Financially better off due to Covid? To spend or to save?

[bjjgirl]

Firstly I understand how lucky we are to be key workers and have worked throughout lockdown etc etc.

I have had to do a lot of overtime due to work demand and due to no holidays/ days out etc we have saved quite a bit of money.

I'm approximately around £8k personally in savings and dp also has cleared debts etc and will be getting a large bonus which he plans to save.

We joint own our home and have separate finances, my thoughts are to save 6 months of bills combined to have cash available. The other option is to pay off my car which I will save no money doing.

Should we spend money paying lumps off the mortgage or have cash available in savings? Is it better to have cash ready or pay annual bills like council tax up front?

If you are in a similar position what are your plans re the extra cash?

I’ve spent mine on refurbishing my house and paying extra off the mortgage. With interest rates as low as they are, having a large amount of “just in case” cash sitting in a bank account essentially devaluing (because inflation is higher than interest) isn’t a particularly wise choice, particularly if you have alternatives for it.

My “emergency savings” have long been long term 0% interest credit cards - I always have around £20,000 available credit which would cost me nothing to borrow for a couple of years in the event I needed to, so my own money is either earning me higher interest in locked investments or giving me joy through being spent on things I want.

Following. In similar position (except it is just me as a single parent of 3). I have 6k now just building up in my current account. I've never had savings. Lived month to month. Covid has finally given me a chance to sort my finances out.
Not a clue what to do though. I'm 36, and never really been able to get off the bottom rung money wise. I've forever been playing catch up as I was a teenage parent.

Do you have other savings? If not, I would put some aside for that, as long as you won’t be tempted to start spending it.

If you already have savings, or if you perhaps want to put aside 4K I might pay off the car and then save the monthly money saved from those payments. Try not to have a car loan in future, but save up enough to buy a good quality 2-3 year old car when you next need one rather than always having a lease car or hired car.

I think laying chunks off your mortgage comes after having a decent buffer of savings and no other debt such as car loans. Think about what those savings are for....it’s always good to have a buffer purely for emergencies and not always to be spent on something like a holiday or DIY which would then leave you with nothing. If you’ve never managed that buffer before, this is a great chance to start it....but it might require a mindset change for you to then leave it alone rather than it burning a hole in your pocket each time you think of something you’d like or it could be spent on.

And well done to anyone who have accumulated a chunk of savings during this period rather than spending it all on takeaways or online purchases. Even a £5k or even just £2k buffer can make a real difference and enable you to feel more in control and secure.

Generally paying off debt is a good thing as it’s the debt payments that can keep you in poverty or living hand to moouth.

Someone I know once talked about splitting any extra money like what you talk about into thirds, which sounds like a good plan to me.

A third on the past - as in pay off any debts, you could include your mortgage in this.

A third on now, this is the money you allow yourself to spend on things which may be more frivalous spending. I think in your situation, I'd be earmarking this for a nice holiday when this is possible - you deserve it. Plus maybe some treats you can enjoy now, upgrade tech or household furnishings, earmark money to car replacement, whatever floats your boat. I agree what the PP says about the benefit of not having car payments to make, this is generally an expensive and insecure way to live.

And a third for the future, so top up your pension, or just save as an emergency fund, you never know what's round the corner. You might have a lower risk than many of not being able to find work when you need it, but there's always the risk of losing income due to serious illness etc, so a cushion is always valuable or could allow you to work part time in later life.

As for regular bills, if you can easily afford them on your income, I'd probably just pay them monthly as you go along, unless there's a financial saving by paying upfront - eg car insurance.

No need to stick rigidly to the above proportions, but it's a good way of thinking in general, especially if you need to give yourself permission to spend money that's not strictly necessary.

I paid off my car as it had 8.5K left to pay over 4 years, it saved me £200ish a month.

I'm starting to save up again, between £500/1000 depending on bills.

Agree that 6 months living costs as savings set aside is sensible.