What is the best financial decision you have made?

[Flyingfish111]

What is the best financial decision you have made and why?

If appropriate, has it helped you save for anything in particular?

Trying to rain in my spends and save as much as possible for a house deposit.. both myself and dp have a LISA and have done now for a few years!

I'm not so sure I have a best financial decision but one that stands out is staying at home during my time at university (of course there are downsides to this outside the financial remit) which means I will have paid off my student debt by the age of 35/36+ although I admit I wasn't as savvy as I wished I was in my 20s going on regular holidays and going out drinking etc!

Both myself and DP have also kept our savings in premium bonds and have worked out that we have won more than we would have gained interest, not a significant amount or a life changing amount but a small win all the same!

On the downside, DP is in a bit of a career rut at the moment, stuck in a particular 'specific' field in the civil service (his role is business support for a specific team with some project assistance work) and struggling to move upwards!!! Any other job in his field elsewhere is paid about 5k less. I know that this is something that is holding us back financially, something for my dp (with my support) to think about this year!

I'm saddened to see so many people think that overpaying their mortgage was their best financial decision. If you're comparing it to spending the money instead, then sure, well done, great decision. But you could have done so much better.

Let's say that at the beginning of 2010, Amy, Becca and Caroline each take out a £200,000 mortgage at 2% for 25 years, giving them an £848 monthly payment, when they'd all budgeted for £1,000 a month.

• Amy just repays the £848 and spends her spare £152.
• Becca sets her mortgage repayment to £1,000, overpaying £152 a month at first, although the overpayment gets bigger and bigger as the mortgage balance shrinks.
• Caroline just repays the £848, but puts her spare £152 a month into a stocks and shares ISA.

Fast forward to today, and that's a bit over twenty grand of £152s. Amy still has a mortgage balance of £122,000, while Becca's is down to £99,000. Amy has nothing to show for her twenty grand, while Becca is not only twenty grand closer to paying off her mortgage but has also saved £3,000 in interest payments, so she's £23,000 better off than Amy and saving more every month. Well done Becca.

Caroline also still owes £122,000 on the mortgage, and hasn't saved any interest. However, she has £47,000 in her ISA now*. Instead of using that twenty grand to save £3K in interest, she's used it to earn another twenty grand, and then some. Earning interest is exactly the same as avoiding paying interest, so not only is she £24,000 better off than Becca, she's saving more every month.

Now, a word of caution. The stock market is volatile. You might lose money. The last decade has been a good one for shares, and the next one probably won't be as good. But volatility is a short term thing. Over a long enough period of time, the stock market has historically always given you a decent return - and the fact we're comparing to the length of a mortgage means we're talking about a long enough time period for that to be a reasonable assumption. As a long-term average, shares earn you about 10% a year, so that's what you're giving up when you choose to overpay your mortgage to save what's probably less than 2% a year in interest.

• For the curious, I've used the S&P 500 as my benchmark for this, simply cos that was easy to find data on.

I’d say that financial decisions, apart from their purely financial consequences also have emotional impact which is worth valuing. Any good economist knows to include the non-pecuniary costs and benefits when assessing the consequences of value of decisions.

For many, the emotional benefits of paying down a mortgage or becoming mortgage free are great and perhaps exceed the purely benefits. It is something very tangible and that is valued by people. Likewise, anything invested in the stock market, as you say can fill in value as well as rising and has risk attached to it. For many, this risk detracts from the benefits as it is unsettling. Even thought these assets might perform financially better over time, they are not suitable for all and the stress people might feel if invested in them detracts. Any good financial adviser always assess appetitive for risk before selling assets or giving financial advice and recognising this is important. It’s why there’s no straightforward answer about best decisions because people value things differently.

For many, reducing the mortgage gives tremendous satisfaction and it’s also something that can be tracked and outcomes and timescales are pretty certain, which people value. Most when answering financial adviser questions would sacrifice some potential increase in value of assets for some certainty and to avoid risks of a decline in value. These human characteristics should be recognised when looking at financial decisions, because ultimately all of us making those decisions are humans and not robots.

@ThePants999

I'm saddened to see so many people think that overpaying their mortgage was their best financial decision. If you're comparing it to spending the money instead, then sure, well done, great decision. But you could have done so much better.

Let's say that at the beginning of 2010, Amy, Becca and Caroline each take out a £200,000 mortgage at 2% for 25 years, giving them an £848 monthly payment, when they'd all budgeted for £1,000 a month.

