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

Our house is worth more than yours and currently our priorities are very significantly skewed towards saving because we want a bigger upsizing move into a (more) desirable area in the next few years. We also currently have 1 set of FT nursery fees due to drop off after 2 years.

This means for us the priorities are -

1. Circa £400 a month overpayments on mortgage due to go up with drop in nursery fees
2. About £350 a month into investments (moderate risk for moderate growth)
3. 10% pension
4. £150 into easy access savings for me similar for spouse
5. £50 a month into JISA for DC

so - excluding pensions - we put away close to £1k a month for savings. Including pension obviously higher.

this means our spends are strictly under extra curriculars for DC1, and he has loads!, nursery for toddler, specific budgets for “fun”, “home and garden”, holidays - and the rest - ie food etc is STRICTLY monitored.

I have mastered the art of enjoying thrifty shopping at Yellow Sticker times for the weekly shop, we have ridiculously low groceries bills, never ever buy clothes unless used and dirt cheap off vinted or eBay and cook from scratch outside of pretty gruelling FT work for us both.

In our model - as you see saving is heavily prioritised and the main spends focus on DC extra curriculars.

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.

It sounds from those amounts that you are in a public sector scheme or something similar such as USS. If that is right and it is a defined benefit scheme or a hybrid scheme (such as USS) then it's not the amount you pay in that matters but what you are guaranteed and the protection behind it. I really recommend finding out more about this so that you can fully understand it as a big part of your financial planning should be ensuring that you are comfortable with your plans for older age. Are you happy saying which scheme it is? If you review and decide you want to contribute more you may well have the option of contributing more to your employer's scheme but you can also open a SIPP if you would prefer.

@Mia85 yes that’s right it’s USS. It took me the best part of 6 months to work out how to log onto their bloody online “benefits visualiser” or whatever it’s called. Can’t really make head nor tail of it and everyone I speak to at work says different things about what they think will happen. Our union rep is pulling out of USS. But other people are paying in extra. I definitely need to spend some time looking into this. It’s hard to find independent advice on it (that doesn’t come from USS, the union or UUK).

Ah yes USS is complicated because of the two parts and the fact the whole thing keeps changing every 5 mins. Have you logged onto 'myuss' the website that tells you what you've currently built up? I'm very happy to give you my understanding of the scheme but with the caveat that I am just a random on the internet with an interest in personal finance. The MSE pension board has lots of far more knowledgeable randoms on it and I've regularly seen USS threads there so you might want to have a look. To understand it you need to look past what the contributions are and instead look at what you are guaranteed. There are two very different parts and it's important to keep them separate: the defined benefit section (income builder?) and defined contribution (investment builder). I will explain them in turn.

The defined benefit part gives you a guaranteed annual pension that currently builds up at 1/85 of your salary up to a threshold. That is currently £40K and it sounds as if you are on more than this so I will assume you get the full amount. That means you are building up c£470 annual pension each year. The threshold and accrual rate were significantly reduced recently so if you have been a member for a while you would have been building up more each year before this. In the future the intention is that the salary threshold will increase with inflation but I wouldn't put much weight on USS's future intentions! Assuming it does then over c20 years you are building up c10k a year annual pension. Your question is then whether this is guaranteed. You have two main risks, the first is that USS can't meet its obligations and the second is inflation. On the first USS has a 'last man standing' guarantee which should mean that even if your university goes bust the other employers in the sector will guarantee your benefits. That means the whole university sector would have to go bust before you lost your pension. If it did then the pension protection fund www.ppf.co.uk would step in to give you protection for most of your benefits (though of course regulation can change). That means there is in theory a very strong safety net behind your scheme. The inflation risk is one that I would be more worried about, especially if I were a long way from retirement. In theory your pension will increase by inflation each year but for anything you build up from now there is a cap on that of 2.5% (there is a temporary increase to the cap for the next couple of years which confuses things but this is only interim). Older contributions have a more generous cap and are more likely to keep up with inflation but if the bulk of your pension is being earned from now it will be at real risk of being erroded if there are periods of even moderately high inflation.

This is getting long so will start a new post for defined contribution.

Gosh @Mia85 this is incredibly useful, thank you. I understand more about the scheme from the last 5 minutes of reading your post than I did for the previous 7 years that I've been a member!

