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 would keep an eye on the mortgage rates that you are likely to be offered.

We had this conundrum a few years ago when we were due to move house. We had savings and it was trying to work out whether it was best to keep overpaying the mortgage were porting to reduce that loan and get a bigger second mortgage or to keep that money in cash and use it towards the deposit reducing the second mortgage.
In the end we went with reducing the amount we had on the second mortgage as that rate was 1% higher than the first mortgage although when that was renewed a year after moving the second mortgage now had the lower rate.

If your renewal rate is likely to be better than 5% it would still be better to pay off that mortgage quicker than the 1.7%

Personally I'd put at least half in a pension, particularly if his company do salary sacrifice. I imagine your pension will be pretty good if it's a Council one.

I would also get rid of the credit card ASAP- I am in the same boat and have £1.5k on one interest free until April and whilst I could move it to another one I'm going to use my bonus to pay it off. That's not the most financially savvy thing to do but any debt makes me uncomfortable!

All that said I wouldn't plan anything until after the budget as that could well change everything.

And broadly you want to pay off highest interest rate from money in lowest interest rate but it's better to do something rather than nothing.
In the grand scheme of things the worst you can do is leave it in your current account doing nothing. If you are putting it towards debts or putting it into savings you are improving your situation. That's makes the ££ difference trying to pick an option that gives you 4% Vs 5% is tinkering around the edges really. Final point is you don't have to make all the decisions at once. Pick something that feels sensible and keep under review

I would resist putting money into your kids accounts. I mean, your children will hopefully be financially hugely sensible at 18 when they get their mitts on the money…

or they might not be.

if it were me £200 on the mortgage, £200 on the credit card or £200 mortgage and £100 each into your stocks and shares Isas.

I work full time and get £400 a month PIPJ but I can't just squander that. It pays for a weekly cleaner, physio and my car so I can get to work. If I'd relied on NHS physio I'd be in a wheelchair so I have to pay for the intensive physio I need.
I've only got it for 2 years while I recover from various surgeries then it goes as does the blue badge.
If I had any other £400 I'd put the lot into savings like an ISA because as I k own disaster can strike at any time and you absolutely must have savings to cover that.
I was lucky my boss let me work from home while I was bedbound for a year a lot of people would have just lost their job and living alone makes you much more vulnerable.

Isit £400pcm gross or net? If your DH put it in his pension he will not pay 40% tax which means if gross he'll get all £400 in his pension and if the £400 is net after tax means he'll get £667 into his pension each month (aka almost 70% more money) . Better than paying off a 5% mortgage.

I've got my fingers crossed they will be 🙈. It was accidental tbh, we were putting some away each month for dd (the joys of only having one and having a bit spare years ago!) looking back it wasn't the most sensible, but she's had five years of a bit each month on her own. Then £5,000 inheritance in it. Then ds came along and he got £5k too but with me on mat leave pretty much back to back the boys haven't had as much go in so I just want to balance it out.
I'm hoping to use it to show them compound interest when they do get access to it, it had £10,000 in it when you were 10 and now it has x in with no extra from us. But we'll see how that goes 🙈

You really need to improve your personal finance education, i know it can be boring but it will likely be the best thing you ever do. Rebel Finance school has an entire series of videos on YouTube that covers pretty much everything you will ever need.

To be honest, no one offering you advice here has anywhere near enough information of your wider financial situation, goals and risk tolerance, so i would take it al with a pinch of salt.

One thing to think about though, is overpaying a mortgage is effectively saying goodbye to that cash. Yes it can be beneficial in the long term, but you also mentioned you have £5k on a credit card for a holiday. I wouldnt wish to tell other people how to spend their own money, but sounds like that was an unplanned expense. Suggesting that you dont have a large enough cash buffer? Living costs are going to increase, the amount of tax most of us pay is likely to increase, the outlook for the UK economy isnt exactly looking stellar at the moment which could introduce higher risk unemployment and taking longer to secure a new job.