• Amy just repays the £848 and spends her spare £152.
• Becca sets her mortgage repayment to £1,000, overpaying £152 a month at first, although the overpayment gets bigger and bigger as the mortgage balance shrinks.
• Caroline just repays the £848, but puts her spare £152 a month into a stocks and shares ISA.

Fast forward to today, and that's a bit over twenty grand of £152s. Amy still has a mortgage balance of £122,000, while Becca's is down to £99,000. Amy has nothing to show for her twenty grand, while Becca is not only twenty grand closer to paying off her mortgage but has also saved £3,000 in interest payments, so she's £23,000 better off than Amy and saving more every month. Well done Becca.

Caroline also still owes £122,000 on the mortgage, and hasn't saved any interest. However, she has £47,000 in her ISA now*. Instead of using that twenty grand to save £3K in interest, she's used it to earn another twenty grand, and then some. Earning interest is exactly the same as avoiding paying interest, so not only is she £24,000 better off than Becca, she's saving more every month.

Now, a word of caution. The stock market is volatile. You might lose money. The last decade has been a good one for shares, and the next one probably won't be as good. But volatility is a short term thing. Over a long enough period of time, the stock market has historically always given you a decent return - and the fact we're comparing to the length of a mortgage means we're talking about a long enough time period for that to be a reasonable assumption. As a long-term average, shares earn you about 10% a year, so that's what you're giving up when you choose to overpay your mortgage to save what's probably less than 2% a year in interest.

• For the curious, I've used the S&P 500 as my benchmark for this, simply cos that was easy to find data on.

Two main problems. Firstly, a lot of people had mortgages when interest rates were a lot higher than 2% - low interest rates are a pretty recent thing. Secondly, as you say, investment returns are variable and the higher returns are often from risky investments where you can lose some of the capital. Just look at the endowment scandal of the 80s/90s where people did just what you suggest, i.e. "invest" in an investment vehicle to pay off the mortgage, only to find that their investments hadn't grown anywhere near enough to pay off the mortgage! It's all well and good picking a particular few years out of the last 40/50 and say "it worked better doing x rather than y" - that's the benefit of hindsight.

@WombatChocolate

I’d say that financial decisions, apart from their purely financial consequences also have emotional impact which is worth valuing. Any good economist knows to include the non-pecuniary costs and benefits when assessing the consequences of value of decisions.

For many, the emotional benefits of paying down a mortgage or becoming mortgage free are great and perhaps exceed the purely benefits. It is something very tangible and that is valued by people. Likewise, anything invested in the stock market, as you say can fill in value as well as rising and has risk attached to it. For many, this risk detracts from the benefits as it is unsettling. Even thought these assets might perform financially better over time, they are not suitable for all and the stress people might feel if invested in them detracts. Any good financial adviser always assess appetitive for risk before selling assets or giving financial advice and recognising this is important. It’s why there’s no straightforward answer about best decisions because people value things differently.

For many, reducing the mortgage gives tremendous satisfaction and it’s also something that can be tracked and outcomes and timescales are pretty certain, which people value. Most when answering financial adviser questions would sacrifice some potential increase in value of assets for some certainty and to avoid risks of a decline in value. These human characteristics should be recognised when looking at financial decisions, because ultimately all of us making those decisions are humans and not robots.

Fully agree. That's how it is for us. We're not remotely interested in spending or growing our savings. We just wanted to pay off our mortgage as soon as possible so that we could reduce our working hours and spend more time doing "fun" (for us) things. Paying off our mortgage early allowed me to give up work and start my own business and allowed my OH to work part time. That's more important for us than watching numbers on a piece of paper increase (i.e. savings or investments), or climbing the property ladder or spending money on fancy cars, jewelery or whatever. We have the lifestyle we want which is pretty simple. We could have both continued working full time and could have 2 brand new BMWs on the drive, a big posh house, several holidays per year etc., but for us, that's not worth spending every daylight hour at work (which is what we were doing). I'd rather roll out of bed at 9 and start working at 10 then finishing at 2 for the day, rather than my old job where I left the house at 7.30 and didn't get home till 6.30. Paying off our mortgage early allowed me to do that!

The whole love island type/kardashian type pressure. Is there anyone out there who gets what I mean?

