Am I Doing The Right Thing With Spare Money?

beastofrock

Well-known Member
So due to a change in job I now have at the end month once everything is paid I am left with an extra £500 a month. What I have been currently doing is paying that off my mortgage which is at a rate of 2.34%. So the question is, is there something I could be doing with that extra money that I have so far overlooked?
 

NorvernRob

Distinguished Member
So due to a change in job I now have at the end month once everything is paid I am left with an extra £500 a month. What I have been currently doing is paying that off my mortgage which is at a rate of 2.34%. So the question is, is there something I could be doing with that extra money that I have so far overlooked?
I’m in a similar situation but I spend it all, mainly on nice things for myself. Which probably doesn’t help you unless you’ve overlooked that :rotfl:
 

mjn

Distinguished Member
Give it to me and i’ll invest it on the favourite at the 2.30 at Kempton.
 

IronGiant

Moderator
is there something I could be doing with that extra money that I have so far overlooked?
Not unless you have any loans or credit cards charging you more than that in interest.
 

blue max

Distinguished Member
It does depend on your age, the length and amount of the mortgage and your salary.

If you have the years ahead of you, paying into your pension is very tax efficient. If there are any lifestyle changes in the offing, such as having kids, moving home, etc, you may want to keep the cash on deposit. Personally, I'd prefer to keep my options open. Usually you can pay off up to 10% off your mortgage per year, so maybe keep the cash on deposit and consider how you feel at the financial year end.
 

MSW

Distinguished Member
As with most good questions there is no simple answer

Typically if you mortgage rate is higher than any savings account then it’s best to overpay

however, you would need to check if there are overpayment limits or charges.

For me, based on your mortgage interest rate I would only overpay if the mortgage allowed to me to access the money I had overpaid, if not then I would spend some time looking at bonds
 

MSW

Distinguished Member
Usually you can pay off up to 10% off your mortgage per year, so maybe keep the cash on deposit and consider how you feel at the financial year end.
I have always wondered, what is the 10% calculated on

1 - Sum o/s at start of last mortgage annual year or
2 - Sum borrowed at inception
 

blue max

Distinguished Member
I have always wondered, what is the 10% calculated on

1 - Sum o/s at start of last mortgage annual year or
2 - Sum borrowed at inception
I have a feeling it's actually at the beginning of the year. But you can speak to your lender to confirm.
 

beastofrock

Well-known Member
It does depend on your age, the length and amount of the mortgage and your salary.

If you have the years ahead of you, paying into your pension is very tax efficient. If there are any lifestyle changes in the offing, such as having kids, moving home, etc, you may want to keep the cash on deposit. Personally, I'd prefer to keep my options open. Usually you can pay off up to 10% off your mortgage per year, so maybe keep the cash on deposit and consider how you feel at the financial year end.
With regards to pension do you mean just upping my contribution in my workplace pension?
 

blue max

Distinguished Member
With regards to pension do you mean just upping my contribution in my workplace pension?
Well you get tax relief on the contribution and that is higher if you are a higher rate tax payer.
I would recommend you talk to them of course to help you decide the options.
 

Gerry557

Active Member
1.Pay off any more expensive debt if you have any, such as credit cards.
2. Save 6 months outgoings in cash or readily available saving.
3. Invest in some form of long term share saving unit trusts. Assuming you are youngish and keep in an ISA wrapper. Many provide +4% dividends that could be used to over pay the mortgage.
3a.Consider topping up the pension.

Of course personal circumstances might dictate which is best. Ie you cant access your pension until a certain age. So might be an issue if your younger and get made redundant etc, then the ISA option might be more flexible.

Also attitude to risk and length of time available. No point doing shares if you need the cash in 18 months time
 

Trollslayer

Distinguished Member
Unless you want to get serious, don't play the stock market.
It took me well over a year to get the hang of it and longer to make money.
 

Gerry557

Active Member
Not sure I would recommended that as a course of action. Probably the most risky, time consuming and most outgoings to set up. Would need to know a lot more details about the OP before thinking this would be the way forward especially after recent tax changes and CGT issues down the line. Worst case scenario, no job, two mortgages, no tenant or even worse a bad one, followed by a tax bill. If very long term, with building/diy skills and time to sort out issues, then maybe put it back on the option list.
 
With mortgages, it's best to check with the provider if there are any early redemption charges.
We had an endowment mortgage on which I overpaid and cleared seven years before maturity, (no early redemption charge) so we had a sizeable amount of cash back when the policy matured.

Check with your company pension provider, to see whether it is worth paying more into it.

I did that for the last fifteen years I worked. I think you can pay up to 15% of your salary into your pension.

Then check for anything on which you pay interest. I pay all insurances, my golf club membership annually and clear the balance on my credit card every month.
Then look at easy access ISAs.
"Jobs for life" are a thing of thr past so you need to consider how a loss of employment might impinge on your circumstances in the future.
 
You get the tax AND national insurance benefits, worth looking at.
I will be able to retire a bit early thanks to this.
I was lucky with my additional voluntary contributions to my company pension. taking early retirement in 1998, I had to take my AVC component as an annuity, not as cash. But it pays 10% . So far I've had over twice the value of the annuity out of it at that date, which was probably more than twice what I'd paid in. Those sort of interest rates won't come round again.
The next best bet is to get into property. Buying another house and renting it out could pay off the mortgage, so eventually when you retire you'd have a steady addition to your company pension. But if you sold it you'd be slammed for Capital Gains Tax.
 

beastofrock

Well-known Member
Thanks everyone. Food for thought. I think in the new year I will look into upping my contribution to my pension and popping to see the financial advisor who helped us with our mortgage
 

Trollslayer

Distinguished Member
Income tax is 20 percent, National Insurance is 9.7 percent.
That is an effective lift of FIFTY NINE PERCENT compared with take home pay (1/1 - (0.2 + 0.097) on basic income tax rate.
 

leo79

Well-known Member
Overpay the mortgage, the single biggest loan we ever take out and the sooner its paid off the better. Yes, you could get a slightly better return by investing or putting money into higher interest saving accounts. But if you get to the point where you need to dip into that money than your at a point where you can't afford to overpay your mortgage.
Just my opinion
 

imightbewrong

Distinguished Member
Income tax is 20 percent, National Insurance is 9.7 percent.
That is an effective lift of FIFTY NINE PERCENT compared with take home pay (1/1 - (0.2 + 0.097) on basic income tax rate.
Could you add an example - for example someone earning £30K gross is taking home £24K after paying £3.5K tax and £2.5K NI.

1577301877549.png


If they elect to pay say 10% or £3K into a pension, the figures look like this:
1577301860988.png


So the total net income (take home + pension) has gone from £24K + £0K = £24K to £22K+£3K = £25K - so an extra £1K overall at the cost of £2K less in the bank account.

What does 59% correspond to here?
 

imightbewrong

Distinguished Member
One question I ask is how disciplined the individual is. E.g. sometimes the most efficient method is not prefferred as they 'wouldn't be able to resist' dipping into a savings account with large sums of money building up in, whereas if it was is something more locked way, like the mortgage, the temptation wouldn't be there. So there is a human/irrational aspect to it also.
 

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