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!

Thanks everyone for the really helpful advice - much appreciated!

If your incomes are now about £65k more than before about half that goes in tax so you probably have about £35k after tax more than you had. That is enough for 2 sets of private school fees and a bigger house.
That is what we did with spare income - bigger house and private schools.
However everyone has different priorities. I work for myself and am happy to work until I die so pensions have a different impact for me than for those who want to retire at 55 and never work again.

Traditionally for those with a lot of money having a third in cash, a third in shares and a third in property remains quite a good rule but id yo don't really have that much I would just keep it in the bank for now particularly as you might be moving hose in a few years' time.

Do you have grammar / selective schools where you are? If so it'd probably make more sense to plan for a good primary and pay for private tutoring to enable the DC to get into selective state schools.

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

At the moment your options are very limited due to excruciatingly bad interest rates. You already have a hone, so a LISA is only useful if you want to lock it away until you are 60. You can get better interest on accounts where your money is locked in for 2 or 3 years, or else look at a Stocks and Shares ISA - but you need to know that while these have been doing really well they can lose money as well as gain, and are best for investment of 5 or more years.

Lots of people are now putting their money in Premium Bonds - which can be liquidated quickly and without any penalties.

All this advice and info is available on MSE. In this market it would take a miracle FA to be able to make their fee worth your while to build a rainy day savings fund.

Pensions and mortgages, overpay on the mortgage and pay in a good amount to a pension. This will set you both up financially into old age. It will also help if one of you loses your job or gets into financial difficulties.

Then set about paying off any other debt.

Next I'd save between 1 and 3 months salary each for emergencies

And only then would I even start to think about privately educating my dc, its expensive and if your are currently ttc, then it'll get even more expensive.

Be very careful about advice to pay off student loans. I didn’t catch what age you are, but if you started (not finished) university pre-2011 the interest on student loans is not very much, and would not be substantially worth paying off early in my view (especially when you consider that should your income fall so will your repayments, including mat. Leave or job loss)

Assuming you went to Uni in U.K., if you log into student finance (England or other variant) and find out your existing loan value, you can then input your salary and loan details in this website which will calculate remaining payment, estimated annual payment and interest payable

www.student-loan-calculator.co.uk/

I was surprised at how little interest is being applied to mine and when I will have it paid off. I think mine is showing about £100 interest per year and I borrowed the maximum as I was at uni in London. It’s worth paying that to me to keep the flexibility that should I fall onto harder times the loan repayments will stop but I would have the cash that would otherwise have gone on repaying the loan

Sorry typo - if you started uni pre-2012

If you want to go to a financial adviser, choose an independent IFA rather than one connected to your bank or other financial institution. You can pay a one-off (reasonable) fee, and they can give you genuinely independent advice, rather than try and persuade you to take a particular financial product so they earn commission.

My advice would be to pay off any credit cards or other similar debts in full, and speak to your mortgage provider about repaying your current mortgage more quickly. Other than that, make as much use of ISAs as you can, save the rest and maybe increase payments into your pensions if you aren't already well provided-for.

Oh, and have fun with some of it.

PS - if you don't already have children and are planning a family in the future, then you might want to factor in a considerable reduction in income for several years.

I would also recommend:

www.reddit.com/r/UKPersonalFinance/
and their flowchart
flowchart.ukpersonal.finance/

I probably wouldn't go to an independent financial advisor until you've been though that, and:

1. got your spending budget under your active control (whether it's a lot or a little, just try and make it a conscious decision)
2. Squirrelled away an emergency fund.
3. Got your pension contributions sorted.
4. Paid off any "bad" debt
5. Made sure you're using, or at least aware of, your ISA allowances etc.

Don't be ridiculous @WillSantaBeComingToTown

Of course £105K is a high income, for a young couple. You have a skewed view of what people earn in this country. dh and I are both senior managers, well into middle age, with decades of work experience on top of post graduate study and we don't earn that between us, as the overwhelming majority of people in this country don't.

I despair as to why one of the first recommendations on most of the money threads is to see a financial advisor.

The only person guaranteed to make money from seeing a financial advisor is erm .... the financial advisor.

The best think you can do is educate yourself - there are so many good sources of information and moneysavingexpert is a great place to start.

Do you have any savings?

Thanks all!

We’ve got some savings, not loads as used a lot of what we had for my last mat leave. We have about £10k saved and trying to put aside at least £1000 per month between us. It’s just in a current account at the moment (I know). This is what we’d planned to use for a house move so just not touching it for now. I’ll need to save a bit more for (hopefully) a second mat leave at some point.

I’ve been putting some money in DDs saving account each month too so she has another couple of thousand, should probably try to put this in an ISA then I guess as we don’t really need access to it at least until she starts school.

Only debt we have is around £2k on an interest free credit card. I bought my last car partly with savings and then put the rest on an interest free credit card. I’m paying off a bit a month and should be paid off before the interest free period ends.

The only benefit of ISAs is that the interest is tax free. But given that interest is now so low, and higher-rate tax payers can earn £500k in interest tax free (£1k for non-higher rate tax payers) you would need to be saving....ooooh, ever such a lot...to make that amount of interest.

Which makes ISAs no more worth saving in than anything lese, as far as I can see. Except the LISAs, because of the Gvt top-up.

Ah, rubbish. Won’t bother with the ISA then. Any point in trying to invest our savings in another way if we’re likely to need access in a couple of years?

@RainingBatsAndFrogs that's only true of a Cash ISA. No CGT or Dividend tax on Stocks and Shares ISAs, which is where most people should put their longer term savings given the current interest rates.

@YakkityYakYakYak, if you're likely to need the money within anything less than 5-7 years I wouldn't recommend stocks and shares ISA's, so not really. Premium Bonds can be fun!

I'd go for the bigger house now if that's your long term plan anyway - Houses are an investment that you get to actually enjoy, & invest the rest - pension, S&S ISA or whatever.

Avoid all the other lifestyle creep costs (cars, holidays, designer trinkets) & you will remain in a very comfortable position.

You could try this course from MSE/OU
www.open.edu/openlearn/money-business/mses-academy-money/content-section-overview?active-tab=description-tab

I should give you a grounding and might help make your time with an IFA more productive.

It should

@ChazsBrilliantAttitude Thanks, I’ll definitely give that a try.

I recommend Dave Ramsey, he is live daily on YouTube, and also has a budget, Everydollar, online or an app on a phone. He has a plan that you could follow. I really like the budget which I check weekly online, you see where you are spending your money and where to cut costs. Also it teaches to have a plan before the money comes. He has really helped my family take control of our money.