What to do with £400 a month

[HP87]

DH is getting a promotion and it will be roughly £400 a month. I am unsure of the best thing to do with it long term.

We have main mortgage at 1.79% for another 7 years yet
Second mortgage at 5.09% until aug
Both with 19 years left
We have enough in an emergency pot for job losses
We do have a 0% credit card for emergencies and anything to do with the cars (not including fuel) that has about £5,000 on it but we ended up having a sod it moment and we went on holiday in the summer holidays so that's in that £5,000. Most months nothing gets added to it. We will balance transfer it when needed.
We are 38 and 39

I work term time and save monthly for the summer holidays, Christmas, kids birthdays etc. We are fine with our monthly outgoings (as much as I want to say sod it and spend it all every month 😂). We are not well off, equally not on the bread line. I do have to budget each month to not end up using the credit card.

My option was £200 into our second mortgage, and then £100 each into our two youngests accounts. I had £10,000 in DDs account (some inheritance in there) for when she turned 10 in Jul, we aren't putting anymore in as it will be at about £13,000 when she turns 18 which I think is enough for an 18 Yr old and any more they get after 18 I want to hold it back and be more in control of it. The younger two are currently 5 and 3 years old and between them if I can get about £3,000 more into their accounts ASAP then that's all I'll need to put in as it will reach £10,000 for when they turn 10.

All 3 also have stocks and shares ISA (requested by FIL - I know nothing about them) that my in laws put into each birthday and Christmas and they're at 7.5% return at the moment. So it has made me wonder whether we should top up the kids accounts quickly and then do a stocks and shares ISA instead of over payment the mortgage?

When how much I've saved is the same as the balance left do I pay it off or keep the ISA going?

Thanks in advance

I think that overpaying your mortgage is a really good idea.

I overpaid mine whenever I could and saved an absolute fortune in interest.

Put all of it on the mortgages, the quicker the are paid off the more cash you’ll have (savings on interest) and you’ll have two assets appreciating

I'd pay off the credit card, even if it is 0% but that's me, I don't like having large outstanding balances.

What does your husband think (given that it's his salary increase)? Does he have an opinion?

Don’t overpay the lower rate mortgage.

What pension provision do you have?

I’d over pay the mortgages. That’s what we’ve done and we’re on track to have it paid off when we’re 52 instead of 60.

I'd probably stick £200 on the mortgage, £100 to pay off the credit card (what if you can't get another 0% deal?) and then reserve £100 to add to day to day savings/ spending/ bills going up.

I would sort out that £3000 asap and then overpay the higher rate mortgage

Whenever I get a spare bit of money I put it in the mortgage. It might not be the absolute most efficient thing (probably pension would be better really due to tax saving) but psychologically I hate the amount of debt on the mortgage and also we will want to move somewhere bigger eventually and so this will help us get a better LTV on the next house.

What does DH say to the extra money for his promotion?

He doesn't really. He's just as clueless as I am as to the best way. It wasn't until he was made redundant last year with a payout that we realised we were living to our means and not thinking about the future/emergencies. And yes the stressful time we had around the redundancy and a family death made us has the sod it moment and had the holiday.
He is very fortunate to be at his new place a short time and be recognised for the knowledge and expertise he has brought with him, which is why we now definitely want to start making the right decisions.

I know what you mean about large debt. We do pay a decent amount towards it and barely anything goes on regularly. Which is why I haven't focused on it. But it does sit in my mind.

We both have work place pensions, nothing extra. I work for the council and he is a higher rate take payer. There is the option of me opening a LISA tbh, I've read that he would be better paying more towards his pension than a LISA? If we go down that route.

We're pretty certain DH will be able to get a 0% credit card, and if the worst came to it we can use the savings. So I'm reluctant to focus on it but I can definitely see why it's an option people would focus on and it's something to consider.

I'm not to concerned about the bills as I will have a few coming to an end next year (after school club - only dd goes to be with her friends, the younger two are happy to go to my parents and the 5 Yr olds clubs, some of DDs clubs stop at 11) so there's movement there.

It's definitely psychological isn't it and was our go to at first thought!

I use sprive and top cashback that go straight into the mortgage, it's not loads but it chips away at it.

I've never really had enough to think oh actually I could make this money work harder for me - since I've been keeping more of a track of the kids accounts I'm realising it could make more in an ISA or something.

Already answered. He's as clueless as I am. He's happy with the amount he has available to spend on himself. I do everything for the kids including spending, food shop, clubs, after school club, school trips, clothes, birthday and Christmas shopping. He's happy plodding along as long as he can get a new pair of trainers and clothes when he needs them. We're not massively spendy ourselves, almost every penny we earn goes on the kids. I book all our weekends away if we're going on any, work out all the budget etc etc

Fairly unanimous on the 5.09% mortgage. Maybe all on that until Aug and see what the rates are after that, then do the kids accounts and go back to the mortgage. I wanted to make sure we're doing the right thing but I guess £400 a month when you've got a mortgage and a credit card debt isn't actually enough to be thinking about making it work as hard as possible. It doesn't start until Jan payday so we've still got a while to think. Thanks for all the views.

We are both of the initial view of clearing the second mortgage (for those worried DH doesn't have a view), it was me starting to wonder if we could make it work harder for us to then lump sum onto the mortgage / leave that to run and save elsewhere to get more money over the 19 years.

My advice is for both of you to commit to becoming less "clueless"!
The rebel finance school is often recommended here, and it is a good intro into managing money.

