Is 75K enough? Should I lighten up on the savings?

[REDB99]

For context I am a single parent. I earn 85K in a busy, pretty stressful job but do get some time where I can work from home which means less stress at times (still work to do but no commute).

I can afford all bills. I save between 1.5K and 2K a month. No desire to move house, happy where we are. One DD who is 8.

I have saved hard in recent years and now have 75K, this is not earmarked for anything although in 2 years when my mortgage term is up I’d like to pay off maybe 20K. I am 45 and will need to work to around 65. Will have a good pension when I do retire.

Should I relax and stop putting money in the bank? I’m thinking of going to point 7 which will be just under 60K, I get £300 a month in child maintenance. We have holidays that I’m happy with, I can pay the bills, I have 75K to fall back on.
On 60K I’ll be able to put around £850 - 1K away a month but would still prioritise being able to have holidays. Spend about 5K a year on this.

Would you start to relax a bit, go part time and have more time for hobbies, actually be at the school gate rather than needing after school club every day? Or is getting more money put away for a rainy day sensible when I generally find full time work okay but have times when the pressure is very intense?

You should move to saving into a stocks are shares ISA and get the money working harder. You have enough in the short- term cash slot, plenty in the long term, now medium term, but accessible.

More cash savings makes no sense.

You really need to look at the amounts you have tied up in debt vs savings. I'd rather throw my spare cash at a 4% mortgage on £300k borrowing than earn 15% interest on £20k of savings. The mortgage will cost you £12k a year in interest and the savings will earn you £3k a year. If you've got hundreds of thousands in savings then it's a bit different.

I never understand this argument of just looking at interest rates, you need to also look at the amounts you've got invested/borrowed to make an accurate call on which is the better option.

I'm not saying don't have any savings, of course you need something, but if you really want to be financially secure getting rid of your mortgage asap would be my goal.

You really need to look at the amounts you have tied up in debt vs savings. I'd rather throw my spare cash at a 4% mortgage on £300k borrowing than earn 15% interest on £20k of savings. The mortgage will cost you £12k a year in interest and the savings will earn you £3k a year.

If that is what you want to do, that's fine but over the long term, you would end up with more cash by going the savings route. The amounts don't make any difference to this.

But it is complex, I agree for a few reasons:

There's a psychological comfort in fully owning your own home which some people will feel more strongly than others

There's a behavioural factor - you are likely to be more tempted to spend money in savings than to go through the hassle of drawing down from your mortgage or taking a payment holiday

Stocks and shares are volatile - if you need the money at a particular point in time, e.g. for home renovations or university costs, it might not be the right call.

I think for most people a mixed approach is best and that's what we do.

We do some overpayment of the mortgage (not that much - for security), some cash ISA easy access savings for emergencies (similar rate to the mortgage so I conceptualise it as an offset mortgage really), and then a good chunk in S&S ISA

It's worth looking at the data Vanguard shows you on your investments - it might be that you have picked funds that have done badly or that you put your money in a big lump sum at a bad time

My general take which is not especially original is - feed in money gradually and spread your money across geographical regions. Some of my funds did extremely well last year - 30% or so - some ended up losing some money but it all averages out.

Just to show OP and others is this correct? It is baffling my brain.

1. Imagine I had a 200k morgage over 25 years at 4.5 percent. I would in total pay back £333700. So I would be £133 700 down.

In this example I have £500 to save.
If I pay this off my mortgage this would reduce the £133k interest.

1. If I invest this £500 in an account at 9 percent. ( If can find one) obviously could be more or less. Then I would make. £508 205 over the 25 years.

So would be up quite a lot. Is this correct?

For me though the psychology of paying off the house would be good and would I even find a 9 percent as I think my vanguard is 7 so far.

However is this in general what you mean by paying off the mortgage can be bad advice?

Yes @coffeeandteav, you just compare the interest rate you pay in your mortgage against what you could get for savings instead. Remember that tax would kick in above a certain level for savings interest though. I also doubt you'll find 9%!

I am also a risk averse single parent, definitely exposed with only one person able to pay the bills . I'm still going (mid fifties) in a stressful job. I'll have two kids at uni at the same time in 2025, possibly 2026 too as DC1 is planning to stay on for 12 months to do a masters.

I have a few moveable plans, if DC want/need to stay at home post uni I will stay in our home. If they choose to move out I will downsize and hope to be able to buy a property that gives me 2 x modest house deposits to invest for them. My downsizer will have three beds in case someone (or even both) needs to come home.

Savings wise £50k was my target for myself, it is accessible in premium bonds. After achieving that my spare cash has been diverted into paying my mortgage off early (large mortgage post divorce).

I'd really like to be able to reduce my hours to 3/5 ft by 62.

OP In your shoes I would start paying off my mortgage quicker.

When hou say you will have a good pension when you retire. What do you mean e.g. age planning to retire and annual pension.
I think this is where folk get caught out as 67/68 is often too late to retire for a variety of reasons.

Yes that's right. Money saving expert has a few articles which explain it and a calculator

The other factor which can make a difference is your LTV ratio - if you have a large mortgage and you're close to a LTV ratio that would get you a better mortgage rate, that might be an argument for overpaying

Personally I would carry on saving.

Things are going to get so much more expensive over the next decade or two.

Honestly, I think people are a bit blind or in denial how much all of our living costs are going to increase.

The more you can save, the better.

This.

We have a similar (slightly less) household income and currently save £1k a month. We've got less than half of you in savings at the moment, but are planning to continue indefinitely.

The plan is to pay off the mortgage in its entirety when our fixed term comes to an end in eight years. DC will be mid-teens then. And then save for uni or other career-related costs, possibly help out with housing deposits etc.

You need to think more long-term.

Sounds as though what you need is more financial literacy, generally - having that amount of money "in the bank" is unlikely to be sensible. Google things like Meaningful Money, FIRE (financial independence retire early - relevant even if you don't plan to retire early), look at the difference between saving and investing, and think long term. You may, or may not, want some kind of insurance against health issues or redundancy. It's great that you're in a good position now but make sure you're doing the best you can for the future!

Why didn't she pick you up?