What should I do with a 14k inheritance?

[Pleasegotobed]

I’ve recently received an unexpected inheritance of just under 14k, it’s small to some but feels like a huge amount to me so I really don’t want to waste it. I’d really appreciate any input into what the best thing to do with it is!

I am a single mum to three kids. Own my own house and the mortgage is £207k, I have about 60% equity. Rate is 4.2% so it is possible to have savings at a higher rate.. no debts and about 10k in savings before this - roughly split:

• 5k in a chase account at 4.5% which cycles through two regular savers at 7% and

-5k in a stocks and shares isa.

My after tax / pension / student loan income is £3177 and (all going according to plan!) I should get a pay rise to make it £3640 in just under two years. I don’t manage to save huge amounts each month but admittedly I do like to take the kids abroad each year so a chunk goes on that. My kids are teenagers and I’m mid thirties so I feel like life is more expensive now than it will be and I want to enjoy my time with them too.

What is best to do with the money? Pay it off the mortgage? More in stocks and shares? Someone mentioned that the ai bubble might burst and crash the market and that does bother me to think of.. i understand it’s a long term investment but still!

Holiday paid for for this year but I do have quite an old car - I won’t replace it until it dies and it’s running well for now but something to think of for the future…

any suggestions would be appreciated 🙏

Cash isa and keep for car in few years
Your 10k is barely 3 months incone so you need to keep this liquid as a buffer

I think just put it in the highest rate savings account for 6 months and wait and see.

id maybe buy myself:”/kids a little something as a treat, to remember person by… or a weekend away. Then just keep the rest and wait and see where it’s needed.

can you increase pension contributions and use this money to “pay” for that… as that’s the most tax efficient
thing to do.

10k to mortgage; £1500 to car repair / emergency fund; £500 for each kid for costly necessities and/or something special.

And kudos to your financial situation 👏

Unless your income is absolutely bombproof I think I'd just keep it in cash in the best paying cash ISA to avoid the interest being taxed.

Then you have a boost to your emergency fund and money available to replace your car or house costs like a roof or boiler if you need it.

Because as a single parent with a mortgage, you'll not be entitled to much help and your £10k will run out quite quickly if you can't work due to illness or you lose your job.

In general, the financial flow chart sets out a plan to work through.

https://ukpersonal.finance/flowchart/

You're probably only just at 3 months or so in emergency savings, and you're beating your mortgage rate, so I wouldn't rush to pay down your mortgage, you'll be able to do that, and build wealth by increasing your pension and ISA contributions when your DC are adults and you have more disposable income.

I’d invest it for now.

I would invest at least some of it in a stocks and shares isa.

I would just add to savings/stocks and shares in your situation tbh

My income is relatively bomb proof. It’s extremely unlikely I would lose my job and public sector so v good sick pay terms and a db pension.

I’m not guaranteed the pay rise - have to pass a professional qualification over the next twenty months. No reason I wouldn’t (I’ve done over a third of it) but obviously still an unknown.

don't know if that changes anything for anyone?

For me no…it doesn’t. Personally I would need to have more than 5k in easy access cash. But that’s personal preference. As a PP said you have about 3months income. There are other reasons to need to take time off work that may not be considered sick leave. I would want a solid amount to have as back up.

@Bjorkdidit that flow chart is very helpful, I am sending it to a couple of friends after we had a big discussion about finances/savings/pensions and a few felt like they didn’t know what to do in what order. Thanks for sharing.

OP- agree with others a small treat for you and DC and the rest in savings. I bought a print of an artist my Grandma loved and it’s a nice reminder of her in my home.

If your income is secure and you can save more if you were willing to cut back on the holidays, ultimately this isn't really a life-changing sum.

However, if you put £3k or £4k in SIPPs for each of your kids, wisely invested it could potentially be game-changing for them in 40 or 50 years.

I am sorry OP but this is going to sound brutal, unkind and superior but it is really not meant to be:
Nobody who manages money well asks how to spend money as they would save it.

You have 10K savings and 3 teens. I would definitely be investing more in your S&S ISA this tax year and the remainder in the next tax year (April). Your 50K+ salary means that they won't be entitled to full student maintenance loan should they choose to study in the near future and it helps to prepare for that in the next few years. Obviously, you'll still have access to these funds.

If you're ok with no access, I would split it and pay £7K into your pension and £7K into overpaying your mortgage to bring it down to £200K. There is nothing that will beat pension tax relief albeit you cannot access it for another 20+ years.

@Changename12 Im a bit confused by your comment.. I’m not asking for ideas how to spend it? I’m asking how is best to use it for maximum effect and whether that is mortgage/ stocks and shares isa / cash isa / something else..

