Higher salary - how to use extra money to be financially secure

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I have just accepted a new job which is over double my current income, but involves moving and will increase stress levels. Think going from the Civil Service to promotion in the private sector. However I am not in the UK.

I am concerned I may get burnt out in the new job, and/or may just not want to keep working at that intensity from now (age 43) until retirement (guessing 60 for the sake of the post).

Therefore my goals are to try and not use the salary increase to also ‘lifestyle increase’ but to try and put myself in a good financial position so that if something happens, I am ok, as I am single, with no partner (and no children), so no financial help.

My current financial position (including all car loans, credit cards etc) is:

• £3,500 loan
• £5,000 credit card
• £15,000 loan
• £365,000 mortgage

I have spent all my savings on moving costs, so also need to build up an emergency fund again.

After paying my mortgage, rent (as need to move), bills, and money for me, I think I will have £4500/month can go towards the above.

I would also like to prioritise self-care and my health, to make sure I don’t burnout. So perhaps money for that too.

So my questions - if this was you, what would you do?

With that amount of money after all bills every month I would throw all of it at your debt until it is fully repaid.
Then once everything is paid you will be in a fantastic position to save a huge amount every month
Why is there rent and mortgage?

I would take what will be a small amount of your left over take home and use it to make life less stressful by getting a weekly cleaner, paying for something for your wellbeing monthly whether that be gym membership, a massage or similar. I would also have a couple of nice weekends away each year planned and a good holiday yearly as well. With the rest of your money throw it at the rest using the snowball method. This is repaying whichever has the highest interest first, whilst paying the minimum repayment on the others. Then once that is repaid go for the one with the next highest interest. Once the other debts are all cleared apart from your mortgage you could tart to overpay your mortgage (if you're allowed?). There may be a limit on this. I can overpay 10% a year so assuming the same, this would be about £3000 a month. You could then put the rest into savings.
Rebuilding your savings would also be wise, maybe take £500 a month towards that? £500 towards the gym/holidays/cleaner then you'd have £3500 to put towards your debt.
Assuming your credit card is the highest interest, that would be gone in 2 months, the other loans in 6 months. So doing this you'd have repaid these and have have £4000 saved within 8 months. Anything after that would then be savings/overpaying mortgage.
I'd consider some stocks and shares investment for your savings once you have 6 months of expenses in easily available savings.
Sounds like you're in a great position, congratulations OP

You haven’t mentioned pension. Do you have any pension pot? Does your employer contribute and do they increase their contributions if you increase yours? Do you get any tax relief on pension contributions? You should think about whether your pension provision is on track to provide what you need on retirement and allow you to retire early if you want.

Also consider life insurance and income replacement insurance, if you don’t already have these in place.

Clear your non mortgage debts as fast as you can. Prioritise your health always, as withour it everything falls apart very fast. Do you have health insurance and critcal illness cover, if not consider it. Once debts are paid down, consider investing in stocks and shares ISA, or a pension, depends on what tax free offerings your country of residence offers. For the moment mortgage debt is relatively cheap so probably not worth clearing that quicker, although that might change in which case change tactics.

Does the £4.5k a month include the income from renting out your own house?

Do you have a pension, death-in-service cover, life assurance, and I come protection? Start on those first.

If you have those, tackle the debt next.

Allow £500/month for lifestyle stuff- cleaner etc.

Put £1k/month into savings as they’ve been depleted.

Use the remaining £3k/month to pay down your non-mortgage debt asap.

You’ll have it gone within 8 months.

Once that’s gone, look at maximizing pension and investments. I’m not in the UK and don’t know specifics, but have seen lots of posts on here about ISAs which look good.

When you get to the stage that your debt is gone and you have put more financial protection in place, then focus on the lifestyle stuff and consider overpaying your mortgage if you’d like to have that gone faster.

Build up a decent savings pot so that you’re covered for 6-12 months should you need it.

Well all of those were payable on your previous salary so even if you do burn out and go back to a lower paid job you know you can cope. So I wouldn't touch the mortgage.