The defined contribution bit is much simpler. If you earn over the salary cap then you get 20% payment into the defined contribution pot (note this is a far lower percentage than the contributions you and your employer are making - the difference is going into the current deficit). If you are earning £50K that means that you will have 10K over the defined benefit threshold (currently £40K) so £2k a year paid into your pension fund. This works like any other defined contribution pot and you can choose from a limited number of funds and are then subject to the fortunes of those funds for what you get at the end. I would check that you are happy with the current fund allocation for your contributions. My understanding is that your funds are ring fenced so that if USS were to go bust your 'pot' would be protected because it is based on what you have now, not future guarantees. If you want to make extra payments in they go into the defined contribution section not to the defined benefit section. You could, of course, simply pay into a SIPP where you are more likely to have a much wider range of funds but USS funds are subsidsed (free?) for current members so this is a good benefit and you might be able to salary sacrifice.

I hope that is helpful. Broadly it means that you are likely to come out of a career of a 20-30 years with a moderate guaranteed pension and a pot of some 10s of thousands (or more for a high earner). Probably not enough on its own for cruises and champagne but much better than lots will get. The other important point to note is that there are pretty generous terms for death in service and ill health and that is important as you have a family. IMHO your colleague is mad to opt out given they will lose that guarantee and the employer's pension but then again I am just a random on the internet!

I do have a couple of pension caveats that I should probably mention now that we're getting into detail.

1. Neither myself or my husband see ourselves working in the University sector in the super long term. We're only mid 30's now, and in 10 years I would be surprised if either of us are still in the sector (for various reasons). So although we may keep the USS pension where it is (and not move it to wherever we join), we won't be paying into it until retirement


2. I have a weird medical condition which makes it impossible to get life insurance. So at the moment I am very reliant on the USS death in service benefit which is a lump sum of 3x annual salary. For me that is approx. £180k so it wouldn't entirely pay off the mortgage for my DH but it would take nearly 2/3 off it. So if I'm leaving USS at some point in the future I should probably start thinking about building up some kind of funds that he could access easily in case the future employer doesn't offer a lump sum upon death.

Definitely overpay the mortgage once you have a buffer. We are poised to pay ours off two years early and it's a massive help as our children get more expensive.

I would also suggest putting aside the equivalent of school fees for at least one year. Not necessarily in savings, they can go towards pensions/overpayments, but just to check you can actually manage without it so you take any plunge with eyes fully open. Our eldest DC is at private secondary (following a four year wait for an ASD diagnosis that was meant to assist with transition...,) and it's quite a commitment. Worth it, but we wouldn't have done it unless we were absolutely certain we could afford it without it impacting the other DC.

Sorry @Mia85 cross posted about the death in service benefit!

If you’re the person whose thread I was on yesterday, I wouldn’t overpay the mortgage, I would concentrate on having funds so that if dd needs private secondary you can do this without worrying - that’s a gift to yourself right there. Aside from that I would be a bit more generous with yourselves than £400. By the time you’ve done a few classes for your kids, paid for their clothes and haircuts etc it won’t go far. Which would be fine if that was what you had, but that is not your situation. I’d also spend more on uk holidays so you get accommodation that’s right for your dd.

Glad it was helpful!

Best thing I ever did when I had spare cash each month was to overpay the mortgage. I know you have already taken that on board but it really made a huge difference. If you can put in lump sums as well that would be very helpful.
On a more frivolous note if you are ever in a child free situation with lovely family looking after your children even for a weekend , I recommend the expensive but totally wonderful Scarlet hotel in Cornwall. It certainly wiped out my savings last time I went but it was so worth it!

Lots of good advice above, but as a parent of children with autistic children, I'd echo that overpaying your mortgage or having general investments is a fantastic buffer for the future. Without being gloomy, I know so many people who have HAD to cut back to part time, or stop working entirely at times, due to their children's needs. Yours sound fairly young, but things aren't always linear.

@Petronus yes that was me. Thank you for the advice, it’s very helpful. I think I will do what some people suggest and overpay the mortgage a bit (£300 per month maybe) and then channel the rest into savings for school fees. I can put some of this into fixed rate accounts as I know we won’t need it for a little while. Not all of course.

I’m also going to loosen the reins a little on the discretionary spends and allow us a little bit more in the way of choice, days out, Uk holidays etc. For instance I’m pretty sure my eldest would love Peppa pig world but I’d previously been horrified at the cost and had ruled it out (and to be fair at that point I didn’t feel it was affordable for us as I was still on mat leave). But it’s worth it if she enjoys it.