Personally, My mortgage rate is 4%, sometimes its been higher and sometimes lower. At no point in time for me have i felt that overpaying has been the right option for me. I've chosen to prioritise pension contributions and more recently S&S ISAs. I have 6 months of expenses in cash, but I've taken the decision to bolster this cash a little more to give me more flexibility in the short term.

One financial youtuber i watched talked about the concept of a flexibility fund. Essentially this is made up of your cash savings and things like S&S investments (things that you could access relatively quickly if needed but not under duress). So for example, I have about £110k left on my mortgage and based on my current planning, sometime in 2028 my cash and S&S ISA values will match what is left on my mortgage. So I'll aways have that option to be able to pay that mortgage off if I chose to, i dont think I will but I'll have that option whilst still having the flexible access to that cash.

I would agree with this if she hadn’t started it for one child but she can hardly give it to the eldest and not the others.

I’d first pay credit card and them save it all to second mortgage.

@Hitchens you are right it is definitely something we need to get more of a grip on. I wish we'd started sooner when we had less children and more spare cash. We've always spent what we've earned, apart from the obvious of having to save for a deposit for a house we haven't saved since.
It wasn't until he was made redundant we realised how ridiculous we had been. We were very fortunate he got a payout as it was a very dodgy process and many didn't get a payout.
You're correct the holiday was unplanned, it was a family death aged 40 that pushed us to say sod it and book it, and we all had a great time, the kids still talk about it and want to go back so I'm pleased it wasn't a stressful waste of money 😂.
I am going to look into the rebel finance.

Your bit about S&s isa is interesting to do that rather than overpay the mortgage and even keep it in there when the balances meet. I am going to suggest this option to DH, then once the kids accounts are at the same amount we can put more into the ISA. We do now have six months essential expenses in an account as he got a job fairly quickly so we didn't use all of his payout.

We've decided on £200 mortgage / £100 each in a s&s isa and decide once we've looked into it.
£100 onto the credit card - we can't start saving pots for car stuff and holidays until this is clear. It sounds so obvious but tbh until I'd written it down like this I'd been naive about it!
£100 in the kids accounts

Thanks for all the info, I'm going to look into the rebel finance, stocks and shares isas, sipps for the kids and transferring the kids money to their stocks and shares isas.

I know pensions are there but my head hurts now 😂. We also have a pot on the side building up to finish the decorating of our loft conversion so once that is done then I will look into paying more into those.

Martin Lewis had a great calculator that shows the difference overpayments make to your mortgage term and the interest savings.

But if you can achieve a higher interest rate in savings then it makes more financial sense to do this than overpaying.

That’s also explained on his calculator.

I'd use it all to over pay on the higher rate mortgage, you'd probably always have to pay a higher rate on that so it makes sense to take it down.

Overpay the second mortgage as that % is a bit over what you'd save, put what you would have overpaid in the first mortgage into savings then you'll have more to put against that once your lower rate expires.

Stocks and shares are unpredictable, you could lose 20% or the lot. It's OK for kids as if there is a crash there is time for the markets to recover but if putting all their saving there you may want a balance with some lower risk options.

Pay down the mortgage and you know that whatever else happens (redundancy, ill health) you have a roof over your head and the ability to downsize/ take in a lodger if necessary. Your main mortgage should be kept, I'd pay off the second one ASAP or the credit card if you ever have to have a card paying interest.

Always pay off the highest interest debt first.

Yes fair point about the stocks and shares ISA.

If you are only term time id be topping up your own pension (just in case)

We wanted my DH to retire at the same time as me - he was 6 yrs younger. So for the last 15yrs before retirement we saved for that goal. Any unexpected rises used to be split - 50% into long term retirement savings and 50% towards future proofing house - new windows, bathroom, roof etc

We achieved that 3 yrs ago and still do similar with any unexpected cash now