How to spend disposable income?

[Renovatingourhome]

Really looking for some advice please. I have worked really hard to get to where I am today and I'm really proud of myself. I had a hard childhood, we were very poor. I'm at a stage in my life now where I have £1200 leftover after mortgage, all bills, food, petrol etc and I want to spend my money wisely. I have small savings pot as we're renovating and everything we save, we seem to spend on the house but we're almost finished so ultimately each month from now my emergency funds will be going up. I'm thinking of spreading £1000 five ways - emergency savings, SIPP (self employed), LISA, S&S ISA and overpaying the mortgage. So, that's £200 per month to those five places leaving £200 a month for treats. We have 28 years left on the house. I'm almost 40 with two secondary school DDs.

Eating out
Deliveroo
Drugs
Gambling
Alcohol
Vaping
Collecting something
Clothes
Jewellery
Beauty treatment
Cosmetic surgery
Gym
Exercise classes
Flying lessons
Charity donations

Holidays

Direct debit to my current account.

😂😂😂

I think I’d def go for alcohol, drugs and gambling 👍

Shall I send you my PayPal?

Look at the Rebel Finance School and educate yourself re SIPP, ISA etc then invest sensibly.

😆🤣
Love nos. 3,4,5 on this list... why not?!
Perhaps take up smoking too, if you don't already... literally setting money on fire 🔥

I wouldn't go for the LISA as you've already got a house and a SIPP. I'd overpay on your mortgage as much as you can as you'll save as o much in interest payments. Then enjoy yourself a bit have a feweals or days out and get a holiday. Life should be about fun and downtime as well as hard work. You have done well so reward yourself. You may want to pay off mortgage before you retire.

Don't rush to pay off the mortgage, investments will almost certainly grow faster over time. Even normal savings accounts will likely pay more interest.

But splitting it across a few things, with most of it saved or invested instead of enhancing your lifestyle is a really good thing to do, so will prevent you falling into the trap of spending all your increased disposable income, leaving you without breathing room if something goes wrong.

Why the LISA?

I don’t know. I opened it before I turn 40 because I was worried I’d regret it if I didn’t. I’m struggling to work out it 25% bonus from the government on a LISA or tax relief from a SIPP is better?

Generally you will be better off getting the pension tax relief and the employer pension contribution but it will depend on your tax rate.

I’m self employed, so I don’t get an employer contribution.

What's your tax band?

Basic tax band of 20%

Then it doesn't make any difference.

Your plan sounds great. Depending on how old you are and your attitude to risk I'd probably worry less about the mortgage and put more into the S&S ISA, but that's very personal- if you're someone who will panic about a dip and wants the certainty of debt paid off then best to know yourself and act accordingly.

Buy a horse, that will easily get rid of at least 1k a
month!

I think we may be very different people, but my gid that sounds dull.

what about holidays? What about going out, cinema trips, theatre, meals out. What about clothes, beauty budget, books, gym membership, fun with friends? £200 for the month is not going to get you far.

I’d argue £1200 is not disposable if you are putting savings/pensions away. There’s a fine balance between saving for a rainy day and living. You’re basically existing, relax a bit and have more fun money!

How much is your pension pot at the moment OP? Personally, at your age I’d be paying a lot more than £200 a month into my pension. Roughly, a £500k pot, if you buy an annuity, will pay an annual pension of about £16k a year, which isn’t a huge amount to live on.

I was told a LISA is better for basic rate tax payer because it’s all tax free whereas when you withdraw from SIPP only the first 25% is tax free

Thank you, it's hard to know where to put your money to get the best out of it. I'm almost 40 and want to invest long term. I might add a bit more to S&S instead of the mortgage.

Totally agree with you - it is VERY dull. I'm trying to put some money to good work but holidays / treats are a must as well. I must not spend a lot though, as £200 a month spending money is fine for me. Maybe I'm cheap haha.

My pension pot is basically nothing, which is terrifying. I currently have £3000 from an old pension and around £4000 in a LISA.

Put all of it in your pension as it’s tax free.