Struggling to decide how best to split spending/saving

[soootiredddd]

Usual preface here of being grateful that we are fortune to earn pretty good salaries. This is a very first world problem so please don’t read on if you aren’t going to give constructive advice. I have posted in the money forum in hope of useful discussion, not AIBU!

Have 2 DCs (1 with SN) and recently posted about considering private school but have decided for now that we will try the state route and see if we can get an EHCP. We fortunately already have around £20k in savings that we could initially dip into to enrol DD in private school if state doesn’t work out (and could then afford to pay fees
termly thereafter).

Now we have decided we won’t be paying school fees I’m struggling to know how best to allocate our surplus money each month. After mortgage, bills, food, childcare, petrol, car costs, monthly costs like contact lenses, insurance etc we will have approx £2500 spare now I am back from Mat leave. The above costs take into account everything that I would deem essential but no luxuries at all or anything like kids classes, Christmas or birthdays, holidays, eating out etc.

i guess what I’m struggling with is deciding how to carve up this “spare money” each month. Yes it’s a nice problem to have and it would quickly go away if we did pay for private school. At the moment DD does one class a week. DH and I don’t spend much day to day, occasionally get a coffee, we don’t eat out much. We used to have holidays as our big spending area as always loved travel but then we had DD, then covid, then DD2 so have spent very little on holidays recently. I’m naturally pretty frugal and have always had it drummed into me to save save save. I have gone back to work full time. I do enjoy working and have a role where FT is easier to manage than PT. However I am able to drop to PT if I want to.

I’m starting to wonder what am I actually saving for? I saw on another thread someone saying they have £800 a month ‘fun money’ which I thought sounded a huge amount and pretty wasteful tbh. But then I wondered maybe they are just really enjoying life and living for the moment and giving DCs a lovely life day to day. I’m so preoccupied with future savings but I don’t know what for? We already pay into good pensions. I’m too overwhelmed by the thought of stocks/shares etc. At the moment my £20k is sitting in the bank earning 2% interest and inflation is about to reach 10% so it’s devaluing every day.

My instinct says to put £1700 per month away in savings (some of it earmarked for future potential private school fees but not all). Then approx £400 into various sinking funds - Xmas, birthdays, holidays etc. Which leaves £400 a month for kids classes/random soft play etc, days out, and personal spends including hobbies. This seems quite a lot to me but maybe it isn’t really.

I’m wary of lifestyle inflation but can’t help thinking that maybe we could give ourselves more freedom, the kids could do more activities or we could easily afford nicer holidays. Or we could now afford bigger days out more often. I could afford to get my hair dyed nicely at a salon each month if I wanted instead of using a box dye. We could upgrade our car to something with a bit more room. But I just worry about it, I don’t know why, what am I going to do with the savings if I’m not saving for anything particular other than school fees. I am lucky that I could afford to go PT but I’m wary of too much of a drop as we’d need to spend around £1200 a month in future in school fees.

interested to hear how other people split their disposable income between “living for now” and saving for future. Also welcome advice about going PT or not? Thank you

Sorry that ended up so long we’ll done if you read it all!

I have some savings accounts set up and £250 a month goes straight from my account into that. I'm thinking ahead to when my children are at university and may need extra help.

We are relatively frugal month to month (we just don't have expensive tastes) but like a nice holiday so will also try and save for that.

Every now and again you get a big bill (car/boiler) so we want to be secure for that too.

Like you said this is a lucky position to be in.

With that level of disposable I'm not sure why you need sinking funds. Just spend as you go,
You do need to put a sensible amount into savings each month. Call it fun money or rainy day money or whatever you want. Maybe it's 'what if I get made redundant' money.
But basically it sounds like you can probably worry a lot less about this. Surely the idea behind getting a well paid job is so you can worry less?

Yes @hidethetoaster good point, I don’t know why I’m still so worried about it. The more we earn over the years (got together with DH when we were poor postgrads making £10k a year) the more time I spend worrying and tinkering around with a spreadsheet etc.

As relatively recent homeowners we do have what some people would consider a big mortgage - house is worth approx £500k and we owe just under £300k. So maybe we should just overpay while we can? But then I worry about not having enough liquid assets and about a housing crash and all our money being tied up in the house. Which isn’t very logical I know because we owe the bank £300k regardless of what happens to the housing market.

Also I suppose we might want to move in future. We live in an expensive area so our house is just a standard 3 bed semi. If we want a 4 bed detached we’d need to spend £700k+

How much are you putting on pensions? I recommend 15% each.

Then at least 6 months income in liquid savings but no more than 12 - it will be losing value at the moment.

Your mortgage is a ticking timebomb. Increasing interest rates would soon eat into your surplus. I'd look to overpay 500-1000 each month depending how much is left after the above.

