What to focus on financially?

[Bluegreen143]

If you had no debt except mortgage and around £2k in emergency savings, what would your priorities be for spare cash?

• 2 kids, 5.5 and 2.5, so soon very little childcare costs for the little one

• one FT earner (around £32k) and one PT earner (£30k FTE so it’s about £20k pre tax because I’m part time)

• mortgage with £112k on it (£175-180k estimated home value), no car loan or other debt except student loan which I don’t earn enough for repayments to kick in

• my job is on a fixed term contract so has 6 months left, they are saying they are very keen to make me permanent but it’s not guaranteed til it happens of course)

• not totally decided on whether to have a DC3 in a couple of years or whether to stick to one child (depends a bit on if I get kept on)

• pensions aren’t in amazing shape as I took time out as a SAHM and DH started contributing late; we are both still in our 30s though and now contributing enough to get max employer contributions

• factored into our monthly budget is saving into “pots” for Christmas/birthdays, car replacement, doing stuff to the house and holidays.

So with the amount we have leftover to save each month (on top of the pots mentioned) would you:

1. Overpay the mortgage (I do this a bit just now just rounding it up to nearest £100)

1. Build cash savings/emergency fund up more given potential job insecurity or third child in a few years? Though we know if we are frugal we can live off DH salary as did so for years. But we are getting used to having a bit more to spend… DC3 would only be in the context of a permanent contract at work and the company has a generous maternity policy.

1. Build up pensions (I do already put £50 a month into a LISA on top of my workplace pension but DH hasn’t done anything like this)

1. Build up an amount of money to invest eg in stocks & shares ISA.

Or some combination of the above? We are probably talking £300-400 spare each month but I put £100 into our help to save accounts (which we opened when DH was furloughed and I wasn’t working). So maybe £2-300 left after that. Whenever we use any of the emergency fund I then use this cash to top it back up to £2k but it’s there now so tentatively hoping we don’t have an emergency in a while so we can do something else with the cash for a bit 🤣

I know we are in a fortunate place to have spare money - we haven’t always been in this place so I want to use it wisely to benefit our futures.

Even if we DON’T OP that should be.

In an ideal world I'd want my emergency fund to reflect actual income (with the view that it could be extended for more than the 3-6 months I'd saved for if necessary).

Have you factored in that children get more expensive as they get older (more clubs, bigger clothes, eat more, need more "stuff")? Plus, unless you work term time school hours don't underestimate how much childcare will be for school children.
I'd be tempted to put the nursery savings into your emergency fund (you've not had it so won't miss it ;) )

UserStillatLarge - good points re kids’ expenses. Our approach to childrearing this far is we get them outdoors a lot (which is free) and spend a lot of time with them at home and we don’t choose to spend much money yet. However I appreciate school-age kids get more expensive. I work school hours but not term time only - my DS went to a term time only nursery and we juggled these summer hols between us, grandparents and paying a local 16yo to babysit him while I worked from home. But some summer childcare may be required next year.

Emergency Fund. Cash or Premium Bonds

Then Pension or LISA (only if Investment not Cash)

Then Investment ISA

Last would be Mortgage overpayment

I’d want far more than that in emergency savings, it wouldn’t last long in the event of a job loss or unexpected house repair. I’d aim for a years worth of bills given there are children to support.

When I was first looking at maximising my finances my advisor said to prioritise as follows:

Emergency fund (money for the boiler blowing up/car breaking down)
Income replacement (3-12mths salary in case of job loss)
Short term savings (money for a new car/kitchen/ dream hols)
Maximise pension
Long term investments

Pay off mortgage

Agree with PPs, you need to prioritise your emergency fund. It sounds like you only have less than one month's salary currently. You really need 3-6 months.

Thanks all, I got the general gist of prioritising emergency savings 👍

I’ll be honest that I don’t come from a family background or social circle where I know people who are saving 12 months emergency savings in cash - the fact that we don’t have consumer debt and have £2k in savings and are contributing to our pension is very much to be celebrated in our lives 😅. Many people I know are just delighted if they don’t max their credit card at Christmas!

So while I see the wisdom in the approach of having more emergency savings I’m also finding it a little hard to wrap my head around the new concept of such a huge financial goal to be met before I can even get to the things I want to do in my life! Lots of food for thought here.

With all that said, I think my initial goal will be to start with upping the £2k emergency fund to £5k and I will reassess from there (I need the smaller milestones to stay motivated). I do have £700 in our help to save accounts in addition to the £2k so sort of half way there already - though I’d only touch that £700 in the direst emergency as don’t want to risk forfeiting the bonus.

We do have a decent family support safety net situation and a lot of experience of living frugally/resourcefully - we don’t have, or aspire to have a lifestyle which is overly expensive to maintain. When my husband was furloughed it was the first time we’ve claimed benefits but I found that the UC top up we got we could get by OK and pay our mortgage so I hope if we did face a job loss we would cut our cloth accordingly just as we did at that point.

Thanks again for all the advice and particularly the flowchart link which was shared - I found it extremely useful and have already shared it with my mum and sister.

So while I see the wisdom in the approach of having more emergency savings I’m also finding it a little hard to wrap my head around the new concept of such a huge financial goal to be met before I can even get to the things I want to do in my life! Lots of food for thought here

I think that's a little extreme. Very few people are abstaining from doing anything nice, expensive, having a life in general to save up a year's income, almost no-one does that and I don't think it's sensible or necessary.