I've heard of them of course, but am not influenced by them. I can't understand the whole culture of "being famous just for being famous" thing. I guess there will be a correlation between people who are and age bands, but I've also got nieces / nephews / God children / friends dc who call me Aunty ranging from 13 up to 32, none of whom would think their self esteem would be booted by them having a flashier car, rather than one they could afford.
I'd actually suggest it could be the other way round - that people who have lower self esteem, or who completely lack confidence in themselves would be more likely to want to "give the impression to onlookers" that they earn more than they do, etc. So it would be the lack of self esteem that might drive someone to pretend they can afford more than they can, rather than a person who is financially savvy enough to only buy what they can afford, somehow having their self esteem affected by buying, or not buying a car on finance.

Does that make sense ?

I totally agree with both User and Wombat's excellent posts.

Pants you have picked a 10 year period where mortgage interest rates have been very low, and it seems the stock market has done well. That wasn't the case either way for the life of my mortgages.

Plus, as both Wombat and User have said this is about much more than purely figures, when you are talking about the lovely feeling you get when you pay your mortgage off and you are presented with great choices about what you then do next with your lives.

Low interest rates have only really been since 2009 - this is base rate so mortgage rates would have been a bit higher on average:

www.propertyinvestmentproject.co.uk/property-statistics/uk-interest-rate-history-graph/

When I bought property in mid 90s mortgage rate was 6% and had been 15% a few years previously. You could also get good interest rates in the bank where your savings were guaranteed as long as you kept under the FSCS limits. I certainly always got over 5% on savings though I put a lot of the saved mortgage into a pension which invests in stocks and shares plus you get tax back.

Paying off my mortgage very early was amazing for me - it meant I could do any job I wanted, I didn't have to earn massive amounts or stay in that job with the PITN boss. I could work part-time and spend it with my children and know my house could never be taken away from me. If you gamble the bank's money on the stock exchange and get it wrong you'ld could not only lose the money but you could risk losing the house if circumstances changed like you got ill, your partner left / died etc, there's no safety net and for me that's too big a risk for my family. No-one plans to get cancer/ill or their husband to leave them but it happens. There's also a lot of charges and tax on it.

The return on the FTSE All-Share over the period I owned property after the annual charges is only around 2.4%, which is quite low considering the risks involved and certainly until 2009 I was getting over 5% interest in the bank and for up to 5 years after that on long term accounts.

www.swanlowpark.co.uk/ftseannual

Started my current job before I went on a pre-booked holiday, and did my induction stuff for a week before going on a fortnight's holiday using annual leave. Found out a few months later that if I'd delayed my start date to save annual leave, I'd have missed the cut-off for our final salary public sector pension. I got in with three days to spare. Worked out that if I stay there until I want to retire, I'll be able to do so at least three years early.

Buying my boyfriend out of a house late twenties, best decision.
Both me and my husband paying into pensions from an early age.
Extending our current house, in a good area close to nice schools.

Pet insurance, getting a private pension on top of my state and NHS pension, overpaying my mortgage, staying debt free, getting rid of my 2nd husband who pissed money up the wall constantly.

@SandysMam I do totally get where you’re coming from. In my twenties and early thirties I was very invested in nice things and deserving stuff. I still have quite a few designer bags for instance.

Looking back I can see that I was quite unhappy in my job, lacked confidence and bought things to make myself feel better and look better in other peoples eyes. Regardless of whether I actually deep down liked or respected those people.
In my current circumstances I have significantly less money and I’m generally much happier and content. I don’t really crave buying things like I used to.

Having grown up with very little by way of treats and being jealous of other people that had nice things, I wonder whether some of it was in retaliation to that. My upbringing was love rich and cash poor and I really appreciate how lucky I am with my family and the one I’ve made for myself.

Also as I get older I care less as my priorities have changed. I do cringe and some of my wastefulness, but I know better now.

I’ll always be a bit champagne tastes, lemonade budget, but the difference now is that I don’t think less of myself for not upgrading to the latest everything. I would rather the security of having life choices and experiences.

@Asgoodasarest thank you! I thought I was going mad then! Also @BackforGood makes an excellent point about low self esteem driving the need for flash lifestyle.
I have low self esteem and low confidence and it is definitely something I am an easy target for! Advertisers dream.
Although now I am looking at the battered old Volvo drivers thinking “must be loaded”

Wise house buying for maximum return on minimal effort - dated but solid in good location. Stretching ourselves when young to move up the ladder. Moving around for better jobs.
No debt apart from the mortgages.

@SandysMam it’s probably more accurate to say that having low self esteem makes you want the flash car etc, rather than not having them giving you low self esteem. There is so much pressure to buy into a lifestyle, that you must want xyz to be successful.