I know a really good savings bank.

I can PM you the account number

🤣😂🤣😂

if you're job is better done F/T not P/T & you're happy to work then I wouldn't be going P/T.

i wouldn't change things that you happily do at the moment (box dyes instead of hairdressers) as it just seems like spending for the sake of it.

I think what needs to change is your mindset. Save 'for' Future Security, the children's future. You don't need to know what the actual need is yet, but having a 'pot' you can use is invaluable.

I'm sure you have various insurances & it sounds like you're pension savvy, but your situation can change in an instant.

Be thankful of your current situation & make the most of it, don't assume life won't/can't change in seconds.

Hopefully someone will be along with some good investment advice.

I would overpay the mortgage as much as is allowable per month and lump sum per year.

Ensure you have 6 months living costs in an easily accessible savings account.

Do you have savings for the DC?

But yes, spend some of the disposable, get your hair done in a salon once a month of course, sign the DC up to swimming lessons and whatever else takes their/your interest. Have a holiday, fun days out etc.

You don't have to burn through all the surplus each month, just take your foot off the brake a bit and enjoy the fruits of your hard work. It doesn't need to be spend all vs save all.

I would be up for throwing cash at an iPhone that stops changing perfectly correct grammar to shite.🤦🏻‍♀️

your job - obviously!

& anything besides that, I'm not looking!!

We were (at one point - it didn't last - circumstances do change) fortunate to be in the position where we didn't 'need' all our income each month, we over paid our mortgage so that it was paid off by our early 40s and we saved and added to our pension pots. Our situation changed so we couldn't save substantially again but eventually it has meant that DH has been able to retire early (early 60s) and I can work part time in a job I love but pays barely more than NMW.

I don't think there is anything 'wrong' with just saving if you comfortable with your life style. Personally DH and I are quite 'frugal' in that we don't want expensive holidays or new cars every year. But we still enjoy life ... and of course, share our good fortune by supporting various charities and volunteering etc.

I would also throw money at the mortgage to reduce that as much as possible.
I also have kids regular savings accounts for future driving lessons and uni spending and we save some in vanguard stocks and shares ISAs to go towards pension savings.
My 3 dc are at primary school and the kids activities and classes, days out and even just having a cafe lunch soon add up, so i suspect as the kids get older you will start sending more on those sorts of discretionary spends.
With regard to the split, id also try 1k mortgage overpayment depending on if there are limits or penalties, £500 max for the holiday and fun spends then split the remaining into ISAs and kids spends. But its all very personal how you want to prioritize it.

That should say kids savings, not kids spends!

I'd put a significant amount into pensions. You're young enough for to have a long time to build up and make a real difference when you retire, also means you may not have to work until 67.

You have a good disposable income but seem reluctant to enjoy it .

If your pensions are maxed and you have £20k emergency funds I would split the £2500 as £1000 for birthdays , Xmas , holidays and £1500 to overpay the mortgage .

Spending money on treats is not about reckless frivolous spending it's about making memories . Hobbies , holidays etc with your children .

I think the key about spending money is to make sure the things you spend it on really add to your quality of life. So if going to a salon and getting your hair dyed would make you feel fabulous then it's a great way to spend money. If not, it's not.

E.g. I have plenty of money (though not a super high earner, my fixed costs are just pretty low) and I'm mainly happy to be fairly frugal. But I have an expensive gym membership and a cleaner and Spotify account. Between them they cost me about £175 a month. Totally unnecessary but I really really enjoy them and feel I totally get my money's worth out of them.

I have a friend who has a Spanish tutor and gets her nails done and has a cheap gym membership instead. Those are the things she feels she really gets the value out of. I have s vague desire for nice nails but not enough to pay someone to deal with mine.

Good suggestion to put savings aside for your DC's future ...we started a pension for our DS when he was born, people laugh but it means he starts work (graduates next year) with a decent pension fund already set up. Plus, if you can, savings for Uni, driving lessons, deposit on first home etc. I do appreciate that we are very fortunate to be able to do this but would stress we have never earned anything like the six figure salaries you see bandied about on Mumsnet!

Put it into ISAs and pensions. If you're drip-feeding money into your investments each month, you'll be spreading the risk, ie if prices fall you'll be buying more stock, if prices rise, the value of the investment increases.
You can each pay up to £20k annually into an ISA and up to £40k (gross) annually into your pension (or, up to 100% of your earnings if less than £40k).

Mortgages are likely to become more expensive in the future, so it would be wise also to consider over-paying from now on.

Overpay your mortgage!

Worry less about the actual percentages and just split between the mortgage, pensions and S&S ISAs after keeping some back to cover day to day needs and cash reserves in case of job loss, illness, car replacement etc. Also save/invest for DC for university/driving lessons & car/setting up home costs.

