How should we prioritise savings, investing and mortgage overpayments?

[XebraFish]

Me and DH are middle earners. Together we take home just over 7k a month after pension contributions and all our direct debits/bills come to 3000. Then I budget for food, kids activities, some personal spends etc as well as some sinking funds for holidays and car costs. We have a very big mortgage of around 480k and approx 300k equity. We don’t have any personal investments other than pensions but also don’t have any loans or debt other than mortgage and one 0% credit card that we put some building work on but I have the funds to pay that off sat in a 5% savings account and will keep it there until needed as the interest is free money. We have very little in any other savings due to aforementioned building work as well as maternity leaves, only around 5k. However we have approx 200k in trust but that will not be accessible for another 10-15 years and we do not benefit from the interest on that so I try to ignore it although in my head it is earmarked for the mortgage.

I feel that we are in a quite unusual position and not sure what we should be doing with our income. We are not mega high earners but we do have funds in trust which I understand most people don’t and we have around 2k spare per month to save or invest. At the moment my first priority is to build up the cash savings buffer to cover around 6 months basic expenses which for us would be 3000 DDs+food and fuel= 3800x6=23k. But after that I’m not sure what to do with the 2k spare. On the one hand it feels like quite a lot but obviously nowhere near what some people on here seem to be investing etc and certainly not worth me paying for any sort of financial advice.

Sometimes I think we should be aggressively overpaying the mortgage but then I’m not sure if we should be investing instead as the average returns are higher? Also even without investing we always seem to be able to find a savings account with a higher rate than our mortgage so I don’t know if overpaying is worth it. Sometimes the massive mortgage freaks me out and I think we should move and cut it right down but then I know we have the money in trust and also the mortgage payments of 2k a month won’t feel so huge in 20 years time and the house in theory should also be an asset that we are paying off. I don’t understand or trust our work pensions at all for various reasons so I’m reluctant to pay more into those as I’m not convinced we will see proper returns (it’s a very complicated scheme). I don’t know if we should open a LISA for ourselves for retirement and/or for our kids? At the moment I save £50 a month for each of them into their own accounts (I don’t want them to have multi thousands in these when they turn 18) and then £300 a month for them into an account in my own name but I know this won’t be enough to be able to give them house deposits or anything.

Finally I’m also aware that the budget I run is actually fairly lean by some people’s standards (eg we have an annual holiday budget of 4K) and I wonder whether I should actually be spending a bit more and worrying less about savings - we could spend an extra 10k a year on holidays or fun money and still save over 1k a month.

Basically I’m a bit overwhelmed by the options and would be grateful for advice! Thanks

Do you have emergency funds? Always sensible to have 6m of outgoings set aside for a rainy day before you even consider paying the mortgage down/investing.

That’s what I mean by building up our cash buffer, at the moment (apart from the cash that I have to pay off the 0% credit card) we only have 5k in emergency funds so my first goal is to increase that to around 23k. But that will take less than a year on current savings rate.

Actually I should probably also save towards a new (second hand) car which we will need to get in the next year or so. We will get a decent amount part exchange for ours but we will probably need to put in approx 5k.

I’m not any kind of expert but given the state of the housing market for houses around that price level, I don’t think you do have £300k equity that you could access by selling.

I would definitely prioritise some savings initially, for short term emergencies then for medium term house maintenance. I’d probably want to have at least 20k built up before doing anything else, so an ISA’s worth.

I would then aim to get the mortgage down a chunk so that your outgoings are less demanding in case of life changes. Im
assuming you have life insurance and have looked into critical illness or income protection - these are very expensive but with high outgoings I would definitely consider them.

Sorry I don’t know what you mean, are you suggesting that houses don’t sell for 750k or 800k? Because one in my road has just sold for 850k, one in the next road has sold for 900k, they are coming on all the time. You can see from the sold prices what they actually sold for and usually it’s eg listed for 875k sold for 855k or similar.

But to the other points, this is what I’m not sure about eg knocking 50k off such a big mortgage on a 32 year term will only reduce our outgoings by a couple of hundred a month which in an emergency wouldn’t make that much difference. Whereas if we had that 50k in cash savings then I feel like we’d have more options?

I'm not an expert and don't have the level of 'spare' income that you do, but I would recommend the Female Invest app.

It really helped me to understand things like savings, investments, debt, loans etc and, after a few months, & lots of video watching (especially Deborah Meadens) I feel like I have much more confidence understanding how money works.

it even gave me the confidence to start a using a very small pot (£250) for trading.

Edit to confirm, I'm not a seller/ involved in the app, it read recommended to me too!

I would recommend investing over overpaying your mortgage. As you say, 50k extra paid won’t matter that much in your monthly payments, but 50k in investments does. It gives your flexibility in case of unemployment or other unexpected circumstances. Plus it will grow over time.

I only started properly investing in my very late 30s 5 years ago and only regret I didn’t start sooner! Monthly savings into index funds, also save into some AI etc theme ETFs and also stocks. When I went back to work after being SAHM for a few years, I found life was tiring and money would all just disappear if I let it. I thought, damn it, if I run in this hamster wheel of FT job and nursery runs, something must me put aside for ME. So I started regular purchases of the funds. 300 per month and have increased from there.