I have to be very careful with who I follow on Instagram and check myself regularly when I start to feel a lacking.

Investing part of an inheritance into starting our own business, 12 years ago. It has completely changed our lives . We now work from overseas as it internet based. We work hard but have a lovely life with no money worries

Best financial decission ever was to budget and really know my money situation at any point in time.

I've had affluent periods and a spell in poverty. In all circumstances life has been more bareable for knowing my exact circumstance and which costs were fixed and which could be flexed.

Not going to uni when I left scheme. Went straight Into the company I am still at. Accruing 28 years in a final salary pension scheme. Scheme closed and now pay into a money purchase scheme, I pay 7% and my employer pays 14% which I will continue for another 10 years and will then retire.
Did part time studying and gained my Masters which was funded by my employer and increased my earning potential quite substantially.

The arguments against what I said - the emotional side, and the fact that this last decade has been particularly skewed in favour of investment - have merit, and indeed I did acknowledge the latter in my post.

A critical thing to remember, however, is that investments are usually quite liquid, which means that any time you want to transfer from investment to mortgage, you probably can. Interest rates suddenly shoot up? Okay, liquidate the investments and pay off as much of the mortgage as you can. Want the mortgage to stop hanging over your head? Sure - as soon as the value of your investments reaches the balance of your mortgage, pay off the mortgage, and the point is that you've reached that milestone so much earlier. In the example in my post, Caroline probably pays off her mortgage in 2025, while Becca doesn't pay it off until 2030.

It's very true, though, that this all depends on your attitude to risk. Equities aren't that risky over the long term - it's practically guaranteed that investments in shares today will be worth a decent amount more in 25 years' time - but they certainly are in the short term, and if you can't see your investments dip without panicking about it, steer well clear.

ThePants99 I see the emotional arguments but also think that anyone who did not put at least something into stocks and shares over the last 10 years well and truly missed the boat. I cannot believe how well my shares are done (and continue to do so) without me even lifting a finger or so much as glancing more than once a year at my statements, probably rivalling property but with much less risk and hassle.

Fine if the alternative is overpaying a mortgage but the number of times I see cash deposits being recommended as a 'safe' investment over stocks and shares or the wildly speculative bitcoin at the other extreme of risk just makes me think people are missing a trick here.

ThePants99 in case it was not clear, I am actually agreeing with you. I overpaid my mortgage and also put aside a little savings in S&S ISAs. I could have overpaid my mortgage faster without investing in S&S but the rate on the mortgage was pretty low compared to the upside of shares that I felt comfortable to take the risk of fluctuations of shares because it was not a huge amount, plus I don't have time to monitor it so it does not matter. Again, risk appetite and I agree the general trend for S&S over the long term has historically been up and up.

The thing I would say about investing in S&S is to invest in a low cost index linked fund rather than individual shares. It might not have the upside of a Google (ha, that would be like a needle in a haystack) but much safer and does not depend on stock picking skill.

What a great thread. For me maintaining independent earning capacity after having my kids, if marriage ever goes wrong I know I can look after us. That gives me a lot of security and satisfaction. Second to that is not being mad with spending. Apart from my first car (which was very old) when I needed a small loan I’ve always saved and bought cars outright. My friend in contrast always gets on PCP and each time exchanges for the biggest and most expensive available. She is concerned that her pension lump some will not be enough to pay off her interest only mortgage - im so worried about her.

Being independent and buying my house on my own.

Continuing to work and concentrate on career progression along side having a family. In the time many women go part time or give up work I tripled my salary (I did go part time for a bit actually but thankfully that's quite normal for the paraprofessional role I was doing as most people do the postgrad part time along side it which is what I did)

Controversially and completely undeliberately having children young worked out very well for us, we fell pregnant accidentally young and as such as low earners early on in our careers we had our childcare heavily subsidised. By the time we were past the childcare thresholds we were past the childcare years and easily able to afford and get a mortgage.

1. Being born to comfortably off parents who were able to subsidise two Masters level degrees which allowed me to pursue a stable and well paid career path

2. not developing any health problems or other issues preventing me from working in my chosen field

3. Marrying a partner with good earning potential, therefore combining two decent sized salaries while reducing living costs

4. Maintaining my career after DC1 (and planning to do so after imminent DC2)

5. investing in property and shares at the right times and prioritising these investments over consumables or depreciate assets like expensive cars

Probably in that order. My point being that my own financial decisions, while probably sensible, were only possible because my background (and some luck) were in my favour.