If you save and invest now, it will give you choices later. You may be happy working now, but you might feel differently in 10 years' time for whatever reason.

I'm almost certainly a few years older than you and I've only just seriously started thinking about investing and I'm kicking myself that I didn't start sooner, because I've lost a good few years of growth potential that needs catching up on.

With a £300k mortgage you can send quite a lot that way, especially as interest rates might continue to rise. If you pay down the mortgage, it will put you in a better position if you want to move house in 5/10 years time. It sounds like your DC are quite young, you might want more space when you have 2 teens in the house.

On the matter of spending, once you've put money into mortgage overpayment, pensions and S&S ISAs, you could put a quarter of your spare money into each of these things for now. This doesn't need to be set in stone and you could change it later. But it's worth remembering that money in pensions isn't accessible until you are 57, and investments should be regarded as a long term product subject to ups and downs.

So if you think you are more certain about wanting to move you might choose to prioritise the mortgage, because that's a certain gain, but it really depends what happens with interest rates vs investment performance. Interest rates rise and the market stagnates, mortgage overpayment is better. Interest rates stay where they are or rise less and the market grows, investments would outperform what your mortgage costs you. But no-one has a crystal ball and you might not know which way things are going until it is too late.

That will leave another quarter that you could use to spend, if you decide you want something. If there's money in the pot, that means you can afford it, because you've covered all the saving and investments already. If you don't want things, you just leave money in the pot to grow until you do.

I feel the same way OP. I think the worry is intensified by the headlines about price hikes and a looming recession.

I also wouldn't feel good spending for the sake of it. I buy what I need and treats if I want them, but nothing excessive.

I like saving but have no idea what to do with it. Our house is old and requires a lot of maintenance so we dip into the pot throughout the year though.

I used to wonder how friends, who had told me their income, afforded £1k bags and fancy cars. However, a few of them told me they didn't save anything. I'd rather have the savings for peace of mind though, and I'm know I'm so lucky to be in the position to save.

Thanks all there are some good ideas here and things I definitely want to look into. At the moment we both salary sacrifice 9.8% into pensions but this is the automatic amount, our employer pays 18% I think. I admit I’m a bit reluctant to do much other than this mainly because there have been a lot of pension disputes with our particular one recently and I’m wary of never seeing the money again. Sorry that probably sounds stupid. I’m not clued up on how well protected we are. I just know that the estimate of what we will get on retirement keeps going down and down. So feel like I’m better off looking into vanguard etc than throwing more at what feels like a risky pension.

DH and I agreed that we aren’t going to spend on massive holidays right now, they wouldn’t be overly enjoyable with two very young DC one of whom is autistic and doesn’t react well to change. However we will maybe spend a bit more on some short breaks in the UK as well as save towards bigger trips in the future as travel is something we used to really enjoy. My sister lives in New Zealand so would be nice to go and visit in a few years without having to worry about flights being too expensive.

I’m definitely going to overpay the mortgage more, at the moment I only pay £100 extra a month.

This has also made me realise that I can probably free myself of the burden of trying to sell on outgrown kids clothes etc. it’s such a hassle and realistically I’m fortunate enough not to have to worry about selling a coat for £5. I’m just going to give stuff to the charity shop from now on. Writing it down, I feel a bit stupid for having done it for so long 😂 Frugal habits are hard to break.

Having two young kids is stressful and this has made me see that we should spend money on things that help to make day to day life less stressful and help us to enjoy time together as a family. So I’m definitely going to look into getting a cleaner too!

Also meant to add that yes the big mortgage does worry me. Fortunately we still have over 3 years left on a 1.7% fixed as we fixed for 5 years when we moved here. I’m aware though that it’s very unlikely we will have such a low interest rate available when this product finishes so makes sense to overpay. I don’t think I’d be able to hold my nerve paying £1k extra a month as I worry about needing the cash for something even though I have the £20k in savings plus various other little pots eg for kids savings. But I reckon I can manage £350 without feeling too jittery!

I would also overpay on the mortgage (most allow 10% of balance without penalty) Do state you want to use to reduce your term that way you save the most interest. Rates seem likely to continue to increase.

A little into stocks and shares ISAs (limit £20k per person per year) as long term support for retirement.

Think about child ISA and/or pension. As long term for their future, even if you only contribute for a short while it will have a long time to grow.

But do give yourself permission to just enjoy it in everyday ways too. I am not from money and it has left it’s mark. When I started a fitness drive bought all my gear second hand on eBay - hence it is always charmingly mismatched!

@soootiredddd check on your mortgage as if you overpay you may be able to take mortgage holidays in the future if you need to .

There is a really good podcast and a book called meaningful money. Sections on various lifestages could be useful to take a look at