Thanks I will check it out

Take a look at Rebel Finance School. Their 2026 course started a couple of weeks ago so you can watch the videos on YouTube and then follow the rest of the course as it goes out live.

It is completely free and they break down everything in a really simple way. You might not want to be as extreme as they were in terms of FIRE (Financial Independence, Retire Early) - they were able to retire on their investments in their late 30s/early 40s) but the principals of building an emergency fund and passive investments are good for everyone.

https://rebeldonegans.com

We invested heavily into mortgage overpayments and so glad we did, dh unexpectedly got made redundant and not having to worry about mortgage payments has been massive. Also having the savings we do, has prevented us from seeking welfare support and we are relying on savings to pay for basic living expenses.

How much do you and DH have in pensions? After building a basic savings pot in an ISA, a pension is a good way to save.

I just worked it out and paying 50k off our mortgage would take two years of full savings but only reduce our payments from 2150 to around 1920 per month. So if the SHTF then we would still have a mortgage of around 2k per month to sort out. I think I would rather have a 2150 payment and 50k in savings or investments to give me more options. My concern with investing is that stocks can go up and down and if you’re forced to pull out your investments due to an emergency and if you sell at a low then you can lose money. Maybe I need a spread of risk?

Sorry cross post, if we knock 24k a year off our mortgage (ie the full 2k per month) it would still take us around 13 years to pay off and we’d have no other savings. We’d want at least some savings for the DC (rest will turn 18 in 10 years) and until that point we’d still be paying our standard 2150 a month.

Thanks I started this once but lost track. I will look into it again

I’m not sure i would look at overpaying the mortgage as a way to reduce your mortgage payments but to reduce the term (so your monthly payment due stays the same but you knock time - and interest - off the mortgage). What is your interest rate on it? That should tell you what works out best. Martin Lewis site has an overpayment calculator where you can put in details and see if you are better off overpaying or saving the money.

How old are you? How much do you have in the way of pension savings and what % of your income are you paying in?

Building the cash buffer is a good first step- is it in an ISA?

Next I’d think about your pension and whether you should be increasing contributions.

Then S&S ISA in some sort of global tracker or mixed asset fund.

Mortgage overpayment is unlikely to be the best option in purely financial terms, provided that if you invest you leave the money invested in the long term. However I know people get great peace of mind from it, which has value in itself.

Just to add, I know you say you are concerned about shares dropping in value but RFS covers all of this. If you have an emergency fund then you won’t need need sell off shares in an emergency thus reducing your risk.

The course covers dealing with market volatility but the basic principle of investing in passive index funds means that the risk is low over the long term, which is how you should think about investing.

Have some cash aside as well, like you plan to. Then you won’t be forced to sell your investments in a bad situation. When everything falls on the market, just buy as much more as you can at that time! But generally, I believe investing in index funds is pretty safe. Yes they go down sometimes but also tend to get back up. Have some global spread by selecting for example developing markets, Europe, US etc.

Follow the UKpersonalfinance subreddit’s flowchart. Rainy day fund and then cheap global tracker fund for investing, monthly payments into that and just forget about it.

This is exactly the right thing to be thinking about. That’s why you build your emergency fund first- that’s your SHTF money, so you can leave the investments where they are.

You can also invest without being 100% in equities. The classic advice is to be 60% equities and 40% bonds- the idea being that when equities drop bonds will rise. (That doesn’t always work though and whether that’s the right split for you really depends on personal circumstances- age, risk tolerance etc. These days it’s quite common for people to be 100% in equities while building their investments but you don’t have to be if you feel uncomfortable with that level of volatility.)

Following closely as we’re in a similar but less good position, and I feel that the small amount extra we’re putting into the mortgage isn’t really achieving anything, and would be better being invested, but zero knowledge (and not much time or headspace) to learn.

I’ve seen lots of adverts for Female Invest but I’m always sceptical about paying for apps etc - is this one worth it? Did you see returns on your small initial pot? I feel if I could see even a small return quickly, it would motivate me to keep at it.

Also started watching Rebel Finance on my lunch break when wfh but lost the habit, will try to restart that again.

Save the cash you want for the emergency fund and new car and then invest the rest. Just continue to pay the usual on your mortgage.

Thanks for all the advice, I will definitely look at rebel finance to try and understand the investing side of things a bit more.

So if I’m understanding correctly it should go

1. pay off debt (excluding mortgage)
2. save up emergency fund / no investing at all until this is done
3. invest

I’m assuming that if for example I want to keep a 30k SHTF fund that this should be in cash ISA or similar? Also if for example the boiler needing replacing and I spent 3k of that 30k then the next month instead of investing my spare 2k I would need to top up my cash fund until I’m back to 30k and then resume the investing? sorry I probably sound like an idiot but this is all alien to me. I guess the other option is that I have 30k minimum in emergency fund and then each month I also save a nominal amount each month eg £200 towards large occasional expenses that are irregular but will come eventually such as new car, new boiler, new roof?? So then sometimes my cash fund will be higher than 30k but then some will be spent occasionally.

I think what PP was pointing out is that the tricky thing with equity in a house is that a big financial crash, like 2008, can wipe it out.

Houses round our way went from selling at £1M to taking years to go for £250k.

I'm not saying we shouldn't have equity in our houses, just that we shouldn't count on it as a future certainty.