Ideas for left over money

Financial Chat
1

Morning All,

After some ideas. I’m in a very new financial situation and I want the opinions of others as to what the best thing to do it.

So the scenario is this:

  • I am living with my parents and pay rent to them.
  • I am expecting a windfall in about 2/3 years of about £15k from a separation which will go towards a house deposit. This is currently going through the courts to be ratified.
  • I have one debt which is a loan of £13k over 5 years at 3%. This consolidated all my debts and is easily manageable.
  • I have left over about £400 a month after all my outgoings and disposable.
  • I also get an annual bonus.

I have NEVER been in a position of being able to save such a substantial amount of money in my life. I am aware that when I eventually do get my own place that amount will reduce so I want to take full advantage.

I have thought of saving keeping about £200 in my bank account as a buffer and then siphoning the rest to an easy access account (Marcus).

Should I just save all this money and keep it in a savings? Should I increase my pension contribution (which is currently at bare minimum)? Should I research and invest in the stock market myself (which does interest me)? Should I use any big lump sum to take off the loan debt?

Any ideas from people would be so greatly appreciated.

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2

You can follow this handy flowchart to figure out what the optimal use of any extra money you have is.

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Personally I’d pay off the loan first depending on if you can overpay without fees.

Then I’d save it all towards your house deposit. The bigger the deposit the lower your monthly repayments will be, so you’ll then be able to reevaluate all of this again in a few years time :slight_smile:

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Have you owned a house before? If not, open a Lifetime ISA (Moneybox currently offers the best interest rate on a Cash LISA) and max it by putting 4k in each tax year. That’ll get you a 25%/1k return plus any interest each year to put towards a house deposit.

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Even though the debt is manageable? I will probably end up out of my parent’s house in the next 12 months and will be renting until the big cash injection comes through.

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I have yes. Those kinds of savings are off the table for me unfortunately.

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I believe Martin Lewis recommends that people pay off their mortgage as that has bigger gains than saving - this is why I said it.

Why are you moving out to rent? That’s dead money. Can’t you stay at your parents for a little longer, until your payment comes in, to make the most of it and set yourself up financially better for the future?

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It’s a bit awkward. Not a big house and I have 2 boys who comes to stay every other weekend and half the week. When that happens, there are 5 of us in a small 3 bedroom and we’re tripping all over each other.

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I would say its only worth keeping one months worth of outgoings in your current account regardless of income. As you say the rest can sit in Marcus at 1.45% which can be classed as emergency fund. I’d build that up to cover a few months of outgoings and add to the house deposit to get a better LTV then get cracking at the personal debt as its a decent low %.

I’d only go looking at investing/pensions once you have no debts and emergency fund built up. You need to be able to be happy with whatever you invest in also losing. If you want to dabble theres Freetrade that can help you get into it, create a S&S ISA, go with ETFs and look for a five-ten year return min. Picking individual companies is a bit more of a gamble, but if as long as its not all eggs in one basket it should help average out the return.

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Do you have an Emergency Fund? If it were me, my first focus would be on…

  1. Building at least a 1 month E Fund
  2. Getting rid of Debt
  3. Building a 3-6 month E Fund.

Personally, I’d rather get rid of interest-bearing debt as quickly as I could. There would be no gain in having a savings account earning less interest than you are paying to the Loan. (Deposits situation not withstanding)

As the flowchart linked suggests, I wouldn’t yet consider investing until you can build yourself an emergency fund.

Edit to add: On your bonus, you may wish to consider putting it all into your pension if your employer allows - you won’t lose as much in tax if you put it into a pension - but obviously you can’t spend it until later.

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Thanks for advice everyone. I was slightly surprised as I didn’t think paying off the debt would be high on the recommendations. Definitely given me food for thought.

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I’d say if the 3% was a lot higher then there’s more incentive to reduce quicker.

As mentioned above it’s best not to think about gaining interest when you’re paying interest, I guess about £2,000 for borrowing £13k over 5 if you made no additional payments. So it’s better to work on reducing that I guess ~£33 a month in interest rather than trying to gain a few quid elsewhere.

You’ll need to obviously check the loan agreement on any penalties for early repayment.

But you might as well put in Marcus to build a small emergency first like one or two months expenses covered and earn the most whilst still having instantish access.

I’d stay with your parents for as long as possible as it’ll be much easier to save/payoff good chunks.

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Interesting to read this thread, I’m currently building up my emergency fund but curious to understand why everyone has suggested putting it in a Marcus account? What’s the benefits vs others, for example Monzo’s easy access savings pots? Considering I’m full monzo, for convenience sake I thought monzo would’ve been better?

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It offers a very competitive rate of interest for an easy access account. Some people value that over the advantages of keeping all their funds with one provider.

So, yes, for convenience sake Monzo is better, for maximising interest’s sake, Marcus is better.

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It’s only the recommend atm as it gives the highest instant access rate.

As the rates are low these days the gap is minimal between say Monzo average and Marcus highest. If you prefer under one roof then you’ll only be losing out on a few quid over a year.

£10,000 Marcus at 1.45 AER = £145
£10,000 Monzo at 1.15 AER = £115

So ten thousand pounds is £30 difference.

Obviously it makes sense to use other products that are fixed and locked away for cash you wouldn’t need access to until the time is up.
Regular savers paying 2.5-3% would be the next easy choice to only lock in for 12 mths. Nothing to stop doing both. Shame the 5% no longer exist.

At a certain point it starts to make sense paying off mortgage but that again depends on circumstances. If you can access the overpayments if you really needed to then it seems a great choice.

Anything going into shares it makes senses to look at as long term investments, and only cash in if you see things are turning sour or you win with a nice multibagger and want a nice :oncoming_automobile: or such.

Freetrade and soon Robinhood are worth keeping tabs on and will save wasting a tenner each time you buy/sell like legacy AJ Bell if you don’t mind only having access to specific companies and funds.

Re pensions I have a workplace pension but dubious about the government screwing it up and rather make my own investments that I can manage and access, and have that with the workplace and the state pension.

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Just to say, if you don’t have that much, TSB offers a free current account which provides 3% interest, paid monthly, on balances up to £1,500. You have to pay in £500 pm, but I pay it in by standing order, and withdraw it by standing order a few days later. It works out to a bit over £43 interest pa.

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Didn’t I read this week that they’re scrapping that and introducing a charge?

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Yep, no interest on the free account, and charging £3.

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It’s not something I’ve heard (yet). I’m sure they won’t be too sad to see me go, though. I must have cost them several hundred pounds over the years.

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Here’s one article on it if you believe that paper.