If I were in your shoes I would transfer your eldest DDs money into her S+S ISA, then pay £100pm into your youngest's S+S ISAs to get them up to the same level as your eldest. After you're less clueless check the funds you're invested in and platform you're using - what are the fees on both? 7.5% return is OK, if this is the annualised return over the last few years. But if this is the return on this year only, you could be doing much better, the market has been insane this last year.

I'd also open a SIPP for all 3 kids and put in £20pm each. Its a small amount, but compound interest over 60 years is big!

You said you're making monthly payments on the £5k at 0% and are confident you can get another 0% deal to transfer it, or have savings if needed to cover it, so I'd not pay that down further.

I would use the remaining £140 either to overpay the 5% mortgage or I'd open a S+S ISA for myself. It's a balance between making the money work hard and the feeling of increasing security in paying off your house.

Putting it into a stocks and shares LISA or a pension is likely to give you a better return in the long term than overpaying even your 5.09% mortgage. But lots of people prefer the peace of mind in getting their mortgage paid off, even if they're less well off than they might have been. And of course there's some risk in S&S. You could do a mixture potentially.

For me I would be paying some off the 5% mortgage, you probably aren't going to find any savings accounts better than 5% so you would be best to set that payment up now. I would do £150-200 a month.
Overpaying the 1.7% mortgage and credit card I think can wait until the deals end but only if you start putting the money aside now, ensure you are optimising the interest on those accounts and aren't going to spend it on non critical things. This should hopefully help you build in some resilience so that you will need to use the credit card less and less. Whilst you still have a credit card to pay off I would hold fire on topping up your children's account. I would periodically review the money in savings and make one off payments to the mortgage, credit card and or kids.

Moving forward I would be more proactive in your money management. My partner and I have a spreadsheet with all of our accounts on, the interest rates and when the deals will end to try to optimise the interest we are making on savings. I was made redundant in Feb and making sure our money is working for us has helped us through this time

We try to have regular savers on the go to drip in excess from salaries so we don't build up too current accounts where it doesn't make any interest. We generally have these opened with the same bank as our current account as we can easily move it back to current accounts if needed for unexpected bills. We then had some instant access accounts for money as emergency funds, then we have the rest in fixed interest accounts. We are starting to consider stocks and shares but at the moment we aren't quite in the position to put the money away to 3-5 years. We also have accounts that are currently in my name but they are earmarked for our children and they have £50 a month going into them. We didn't start this though until we had our household finances in a good position and no debts aside from the mortgage.

We go through our spreadsheet a couple of times a year to decide if we are happy with how we are spending our money and savings. Periodically we will pay off our mortgage or make decisions on what we are doing with the house. Last year we decided to put our savings back into the house and had some minor building work done and redecorated the kitchen diner.

The nice thing with the junior SIPP is the 25% government top up.

Oh we are 38 too and intend on opening up a lisa each before we turn 40 but currently aren't planning on paying anything other than a nominal amount whilst we determine whether we are in a position to lock that money away until we are 55 as there is a penalty for removing it before you are 55 but we want the option of having that account for when it will make sense to use it. My partner is a higher rate tax payer so it's more beneficial for him to pay into his pension. At the moment I'm not earning so it wouldn't make a huge difference if I paid my money into my pension or a Lisa. If I start a new job it would make more sense to pay into a pension as I'd also get employer contributions, if I go self employed again it wouldn't make a difference and I'd probably do a bit of both. My partner doesn't have job security beyond the next 2-3 years so we don't know his employment and pension position will change over the next few years

@Socktree ,thank you. I will look into that website.
We were never taught about compound interest when we were younger (which is fascinating for DH given it was his dad who lightheartedly refused to put money in the kids accounts unless we opened a s&s isa 😂)

I am not sure where I got 7.5% from, they're are two % simple return is 19.66% and time weighted says 23.48%. They are at 9/10 risk. That explains more why I realised it's time to really think about what to do with this £400, not 7.5% 🤔😂.

We will look at transferring the money over. It's at 9 risk, which worries me. I was happy to do that with the in laws £200 a year for each of them, but putting £10,000 in feels too risky. I guess the rebel finance school you recommend will tell me all about that.

We have always aimed to pay off the second mortgage by the time the 1.79% runs out as that will definitely go up, then we can use the monthly we were paying on the mortgage to pay the increase and have some left over to save properly. But starting the saving earlier could benefit us over the whole 19 years. So it's something to think about.

This is interesting, thank you

@Superscientist I do now have an ISA which is saving for the credit card, so we pay off the minimum each month but anything extra goes into the ISA - for example my mum came on holiday with us as her amount towards it is in the ISA rather than paying it straight onto the card. DHs ISA has the redundancy money in.

I am definitely organised in terms of things like Christmas, school holidays, kids clubs and all of that. We just spend it all (on the kids!)

I will definitely go through your ideas

Edited to add that a sit down through our spreadsheet is needed! I go through it and DH is happy with whatever goes - wants to clear the mortgage but is happy if I said something else was a better option, but it's becoming too much just for me to decide and deal with now with this extra coming in.

I think this is one of those cases where you have to balance what may be most financially savvy to do, and what brings you most peace of mind.

For me, that would be overpaying the mortgage and getting that credit card debt gone. Purely because I don't like having debt hanging over me. I fully appreciate this is not necessarily making my money work hardest for me.

We try to do a bit of everything with "spare" money. Some to pensions via an AVC, my S&S ISA for long term savings, DH's S&S ISA earmarked for helping DDs when older as we want to keep savings in our names and not give them control over a large amount of money.

Some to overpaying the mortgage and our emergency fund is kept in premium bonds as I like to dream of winning big 😂.

@GameOfJones do you pay a set amount monthly into those accounts? Or do you focus on one at a time