You're already a little ahead of what your OP suggested because you're putting money aside for annual and irregular expenses and not counting these as emergency savings, which they're not really, they're just known expenses that haven't happened yet. This money would also be available if the emergency happened because it sounds like, if you lost an income, you'd scale back where you can and live more frugally until things picked up. Which is a much better position than what a lot of people would do, ie put Christmas on the credit card if they didn't have the money available to buy and do all the things they wanted to do.

If you are both putting a decent amount into pensions - great Honestly , the earlier you do it , it just builds up so much. Ask someone who is 57 ( my friend ) hard to make it up later, The earlier you do it usually the better

Apart from that an emergency fund is always sensible.

Mortgage - well may be worth paying off some

Other than that if you think you can budget for normal lifestyle between you two or even if one job goes - well if there is a bit left over - do something nice, life is for living but once you have covered the basics ( I think - but others will disagree )

Yes it is great that you don't have any debt except your mortgage, that probably makes you ahead of a lot if people. £5k sounds like a good goal to start with. It isn't about having no pleasures in life, just if your income has increased by say £300 per month, putting half of that into savings rather than 25%, so you feel some benefit but are still building up a buffer.

I think 6 months of savings sounds so daunting re emergency savings that very few people aspire for that. In your shoes, I’d try to get to 10k but also look at pensions quite seriously. Mortgage overpayments are a head/heart thing. Could you look at whether you can claw back any overpayments. We have a facility in our mortgage where overpayments can be converted to an underpayment so it is quite handy knowing our overpayments could effectively be converted to emergency savings to pay off the mortgage.

@Bluegreen143

UserStillatLarge - good points re kids’ expenses. Our approach to childrearing this far is we get them outdoors a lot (which is free) and spend a lot of time with them at home and we don’t choose to spend much money yet. However I appreciate school-age kids get more expensive. I work school hours but not term time only - my DS went to a term time only nursery and we juggled these summer hols between us, grandparents and paying a local 16yo to babysit him while I worked from home. But some summer childcare may be required next year.

Sounds like a lovely childhood 😊 I sound similar to you, always tried to get them outside a lot but I do mix in treat days out. My children are 5 and 7 and I’ve been surprised how many clubs they want to do. Obviously you don’t have to do these but I like them to learn something new out of school but with that comes the fee for lessons and then uniform or kit. Also don’t forget to factor in children’s parties if they now resume, present for the child and putting money away if your own child has a party. That’s been one positive of covid I’ve saved lots on parties but I need to remember to save for these again.

The other advice id give and I’m trying to take myself is to remember life is for living, you only live once and who knows what will happen as Covid has shown us. So whilst I think it’s important to have savings, make sure you have experiences with your children that you’ll look back on and remember. A balance is what is needed.

Unfortunately I know many people who go for the life is for living and then spend on everything but you obviously are more sensible than that!

I'd temper AngelicFruitCake's advice about life being for living, with remembering that enjoying life doesn't necessarily mean spending lots of money! My children are teens and their most treasured childhood memories are not the things we did that cost the most.

@UserStillatLarge

I'd temper AngelicFruitCake's advice about life being for living, with remembering that enjoying life doesn't necessarily mean spending lots of money! My children are teens and their most treasured childhood memories are not the things we did that cost the most.

I completely agree with this to a large extent but I was meaning in response to the OP saying she had such a big goal financially and not forgetting to spend sometimes if it’s worth it. I suppose I’m assuming anyone on this particular board is similar minded and treating to a day out translates to something special rather than every weekend. The summer holidays for my two have involved lots of walks, free library activities, parks, playdates but we saved and went to an attraction that cost approx £100 for tickets but it was well worth it.

I suppose I’m assuming anyone on this particular board is similar minded and treating to a day out translates to something special rather than every weekend.

I guess that's probably true on Money Matters :)

I was thinking of a recent thread where people were talking about how much they'd spent to amuse their (pre-school or lower primary) children during the school holidays. Some of the amounts were enormous!

Always so many demands on money! I feel the same.

In your circumstance I'd focus on getting that emergency fund to a good 3 months total expenses (not bare bones b/c something always crops up at the worst times). I'd go to about 3000/pcm and aim for 10,000 minimum. I'd also then fund a smaller emergency fund for repairs, maybe 2500/3000 so that you aren't dipping into proper emergency fund for boilers, white goods etc.

@UserStillatLarge

I suppose I’m assuming anyone on this particular board is similar minded and treating to a day out translates to something special rather than every weekend.

I guess that's probably true on Money Matters :)

I was thinking of a recent thread where people were talking about how much they'd spent to amuse their (pre-school or lower primary) children during the school holidays. Some of the amounts were enormous!

Oh I’d love that thread! I love reading about how people spend money! I was amazed by a friend when she was telling me about their days out and on top of entry to more attractions then we’d go to she also buys them snacks, drinks, ice creams and then a trip to the gift shop! It hadn’t occurred to her to say no! It reminded me of a thread called ‘Packed lunch is sad’ which was an eye opener!

@1AngelicFruitCake This is the thread I was thinking of www.mumsnet.com/Talk/am_i_being_unreasonable/4313544-To-ask-how-much-money-you-spend-in-the-summer-holidays