Higher earner but clueless with money

[YakkityYakYakYak]

I’ll start by saying that I know this is a real luxury problem, but really would like to be smarter with my finances.

Our incomes have grown fairly substantially in the last few years. When we moved into our home 5 years ago we were both earning £20k each and now are earning £105k between us.

Although we have a few luxuries (nice health club membership, sky TV, eat out about once a week), we generally live a quite modest lifestyle based around what we could afford when we first got together (small semi-detached house, share one car, don’t go on holiday every year, no designer clothes, etc).

We were planning to move into a bigger house this year and to get a second car now we can afford these things, but have now decided to wait a few more years before committing to higher outgoings and to use this time to set ourselves up better financially for the future.

I’m from a working class background and not used to having any money or having to think about money. I really want to make sure that we don’t waste this opportunity but not really sure what kind of things we should be thinking about, or where to start educating myself.

Any tips would be gratefully received!

Get a one-off session with a financial advisor. Decide together first what s important to you - house, car, kids education, holidays, savings, retirement, etc.

The two most important things are pensions and life insurance. Make sure you're really investing in both.

Also, if you're not married, make sure your name is jointly on the house, and make sure you're paying into your own separate savings, as well as your own pension.

This is a really good place to start when thinking about how and what to save and prioritising https://www.reddit.com/r/FIREUK/comments/7fvlgt/interactiveukpersonalfinancee_flowchart/

Thank you both.

@Ohalrightthen - anything in particular you would look for when choosing a financial advisor?

In terms of priorities - we would both really like DD to have a private education and would sacrifice other things for that if needed. Would very much like a bigger house too as we don’t really like where we are living now and it’s feeling very cramped now we have a child (we’re also TTC for number 2).

Thats not really a high income- high rate tax doesnt impact etc etc

Independent school would be affordable for 1 child -depending other outgoings- possibly not affordable for 2 on that income.

Money saving expert is the place for advice

Are you both maxing out pensions? Can you overpay your mortgage or save up and clear a chunk? Are you using your ISA allowance and are you the age bracket to qualify for a LISA?

Do you have savings for your maternity leave?

Where we are private school fees are around £20k a year out of your taxed income. Can you afford that plus a bigger mortgage?

Your position isn't dissimilar to ours. I would look at opportunities to increase your employer pension payment/s and overpay your mortgage as much as you can.

I'd say if bigger house and private schools are priority think really carefully about those things. Near me being in a more remote village and/or in catchment area for less that great state schools gets you more house for your money.
Pensions are more expensive than you'd think, definitely agree you should max your contributions if possible.
You sound very sensible.

We’re in a similar position and are resisting the temptation for a bigger house. We’re focussing on overpaying the mortgage and paying into pensions. Mortgage will be paid off in a few years and it means we can go part time & then retire early.

Try not to get caught in the trap of earn more=spend more!

DH and I aren't on quite as much money as you but have decided not to go for the bigger house. It's more sensible for us to keep low monthly outgoings and save more into pension/index funds.

There's some really interesting on Reddit about financial independence.

One other thing to think about is that you might be able to get a cheaper house if you aren't worried about catchments.

I would definitely recommend seeing a financial advisor but also just educating yourselves financially. Money saving expert as well as the money board on here etc.

Make sure you have decent pensions/ life insurance and plans if one of you were to get ill

But don't live in fear of enjoying the money either. we only have one life, it's about balance

(our joint salaries similar to yours)

You are unlikely to be able to afford independent school for both from 4 to 18. Therefore moving into a catchment area with excellent primary/secondary schools is essential. You then have choices later.

Invest heavily into pensions now but don't go over your annual allowances.

Plan to ensure your current lifestyle can continue if something happens to one of you.

Those are the building blocks for the future. Stuff comes much later.

Thank you all, lots of really helpful advice and things for us to start thinking about.

DH and I have agreed that we’ll make an appointment with a financial advisor in the new year to talk things through.

Private schools are maybe a bit cheaper here than other places (we’re south west), the ones I’ve looked at are around £10-12k per year for high school, although I imagine there will be additional costs on top of that. But realistically I think we might have to decide on private education vs ‘dream house’.

We have life insurance in place, I pay a decent amount into my pension (not sure about DH), and have savings put aside for my mat leave (provided we manage to conceive, have been TTC for a little while!)

One other thing for us to consider is that my parents are soon to retire and aren’t in a particularly amazing financial position (very little saved and DM only started paying into a pension a few years ago), so I’d like to make sure I’m in a position to help them out if they need it in the future, although they would never ask!

£3.5 k - 4k per terms is certainly a low fee for private, but you also have to allow for the price to increase, and it might go up higher than you imagine oner the course of the schooling. As others have said maybe look at good primary schools and then private for secondary ?