If I can save £6k a year for 7 years between the ages of 4-11 for DD then that would mean that we had enough to pay for one term per year of private secondary for her, so that we only had to worry about the other two terms each year (ha!). It would definitely take the edge off though.

Pensions and overpay your mortgage to the amount you won’t be charged. That should future proof you in case of a price crash. Keep a buffer of at least 6 months that will cover mortgage and bills in case the worst happens. Have a separate holiday account then you can have a great time without any worries!

I second Meaningful Money podcast for your general financial education. Investing your time in this in this is hugely beneficial for the family. I also found his lifestages ideas helpful, as well as projecting when we would need various pots of money. So eg I invest £25 a month towards the intention of the first year uni costs for oldest child, so won't suddenly have to find it (the rest will be covered somewhere else but there is a time gap, which i realised by doing a timeline). £25 is neither here nor there right now but I'll be thrilled with that pot when we get there. All our savings/investments are budgeted with clear intention. I find this helpful psychologically, particularly in terms of separating short term vs long term goals. I was really serious about what my financial ambitions are for my children across their whole lives.

In terms of paying down mortgage, I tend to see this as most valuable to build equity if you plan to upsize. Otherwise I would err towards investments rather than overpayment as I think this is likely to be a financially more optimal option. I recognise that is a risk-on position though, and shouldn't be made if you will need to cash in those investments at a specific point in time (otherwise its like an endowment policy). Its a position that won't suit many, but I take it.

In terms of small kids/frugality vs saving. In my kids very early years I prioritised saving too hard. We were unnecessarily frugal (and I found this hard at times). Value your time (I don't sell kids clothes, and I have a cleaner, because I get more quality time with my kids and you don't get it back). Value enjoying your life. It is a balance between now and the future.

Also though, when they are very young, they won't miss the activities or PPW. But as they get older these things become more important (activities) or they notice if they aren't having them in comparison to their social cohort (days out/type of birthday party). So you may find you want to spend more on this stuff as they grow. So you can save more when they are little. Much as I pushed myself too hard, I am in some ways now in a very enviable position and can make some much more freeing choices because of that.

Only you can determine your priorities and your balance. Investing in your education is extremely empowering because then you can do that with your eyes open.

I know you’re locked into your mortgage at the moment, but when you’re renew, consider an an offset mortgage.
I don’t have anyone but myself as a safety net… so I’m reluctant to lock my money away by overpayment. So I keep them in an offset account. I have the discipline not to spend from that account, and it sounds like you easily would too.
All the benefit of overpaying the mortgage, but with my funds instantly accessible (well, 1 day!) if I need my safety net.

Our situation seems very similar to yours in terms of spare funds and mortgage.
i currently pay a big chunk (approx 20% of my salary plus company contribution) into my pension as I started late and need to catch up.
then after essentials (including kids activities) we pay:
£400 into easy access savings- nearly built up 6 months worth of expenses
£400 into holiday savings
£400 overpay mortgage
Then we each save a bit into our personal savings.
Things have been getting a bit tight lately so might have to pull back on one of the pots, but we’ve been operating this way for a while now.

After bills we have a similar amount left over. I'll say that my husband has a lifelimiting health condition and isn't expected to have normal life expectancy so we choose to prioritise enjoying life now.

We have 400 each to spend on whatever we want a month. I save some of mine and spend on clothes, days out, fun with the kids, meals out. Just generally enjoying life. Husband does the same.

The rest we allocate into stocks and shares isas, £100 which are long term and not to be touched for a long time til we want to retire. Also short term savings for holidays, Christmas, replacing the washer, car insurance etc.

There's also a medium savings pot which is for replacing the kitchen, new car in a few years etc. This is currently going on house renovations.

You might think differently but we do prioritise enjoying life and holidays and days out are very very important to us as we could have a tough life ahead of us healthwise and I would hate to think we didn't enjoy life while we can.

We do both have pensions, mine is very good, husband's isn't so good but he doesn't care too much about that. We have good life insurance too.

If you're that stuck on how to save your money and spend it, I would turn to a company such as Suttons IFA. They helped me and my husband to navigate our savings and finances, it allowed us to get to where we are today with our money and have no stress over reckless spending or being to careful!