Savings for overpayment

[Pammela]

Hi, we have a household income of about 5000-5500 per month. We’re currently still on a v low mortgage rate- below 1%. We’re thinking of saving each month and making overpayments for the next 20 months before we have to re fix.

We are trying to calculate how much is realistic to save.

Mortgage is about 700, council tax is 300, bills about 200. Then food is roughly 600ish. gym/kids activities about 160.

So that seems like we spend 2000 a month on the ‘basics’.

but we do have a cleaner- 120/m, investments 300/m and some other savings about 200/m. £620 total.

We then go out for dinner etc too but that changes month to month. This suggests that we should have about 2000 left over, but it certainly doesn’t feel like it. We do buy basically as we please but I need to become more aware of this, clearly!

We will notice a rate change quite significantly as ours is so low currently. So, how kxub do you think we would realistically be able to save? We do still want at least one family holiday before we go on to the higher mortgage rate too!

Any insight is appreciated!

Download a few months transactions from whichever accounts you spend money from and categorise into each type of expense.

Calculate how much your mortgage would be if you remortgaged what you owe today at a rate of 5% and save the amount over your current payment as a minimum. Ie live as if your mortgage has already gone up.

Be honest about wants and needs and how much money you're spending on what.

Have a look at Moneysaving Expert for advice on minimising each expenditure, accounting for annual and irregular expenses and prioritising wants and needs.

Some of that £2000 that you say you could be saving but aren't will go on things like car bills, white goods replacement and other costs that are essential but don't crop up each month but are hard to avoid.

Some will go on non essentials which you could cut down if you had to, but obviously you have to decide what is and isn't a priority to you, ie saving towards your mortgage, or living a more lavish lifestyle in the short term.

https://www.moneysavingexpert.com/family/money-help/

Thanks, you’re right that we need to prioritise. I need to change my mindset a bit and start treating the mortgage as if it’s already on a higher rate! But knowing that these are the last months of having more disposable also comes into play! 🙈

I would pay yourself £2000 at the beginning of the month into an easy access savings account - there are a couple about paying 4.25% interest - Yorkshire BS is one

Then go through the month being careful, allocate yourselves £150 for grocery shopping and pocket money, use your bank account if it has extra bank account to put the money for groceries away then just pull out the £150 for the month

If you run short - then you've still got the £2000 to fall back on - but the idea is to not do this obviously and see where you're having to cut back. Do you have coffee out a few times a month, that can add up or lunch out etc

In 20 months you could obviously save £40k realistically and £36k if you had two cheap summer holidays in the next two summers

At the end of the month either pay of your mortgage amount or leave to gain interest.

Can you pay your mortgage payment weekly - this decreases the interest more rapidly but still paying the same amount

I think you should easily be able to double what you pay on your mortgage; my income is 3500 and I pay £1650 into my mortgage every month. So your choice really; you need to prioritise but it sounds like quite a lot is being spent without you noticing at the moment

I sweep everything that is left in the current count at the end of the month before we are paid into a savings account. And then looking back over the months at the savings account I can see what spare cash we have. After a year of doing that it was a bit of an eye opener and then I dumped most of that into the once a year 10% mortgage overpayment we are allowed.

Instead of 'saving up to overpay', why not just overpay regularly? Then once it's not sat in your account you won't even think of it as money available to spend

Agreed, this is the best approach.
I've been doing this for about 5 years and have shaved almost two years from my mortgage.
Admittedly I'm driving an older car and have cut back on wasteful spending to achieve this, but so glad I have.
To be honest I've seen these higher rates coming for a while.

Because we can get 5% on the savings account and our mortgage rate is currently 0.9%. So it would be foolish to do this. I do understand what you mean by it not being available, but it’s just not financially savvy.

Yes, you’re totally right. We spend without much though tbh.. so we’ve got used to this and the increase seems worse than it probably is.

We do have stocks and shares of about 30kish. And have about 5k in savings accounts. But we want to increase this.

Thanks. I’ll use some of these tips. I absolutely would not manage with 150 a month for food! But I definitely need to reduce it, and will.

Weve had a summer holiday already this year. But I have a trip to London with my daughter coming up and a girls trip later in the year, so going to be extra careful and try and spend very consciously apart from these trips. I’m a marketers dream and love feeling like I got a ‘bargain’..

Ahh with such a low interest on your mortgage and a good savings interest that makes absolute sense for you. It's the reverse for me!

Much of that 2000 will go on predictable "occasional" spends - car MOT, house insurance etc etc.

I would do 2 things:

1. calculate what the mortgage would be on 5%. If less than 1000, put into a separate savings account, and try very hard not to touch it.
2. look at putting either 1000 (if less than the mortgage increase) or the difference between 1) above and 1000 into a savings account. You may well have to use this sometimes.

FWIW we bring home about 5000. We are mortgage free, but save 1800 a month. This is where my 1000 has come from. 2 adults 2 teens.
We do use our savings - but for holidays, new bathroom (after 20 years) sort of spends. Not day to day stuff.

Also, you need a better expenditure list - I'd be astounded if water, phones, internet, gas/electricity, any other bills only came to 200.

We live in Scotland so we don’t have a water bill- that’s why council tax is 300/m. We own handsets so pay giffgaff -£20/m. My husband actually pays for the internet- I think that’s about 40. We own our cars. My husband wfh or cycles to work and I drive a 15 PT mins commute so our fuel costs are very low. We can walk to shops.
I do need a more extensive list, but this was off the top of my head .

I think we know we can save more- we used to pay 600/m for nursery fees too but our increase in gas/food bills seemed to swallow that.

I will write our a proper list and aim to put away a specific amount at the beginning of each month.

Have you included things like road tax, car service, mot, car insurance, buildings and contents insurance, life insurance, TV/phone subscriptions?