Also what are your projected earnings likely to be?

You may fall into the trap of thinking of yourselves as high earners, when, while it is a good healthy income, it’s not really that high.

So don’t get too Carried away in terms of private schools, fancy holidays and big houses.

Sit down with a budget and map out mortgage payments, car payments, property tax, insurance, nursery fees etc and see what that lookS likes.

Yes, don’t worry, I know I’m not rich. I just meant higher than average (and more than I expected to be earning a few years ago).

I mainly just want to make sure that for the next few years at least while we have relatively low outgoings compared to income, that we’re making the most of it to set ourselves up well for the future.

State primary and private secondary could work well as there are a few good primary schools round here (and we would ideally like to stay in this area if we move house), but the secondary schools not the best. Would give us chance to save up too.

In terms of income potential, I probably have potential to go up to around £80k (currently £60k), but would probably need to change career to go any higher than that. DH is a relatively newly qualified in his career so currently earning less than me but has potential to progress a lot higher over the next 5-10 years.

I think I’m stressing myself out trying to plan everything out for the next 20 years 😂

In terms of planning for the next 20 years - pension is only real projection to have very long term. To know how much to save into pension divide your age in two and that’s the percentage of your salary to put into pension. Look at employer pension first as usually highest benefits

Next is your school fees pot, you have a few years to build this pot ready for eldest & then 2nd

As for a car, if you have one do you really need two? Why when they drain money and 90% of cars spend 80% sat parked doing nothing & going nowhere.

I always try and say on these threads what you need is a financial planner. They take more of an overview approach - what are your goals where are you now and can do projections for you. A financial advisor is looking to sell products in each of the categories.

Don’t spend any money for the sake of it.

Don’t buy new cars, the immediate depreciation is money down the drain. And don’t buy anything more flashy than you need. Check running and maintenance costs: none of those cars where you have to remove half the car to replace a bulb, at great cost.

Do you really need private school at primary age? Save a fund to give you options later but if you are prioritising a new house, you could make sure it is close to great schools.

Make use of tax breaks. If your employers don’t use a voucher scheme for childcare you can still get the benefit if the childcare provider invoices your employer direct for the amount of salary sacrifice. (DP and I did this).

One of you is over the limit for Child Benefit: if you have any SAHP years off, claim and pay back through tax to make sure you are still getting your credit towards NI / state pension - or at least check the situation.

MSE is for people who want to be smart with their money as well as those who need to be careful with every penny.

Time to think about what you really want out of life. If you are a 'live for now' type you might want to start having more holidays and other fund stuff. If you want to retire at 50 then maybe start a private pension? Or do you want to save some money for a deposit on a better house? Expert advice from a financial advisor is always useful, but everyone has different financial priorities so worth thinking about what is important to you too.

Following

Make sure you're paying off debt, i.e. loans, credit cards, mortgage, student loan*, etc., more than the minimum repayments requirements. Pointless trying to scrap a percent interest here and there if you're paying 3,5,7,10+% on interest on debt.

*Yes, student loan, as you sound to have high enough incomes to be making repayments. The interest is very high on student loans, so if you're in repayment territory, it's wise to pay off earlier to reduce the interest. Yes, most people are forecast not to fully repay student loans, but those higher earners who do pay it off will pay a whopping amount of interest, so if you fall into that group, get it paid off sooner.

Not so sure about the financial advisor advice. They'll basically only "advise" (i.e. sell) re pensions, life insurance, etc., rather than give advice about maximising income, lowering costs, etc - there's no commission/charges in it for them for the latter, more general advice, so moneysavingexpert website is a better place to start.

I'd aim to pay off as much of mortgage as possible (while rates are cheap). And put more into both your pensions (possibly consider opening one for DC). Both of these things will be beneficial to you.

Make a commitment to save £x a month (this might be where a financial advisor is useful - to advise you where best to save).

Don't spend money for the sake of it. If you're managing perfectly well with one car now, do you really need a second one?

Great advice on here... I’m just going to focus on one of your priorities (new home vs private education):

If you have excellent state options then personally I would go for that, because you can afford to ‘top up’ the children’s education with extra currics and tuition. Private school gets more and more expensive, due to inflation AND the kids getting older... with two I’d look at putting money away now to pay for secondary fees if you still want to go for it.
What is it you’re hoping to gain from it? Is it something you can afford to provide anyway? There are several threads on mumsnet where others have been in similar situations, it’s worth reading to decide if a higher-value/better house will benefit your family and security more than putting the children through private. If you had poor state options it’d be an easy decision, but I think you’re in a relatively fortunate position to have good choices either way.