100k windfall - what to do?

[Smarshian]

I am about to receive a windfall of around £100k in a few weeks time.
We are early 30s and live in what I would consider our forever home with a £230k mortgage which we are repaying (have 32 years remaining!)
DH has a good pension scheme with forecast 400k at retirement age. Mine is poor, not sure how much is in there but not enough!
2DC both preschool age, high nursery fees, this will reduce significantly in September when DD starts school and DS gets his free hours.
Small credit card debt of around £1500, no other debt. Could do with replacing one of the cars. Have holidays booked and paid for for next year.
Have around £7000 in various savings accounts for short and long term savings.
Help me decide what to do with this money!

I'd put most of it against the mortgage. Replace the car if need be. And save a few ££££ for a rainy day. And if you want to take an extra holiday, why not?

Is the windfall an inheritance? Do you understand the law in your country on what happens to that money if you divorce?

Look into an offset mortgage, your money will still be there if you need it but it reduces the interest paid. Makes your money work better than sitting in a savings account x

I also am not of the opinion an inheritance is a windfall. A lottery win perhaps would be considered that.

What I'd do in this order

pay off debt

stick enough to make your 7000 savings into a 6 months income emergency fund that is only used in the incidence of job loss or being unable to work

put 2000 in a fund to fund essential car/home repairs

put the rest on the mortgage

I like to keep things simple and I think once you are mortgage free you will have so many more ways to save.

What is your mortgage interest rate?

Personally, I wouldn’t put all of the money into the mortgage if it is a low interest rate as over the 32 years you may well make more money if you put a lump sum in stocks and shares. That way you’d have access to the money if you ever needed it but have the potential for it to grow at a greater rate than the mortgage interest. You may never get a lump sum again and it buys security.

I put 230k over 32 years into the MSE mortgage calculator and assumed you’d be on around 2%. A one off payment (if allowed) of £30k would knock 10 years off.

Personally I’d do the following in your position

*£30k for mortgage overpayment (might take a few years to pay in depending on terms)
*20k stocks and shares isa in your name to leave untouched for at least 10 years and earmarked for mortgage

• 20k stocks and shares Isa in your husbands name again earmarked for mortgage *5k to supplement this years income so double nursery fees aren’t quite as painful *10k premium bonds as an emergency cash reserve *1.5k credit card
• 4.5k in junior stocks and shares isa for the children *10k fun/nice holiday

I wouldn’t be as worried about pension right now as you’ve got the civil service scheme but once you’ve stopped paying nursery fees, I’d be looking at pensions again to see it you could increase contributions from income. And also potentially making further overpayments/investments once fees have gone. Don’t underestimate the costs of wrap around care/holidays clubs though. It is much less than nursery but I underestimated childcare costs for the primary years.

If I were you I would
Pay off debt
Top up accessible saving a few k
New (2nd hand car)
Set aside nursery fees until your youngest is at school
Holiday
The rest in investments (might need advice about which/type)
The money saved from childcare fees for the next few years use to overpay your mortgage each month

Debt
Mortgage overpayment
Pension

in that order.

@ivykaty44 how did you work that out? We aren't in negative interest rates?

OP we also inherited and couldn't stand people saying how luckily we were it's very rude when it's due to loosing a family member.

But we put all of the money into our house, and we've just remortgaged to get some back out! It was a mistake and we left ourselves asset rich and cash poor, so while our house has gone up in value it's of no use to us, we needed living money and school fees etc. So I'd always advise like others to keep some you can access for a rainy day fund.

I’d pay a whack off your mortgage if possible and clear any debts

Imagine not having to worry about mortgage payments though. That gives you security and more money to play with in your pocket monthly to do with what you see fit.
I expect to get my head ripped off but it's what I did. I'm in a good position post code wise though.
I live frugally though.

How utterly tone deaf. We're in the middle of a pandemic. Families the world over are spiraling into debt after losing their jobs and you come onto a parenting forum to ask advice on what to spend your one hundred thousand pounds windfall on? Seriously????

@DC3Dakota

How utterly tone deaf. We're in the middle of a pandemic. Families the world over are spiraling into debt after losing their jobs and you come onto a parenting forum to ask advice on what to spend your one hundred thousand pounds windfall on? Seriously????

They've posted in money matters which is a thread about money and as it's an inheritance I imagine someone very close to them has died, I'm sure they'd prefer that person to be alive than have the 100k but they're just asking how to be sensible with it which isn't a bad thing.

When I got my inheritance of 104k. I split £10k between my 3 DC. I used £7k to buy a small new car which I am still driving 7 years later. I used the rest as deposits for 3 buy to let properties and this gives me an income of £28k each year and the houses have increased in value as well. Over the 7 years they have all had a new kitchen, redecoration throughout, 1 has a new bathroom and 2 have had new garden fencing. I have had to invest some time before renting them out bringing them up to a good standard. I have learned about contracts, gas and electricity certificates and tenant vetting which is fine as there is a lot of advice on what a LL needs to do and I have been lucky with all of my tenants. I have not had one family I did not like and all have paid rent on time and left house in good condition upon moving out. My sisters inherited the same amount and 1 sister put it in ISAs and savings but complains she gets little interest. 1 paid off debts, had 2 expensive holidays and helped her 2 kids through uni. I don't think she has a lot left. My houses not only give me an annual income of £28k but the mortgages are being paid off too and 1 intend to leave my 3 children 1 house each.

Another saying clear any debts and put the rest into the mortgage

I'd look and see where your money goes each month.
Pay off the biggest expense.
Clear your debts, and get better cars.
Your never going to get a pension as good as your DH, and will benefit from his, so pay off as much mortgage as you can.
Think of it as if you lower your outgoings by £300 a month that is £3600 a year you save.
You have savings , so overpay that savings into your mortgage as well, once you pay off your mortgage say in 15 years, not 32, that's 17 years of rent/mortgage free years.

@DC3Dakota

How utterly tone deaf. We're in the middle of a pandemic. Families the world over are spiraling into debt after losing their jobs and you come onto a parenting forum to ask advice on what to spend your one hundred thousand pounds windfall on? Seriously????

You could say that about any post though.....

People going through IVF could say the same about people having abortions.

It’s all relative but thankfully most people realise that we all have differences.

To be fair to the OP she put it in money matters.

I'd buy a small property and rent it out. It will increase your income now and you could sell it during retirement to bulk up your pension.

Given how long you have left on your mortgage I'd probably try to pay a big chunk off your mortgage so you can reduce your mortgage term. Having a mortgage still to pay up until your mid 60's is risky because if either of you have health issues or anything later in life and have to give up work you may struggle to keep up your repayments. Plus having a long mortgage term means you will be paying a lot of interest.

If you can pay a big chunk off now and look at reducing your mortgage term to more like 20 years, you can also much easier look at early retirement etc in the future.