaner, smarter household. Just because your wealthy friends have a home help, doesn’t mean you have to.

At your ages, and with plenty of savings, I would also expect you to take a modicum more financial risk. Why not start by taking £5k from savings and invest in shares, you could contribute a share portfolio and it sounds like you have time for it.

Sorry just realised your cleaner is £36 a week, so you save nearly £1900 a year if you do your own chores. You could put that into your holiday fund.

I’d also say that people seem to have a decent retirement on surprisingly small amounts

Well as a pensions adviser, I’d have to disagree. Yes you can cut your cloth, but £300k would produce about £10-£12k a year (possibly less post QE). People live well on DB pensions, which can be surprisingly small, but are guaranteed AND the capital value of those small pensions is massive.
Furthermore YES the other will grow, but a lot of that is inflation! Since 2000 inflation has been 58%. That means your pot MUST grow. What it can produce post inflation, post charges, is more modest.

As a nation we are walking into a pension nightmare. Go to US and have your bags packed by an OAP. If you have your health you can work. If you don’t, £300k will help, but it’s not a lifestyle retirement at 60!