What would you do with a spare £1000 pm

[MoralHighGroundGrandWizard]

I am 34, single parent to a 4 year old daughter. My dad is in the position where he has started giving me £1,200 ish a month regularly. I do some work for one of his companies but not enough to warrant this but he has said he wants to make my life easier and wants me to use it to make my future a bit easier.
I can cover my living expenses (mortgage etc) with my wage from my full time job. I don’t know what to do with the extra other than pay off some debts (car debt ~£4k and owe £10k to a different family member (long story but she lent me some money towards my house)). So primarily I will use the money for the debts. Family member is happy for me to pay back as and when I can afford so I’m wondering about splitting it - half going towards debt and half towards saving etc. it’s not a massive amount but I wondered if I could make some
smart choices and make an impact for my future.
does anyone have any advice or shall I just pay off debts and stick the rest into a savings account?

Pay off all debts first. That would take you a year.
Then I would pay extra into a pension and savings.

Thanks - not sure I can up my pension contributions as I work for NHS and i think it’s standard amount but it’s something I’ve never looked into so I will look into it when the time comes. Paying off debts is obviously first priority.

Stick the whole lot into a stocks and shares ISA - S&P500 is doing nicely ATM and review in a few years. Are you auto enrolled into your pension? Look at this too. Then use any extra towards the debt which I assume if it’s from
famiky, will be low interest.

The app Plum is a simple place to start.

I would definitely pay off debts - car first as it'll be gone in a few months, then half to the family member.

I'd use the other half for saving / investing. If you don't have an emergency fund then I'd set this up first, whilst paying off the family member. Once you've got a fully funded emergency fund (different for everyone!) I would swap it to investing, either in a private pension or perhaps some form of ISA depending on when you might want to access the money.

Do you have any goals? Once you've paid off the family member, it could be worth putting that half into a savings account and overpaying your mortgage? Then you've got half going to the future (ISA / pension etc) and half going to now.

I am autoenrolled and have paid into my NHS pension for 10 years since I started. Family member loan is 0 interest and family member has been insistent there is no rush - she’s happy for £100 a month but obviously I will pay more because I can.

Sorry, just saw you’re NHS. Yes you can make additional contributions for sure, which attract tax relief too. Have a look at your pension situation clearly so you know if you have any shortfall. Pensions are easily the most tax efficient savings vehicle BUT they’re for the long long term.

I have £2k emergency fund in an easy access savings account.
good idea about overpaying mortgage though - once I am in the position of debt free I will looo into that or maybe once the car is paid off.

Thank you! I will definitely look into this.

I would pay off all the debts bit by bit even from the family member. Once everything is paid off then move on to the mortgage being paid off bit by bit - usually you can repay about 10% of the full amount left on the mortgage a year before a penalty is applied for early repayment.

On the gift itself although a matter for your father if he is over paying you for work he needs to look into that. Eg if his business says you did XYZ hours but you did not that might be an issue. If however he is paying other than from work money and it is a pure gift then PAYE etc will not apply and all that will matter is if he has loads of money and dies within 7 years in which case inheritance tax might apply unless the sums are within a small gifts out of income exemption. Most estates are not big enough for IHT so probably it will not be an issue for your family.

If I were in your position I would pay off all debt (including the car) so you have no monthly instalment of any kind (except mortgages) once that is done build up your emergency fund to 6 months of expenses and then I would split into putting into your pension and extra mortgage payments.

Thank you - car is definitely top priority as obviously where I am being impacted most for monthly easy wins to get rid of and would then free up £250 per month once it’s gone.

So your Dad is supporting you directly from his company accounts by paying you for work you haven't done?

Thanks - he has discussed with accountants etc so I assume all above board etc however I obviously have just been told so will make sure I speak to him about it properly.

No - he is paying me directly but I will obviously speak to him. I do work for his company separately to help on occasion.

Pay off debts
Build yourself a savings buffer
Book a holiday

It would be prudent to get some tax advice.

If you are doing some work for him are you getting paid formally with tax and NI paid, or is he just sending you the £1200 every month? If its the latter you might find yourself in hot water with HMRC.

Thanks! I will definitely be looking into the tax implications.

Pay off debt and save, including a junior ISA for your child . Pay a bit extra off mortgage. Merlin passes (depending on where you live).

👌This is exactly what I would do. Settle all debt, build a comfortable savings pot to cover 6m of all outgoings, then overpay the mortgage and top up pension.

Whatever you do, do not put it into a pension.

The only point of a pension scheme is to get tax relief on the contributions. This offsets the facts that (a) the money is stuck for a long time and (b) pensions typically have much higher charges, and hence lower growth, than other investments in the same underlying funds.

So putting tax-free money into a pension is just choosing a lower return and less flexibility. About the only reason to do it, rather than filling up your ISAs or buying unit trusts, is to put the money beyond reach, if you have absolutely zero discipline and are afraid that you'll see something shiny in the shops one day and not be able to resist the temptation to cash in your non-pension investments to buy it. But if that's the case then you have bigger things to worry about.

If you want to boost your pension then a better approach is to use the money from your DF for spending (on day to day stuff, or to pay down some of your mortgage), and then up your pension contributions from your salary, if you haven't yet hit the maximum. Make sure that you can reverse that change if the money dries up for any reason.