Don't know how to handle money

[plumpootle]

Hi all

I've seen really good advice on here so hoping someone can help me untangle my thinking a bit.

I've just secured a new job in a new sector. It is a big promotion so am earning well (£90k + bonuses)

DH earns 1/3 of this in a secure public sector job.

We have one DD who we do not plan to educate privately.

We live in London and have a big mortgage (300k) and would not invest in any more property and do not plan to move.

I don't know where to put the extra money I'm earning. DH strongly thinks we should plough it into the mortgage as he is stressed about our debt level. I am less stressed as we are both v career orientated and neither of us want to stop working for the foreseeable (we are mid 40s).

Could put into our pensions but that ties it up away from DD.

Could start saving in some serious way for DD - but no idea where to start as interest rates are so low.

I appreciate that this is a very lucky problem to have but money makes me nervous!

I could see a financial advisor but do they just want to get investment for their clients?

Any thoughts very very much appreciated

From what you're saying it sounds like you might need a balance of some mortgage overpayment to reduce DH's understandable stress, as well as putting surplus money to work in accumulating savings/investments for medium to long term future use.

It is good to keep an emergency fund in accessible cash savings, but where you have spare money beyond that it is usually prudent to look at using your annual ISA allowance next, preferably a low cost Stocks & Shares ISA with fund choices in line with your personal appetite for risk. If you have used all ISA allowance then look at using pension allowance or a general investment account. Also make sure you have adequate life insurance in place to protect the mortgage and your family/lifestyle.

Choose a financial adviser with care. There is a growing movement of advisers who focus on Lifestyle Financial Planning which rightly puts the client and their objectives at the centre, and views money and products merely as tools to use to achieve the objectives. This is a fundamental shift away from the old school advisers who are more interested in the money itself and how much they can get under their management/into investments.

You need to think about what you want to save or invest for and then where to put it.

You should have an emergency fund that is 3-6 months expenses or income in something readily available like cash or premiums bonds.

You might need other cash pots if you want money available for anything in the next 3-5 years - new car, home improvements, new furnishings etc

I would seriously consider overpaying mortgage (checking that this won't incur fees of course) as cash rates are very poor and although you think you will always be working you could fall ill or have other circumstances that mean you need to stop work.

Then you could look at investments. Low cost trackers are a good place to start.

You also need to make sure you have appropriate insurance in place - life and income protection is probably the minimum needed.

I think top things for me might be:

1. Mortgage - maybe overpayments, especially as savings aren't doing much these days

2. Making sure you have 3-6 months' emergency money, I always try to keep that

3. Pension - especially given you can put away more than your DH

Thanks all

We do have money in savings, about £30k
but I think maxing out our ISA entitlement is a great idea, as is splitting payments so some on mortgage, some in savings.

I would max out the ISA. Some overpaying the mortgage. And savings - hopefully to get investment property.

If you have a big mortgage then overpaying will make a big difference. I worked out that overpaying my mortgage by £200 per month will mean I repay the mortgage 6 years earlier than planned and save something like 25k in interest and that’s with interest rates as low as they are now. I put in an interest rate of 5% and it said if I keep overpaying at £200 a month it would save me over £70k!

Many years ago a financial advisor told me not to pay off my mortgage as it was a ‘cheap’ loan.

Max out ISAs, buy Premium Bonds and pay into a pension.

Is overrated the mortgage but tbh 300 isn't a huge mortgage in London anyway. Pay it down and aim to be mortgage free ASAP.

You can also pay into a pension for your child.

Totally different to what @JayAlfredPrufrock just said!

You can also do a LISA, it gets locked away to a degree but you get a bonus from the government

Congratulations on the job and the chance to build financial stability. I would echo what another poster has recommended. It is worth seeing a financial planner. They look at your current situation and your financial goals and can tell you how to get there.

Start with a years salary in savings - max out ISAs etc.

Then maximise your pension contributions because of the tax benefits

Then overpay your mortgage.

Don’t put savings in your DCs name

At your level of income I’d see a financial advisor

have a look on reddit at the UK personal finance thread, loads of great advice on there and very knowledgeable people, repost this on there.

@PegasusReturns

Start with a years salary in savings - max out ISAs etc.

Then maximise your pension contributions because of the tax benefits

Then overpay your mortgage.

Don’t put savings in your DCs name

Why do you say not to put savings in DC name? I do worry about doing this but it seems everyone I know is maxing out their children's junior ISA accounts whereas I don't contribute to mine.

Have a look at an offset mortgage, I have around 280k mortgage however only pay interest on £190k due to savings that I am able to access. I’m self employed so I didn’t want all my money locked up away by paying it off

Overpay mortgage while rates are low to reduce the term of mortgage. The more you pay off earlier the less interest you'll pay on the loan in the long run and it'll be paid off sooner too.

Dave in the highest interest savings account you can, ISA if poss.

Premium bonds.

Also Speak to a tax advisor too for optimum tax efficiency! E.g you can gift 3k a year tax-free (to your DD for example) and it won't count towards your estate

*save

Is it only me that would say spend and enjoy it? Obviously not all of it but it's no use when you're dead!

Open a junior ISA for DD linked to your ISA too.

And of course - spend it. Have a regular saving account for this and set it to take a certain amount each month. Then at the end of a year you have a designated holiday pot to spend.

Calculate what you can afford to put in each pot and set up to go automatically every month a few days after your salary comes in. That way you won't just spend it on nothing.

Why do you say not to put savings in DC name?

Because once they are 18 you have no control over it. This is probably fine if you have £5k and a sensible hardworking 18 year old but if you have £50k and a drug addicted child then it won’t.

When I was a trainee lawyer I was involved in a horrific case of a young woman who at 18 was set to get access to substantial savings. She was involved with an older man, dropped out of her very privileged school and was partying hard. Her parents tried to prevent it through the courts. They couldn’t, she inherited and it ended very sadly.

Well, yes. Be prepared for kids to be crappy at 18. Try and instill good values and try to get them to think of it as a college fund or a house deposit.

And this is also why it's important to spend too - so you don't get bitter if DD blows your hard earned cash.

Depending on how much you have I would say a bit of everything:

• overpay mortgage
• make sure you are paying into pensions
• instantish access savings
• drip feed into some unit trusts (ie stocks and shares) provided you know you aren't going to touch the money for at least 5 years and preferably 20.

I would also echo not saving anything substantial direct in the names of DC. The most lovely 12 year old can go astray in later teenage years.

I'd sit down and work out a sensible % split, not putting it all in one place. If I were in your shoes:

1. Six months' worth of savings + an emergency expense fund (sounds like you have this). Mine is in premium bonds.
2. Reduce mortgage;
3. Top up pension;
4. Agree with those who are saying don't put money in savings in your DD's name in case she spends it all at 18... but you can start saving into a pension for children I think. Maybe look and see if you can put £100 pcm or similar in something like that. Over your DD's life it should accumulate quite a bit, regardless of stock market ups and downs, and it will be helpful to her in the long run;
5. Check your National Insurance contributions to see if you can top up any partial or missing years.

Once you've covered your financial responsibilities use the surplus to give your DD amazing experiences! It's not all about having it sat in the bank.