What I would be doing though is maybe having a plan that this job may only be a 10 year thing. I would break down the £4,500 as follows:

£500 - mental health/ wellness help like pp said cleaner or gym or classes/ enjoyable hobby
£500 - into short term saving acc for weekends away/ trips home
£1,500 - into a long term saving acc, what ever you can find with the best interest. Don't think there is anything fantastic right now but hopefully you can find something to keep up with inflation. That would be £18,000 yearly and £180,000 over ten years, which may be when you burn out and go back to a lower paid job with an extremely nice cushion,
£2,000 - to pay off credit card and loans. Start with the cc, they will all be paid off in 1 year. Which will then give you another £2,000 per month to put into a pension.

You said the £4,500 was after inc money for you so I am assuming you have regular nice things thrown in there like socialising money, clothes shopping.

I would use the 4.500 left every month to clear out the loans and the credit card.It would take 6 months (more or less). After that I would start a "rainy days fund" and save enough for a year of bills and living expenses. All the above should take a year maybe a year and half,after that I would tackle overpaying the mortgage .

Pay off the debt - the ones with the highest interest rates first. Then the mortgage. Interest on debt is always more than interest on savings.

There's nothing so financially secure as being debt-free, including mortgages.

Thanks everyone, I appreciate the thoughts. To answer some questions (and trying to group together common topics) -

@Jmaho I own a mortgaged house in my current town, however I need to move for the job, so I have just found a place for rent. I will need to pay both costs in future, unless I sell.

@VodselForDinner no, things have happened so quickly, I haven’t had time to think about what to do with my mortgaged house. In the short term, it is vacant. If I decide to rent or AirBNB it, that would be extra income (minus furniture storage costs).

@pisspants on my current fixed rate I can over pay £10,000. The fix expires in 2 years, however I expect interest rates to rise by then, and having a second £10,000 (or more) to immediately put on the mortgage when the fix ends would no doubt help reduce the higher interest then payable.

@ChessieFL the new job will pay the maximum allowed each year into a retirement fund for me, for as long as I have the job. The retirement fund is a ‘defined contribution’ one, meaning I will get whatever is put in plus investment interest. It’s then up to me how I want to take it out and in what amounts over my retirement.

I know ‘defined benefit’ pension accounts (where it is referred to as the guaranteed yearly amount you get after retirement) are more common on Mumsnet.

Whilst I think I am in a good position, retirement account-wise, I cannot add anymore, so having my own shares sounds like a sensible backup option. I do think retiring early needs to be a viable option. So maybe trying to plan financially for retiring at 50 or 55 (not 60), and if I make it longer, then that’s a bonus.

Thank you @ChessieFL and @Ohsugarhoneyicetea the suggestions for income protection insurance, life insurance, critical illness insurance and health insurance. Would I need life insurance? I am single with no children.

I also appreciate the health and self care suggestions. I am a bit ‘tight’ with money when it comes to my own health and well-being, and often need a reminder to think of it or permission to spend. I think this is what will get me into trouble in the new job, where I might keep my nose to the grindstone (and my employers will be happy to let me!) and forget to stop or factor in some R&R to allow me to keep it up.

Pay off your loan and credit card first - especially the latter.

Make a decision pronto about your current home. If you don't want to commit to moving to your new town, then investigate how to rent it out so that you're making money/covering your outlay on the house.

But most importantly, I'd be looking into ways of working smarter and not harder. Anticipating burn-out before you've even started is worrying! (But also no need to consider that just because you might be 60, that you can't work as hard. That's ridiculous. Unless you're doing something very physical, which it doesn't sound as if you are).

And make sure that you ARE looking after yourself and your own health. If you haven't got a partner/children to support you then this is even more important.

Firstly I think you have a massive amount of debt.
Secondly as a single person critical ill health insurance is essential.
You need to repay your debts. As a previous poster has said, highest interest first. Then start overpaying your mortgage.

Wellbeing money is essential: holidays, gym, art class, etc - whatever helps your well being. But you must save for it regularly.

Get yourself into a.position where you have 3 to 6 months salary banked.

Let your house for additional income. Go for long let's, not air bnb which will need frequent turnaround cleans and short stay visitors, ime, take far less care of stuff than long stay visitors.

Yes I agree about the amount of debt you have. Good job you have such an increase in your salary! But you must focus on paying that off.

@RosesAndHellebores and @BIWI is there a certain part of the debt that you are thinking of that makes it excessive (eg the loans and credit card) or is it the overall total (£388,000)?