@InveterateWineDrinker i wondered about putting a bit in the kids ISAs - they have 3-4K in a s and s isa but as Sansou rightly says they are likely to get minimum maintenance loan and that won’t touch the sides. My worry is not having access to it at all if something happened - I can always give it to them at a later point I guess?

@sansou I’m quite happy with a stocks and shares isa - current savings are split about 50/50.. but putting 7k in at once feels psychologically risky 😆 do you have any info on the recommended split between investment and cash? Have done a lot of googling but still unsure tbh

If put £10k into a cash ISA and the other £4k into a stock and share ISA. I'd be investing for teens if they want uni.

Defo just save it in an ISA or stocks or shares ISA where you can still access it.

It does and she didn't!

Premium Bonds ?

@Pleasegotobed i wondered about putting a bit in the kids ISAs - they have 3-4K in a s and s isa but as Sansou rightly says they are likely to get minimum maintenance loan and that won’t touch the sides. My worry is not having access to it at all if something happened - I can always give it to them at a later point I guess?

The thing is, if it was a genuinely unexpected windfall as you said in the OP, they would otherwise be in the exact same position being unable to access it, because they wouldn't have had it. They are going to rack up debt if they pursue a degree, and will then be paying it off come what may - as you said, £3 or £4k isn't going to touch the sides and will just evaporate.

As/when/if they start earning, investing in pensions is unlikely to be top of their list of financial priorities, but when it comes to pensions their biggest asset right now is time. The stock market has historically averaged an annual return of just over 8% after inflation. £3k put in a SIPP would, at 8% after inflation, be worth about £65k in today's money in 40 years time (when someone who is 17 today would be able to access it under existing rules) and £140k in 50 years time when they reach state pension age - even if they never added another penny.

I think you're already financially savvy OP. I wouldn't put it in the DC's account because as you say, you need to be able to access it. I would just stick with the accounts and approach you have already. You need to be able to use it when you need it. I've had £2k worth of premium bonds for 15+ years and only won £150 in that time. It would have done much better in a savings account even with rubbish interest rates.

@Pleasegotobed
I owe you an apology. I didn’t read very well. You have had some suggestions on here. One thing I would say is that stocks and shares ISAs produce very good returns over the long term but can fluctuate over the short/medium term. It depends how long you want to put your money away for.

In your shoes I’d want a bigger cash emergency fund- £10K rather than £5k.

The rest I’d put into the S&S ISA. So you’d have £10K cash and £14k S&S. I wouldn’t add anything to the kids’ savings for now.

I’m asking how is best to use it for maximum effect and whether that is mortgage/ stocks and shares isa / cash isa / something else.

Own my own house and the mortgage is £207k, I have about 60% equity. Rate is 4.2% so it is possible to have savings at a higher rate.. no debts and about 10k in savings before this - roughly split:

• 5k in a chase account at 4.5% which cycles through two regular savers at 7% and

-5k in a stocks and shares isa

How much do you regularly save each month?

How long before the chase account interest rate drops - as its an introductory offer (mine fell back to 2/5% in January)

Although the rate is 7% on the regular saver you'll be getting 6.61% in real terms and make £117.78 on £3.600 going into the account. If you put the £5000 in an ISA paying 4.02% you'll make 204.75 plus the £68.84 you'll make on the dwindling £5000 in chase at 2.5% or £125 at 4.5% - so for the moment you'll make £38 more per year than just leaving the money in an ISA paying 4.02%

Cash ISA with £24000 in at somewhere like Coventry Building society wold give you 6 x access to the money without penalty and 3.6% interest would give you after one year £24,878.40 or after 5 years if you din't withdraw any money you'd have £28,725.48 but the ISA with coventry is only guaranteed for a year - after that you may have to move the money to another ISA to get the same or a better rate

If you went with Leeds building society which are doing a 5 year fixed rate at 4.02% give you after one year £982.78 interest or 5 years time you'd have £29.333.14. You are able to have the interest paid annually into another account if you wish

your mortgage at 207k at 4.2% on a 25 year term would be costing £334,623 at £1,115 per month
a mortgage at 183k at 4.2% on a 25 year term would be costing £295,826 at £986 per month

so a difference of £129 per month or £1548 extra per year or over 5 an extra £7740 in your pocket - but thats only if your mortgage is over 25 years left to run - I don't know so can't give you a figure of how much that money would be worth if you are able to pay it off the mortgage

I don't know any ISA or savings account paying more than 4.02 % long term

I love this

Cash ISA. Don't pay down mortgage. It's a drop in the ocean and you need a rainy day fund.