I don't count the mortgage. That's an ongoing 'necessity'.

But to owe £23,500 beyond your mortgage is a huge amount.

But to owe £23,500 beyond your mortgage is a huge amount

Is it really though? If the op has £4500 a month disposable I'm assuming her net salary must be at least £7k a month, possibly a lot more.

So total debt (other than mortgage) of around 3 times your monthly salary. Hardly ideal but not really 'huge' either - I know plenty of people with far, far more than that.

However, saying that - if you have £4500 disposable every month, having any debt is kind of silly/unnecessary if you're managing your money well.

I’d recognise that your pension provision in the new job won’t be nearly as good as the defined benefit pension you had in the CS.

My DH considered moving to the private sector and realised the £20k pay rise want enough to offset the pension issue.

The CS pension pays 1/43 of your salary into the defined benefit pension. So if you earned £43k, each year your pension would grow by £1k per year…and also be index linked for inflation and have a spousal pension if you die. To buy an annuity which delivers a similar £1k in pension with these additional benefits at retirement, will cost around £30k. Yes, your defined contribution pension out should grow over time, but are you going to put enough into your pension, along with your employer contribution to give you £30k per year? Your employer contribution is likelyo be fairly low, so you need to pay a lot in yourself.

Yes to reducing your debt.

The things that give people more financial choices in their 40s, 50s and early 60s are things like having paid their mortgage off. That gives them options to reduce hours or retire early etc. Reducing debt and overpaying the mortgage (once other debt is cleared) makes a it difference. Continuing to boost your pension is important too.

@FinnulaFloss

But to owe £23,500 beyond your mortgage is a huge amount

Is it really though? If the op has £4500 a month disposable I'm assuming her net salary must be at least £7k a month, possibly a lot more.

So total debt (other than mortgage) of around 3 times your monthly salary. Hardly ideal but not really 'huge' either - I know plenty of people with far, far more than that.

However, saying that - if you have £4500 disposable every month, having any debt is kind of silly/unnecessary if you're managing your money well.

But @FinnulaFloss the OP will only have £4,500 disposable in her new job.

What's alarming is that she's accrued this amount of debt so far. At least a significant increase in her income will help to pay that off, but it does suggest poor financial management - especially that a decent chunk of it is credit card debt.

Well I think I would spend the first 6 months spending £4000 of the £4500 on paying off the non mortgage debt and £500 on a cleaner/gym membership and popping a bit into an emergency fund. (Say split 250-250?).

If you're in the new job for the long hall then rent out your old place so it pays for its own mortgage. Remember that unless you either rent it out or live in it you may have to pay capital gains tax when you sell it so it's worth thinking about this sooner rather than later.

Then you can be saving say £2000 per month for the mortgage overpayments (have a look at other options when you remortgage - I can overpay by 10% of the original mortgage value per year, which is a much easier option from the POV of overpayments), and investing £20k a year (1800 ish?) A month into a stocks and shares ISA, to be drawn down to keep you going through to pension age if you decide you want to work part time.

Then once you have built back up an emergency fund, the rest can go into lifestyle creep?

Pay all debts in full then overpay mortgage by £3k a month.

The loans and credit cards principally. Especially when you have a mortgage of £365,000 as well. That doesn't strike me as wise money management.

Unless you want to increase your lifestyle wow factor, once you have paid off your non mortgage debt I would do further research into investing your money and on that kind of salary potentially even getting some paid advice in time.

If you are staying within the UK then possibly a stocks and shares Isa and this would potentially help you to retire earlier than the state pension age. There are podcasts by Pete Mathews and a book called meaningful money which I think you should read and/ or download. I also recommend budgeting so that you know where all this money is allocated to. You don’t want to end up getting into more debt even though you are earning more. Plus it doesn’t sound like you think that this will be a long term thing.

I also think you could look at doing something meaningful with it, either for yourself or for a charity close to your heart. You will be working hard and deserve to have some fun, so put some in a pot for holidays or a hobby.

@WombatChocolate the OP is not in the UK so what you have said won’t apply to her! Well, your general points will but the specifics about the CS scheme won’t.

There is a LOT of inapproproate advice on this thread. For example, life insurance is pointless for you.

OP, what is your current pension pot/ projected pot /income in retirement?