How should I invest £700 a month?

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  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    Oliver1191 wrote: »
    Yes, I put money into an emergency fund. Though, I find that it depends on what the emergency is as to whether or not I have enough. I've had enough since I started the fund about a year ago, but have raided it from time to time. If it's really a tough month for some reason, I just wouldn't invest the 700.

    Some regular savers let you withdraw cash without reducing the interest rate they pay. They could double as both part of your emergency fund and as the money you're aiming to put into a LISA.

    In, say, March 2019 you can make the choice of subscribing to the LISA or paying a bit off the mortgage. Remember that the LISA becomes unavailable for new subscriptions once you turn 50. For some people it would be attractive to keep the LISA to 60 and then start withdrawing money tax-free to plonk into a SIPP. Double whammy! Anyway, after 50 you would presumably expect to concentrate on a SIPP - to avoid higher rate tax - and either or both of clearing the mortgage and filling ISAs. The savings landscape may have changed long before then, which is why it might prove wise to use LISAs while they are available, and use SIPPs (or whatever) to avoid HRT while the 40% tax relief is still available. You can always hope to clear the mortgage eventually with tax-free money from LISAs and SIPPs.
    Free the dunston one next time too.
  • Oliver1191
    Oliver1191 Posts: 132 Forumite
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    Thank you Valiantson.
    "Putting money into pensions will be more tax efficient. It doesn't matter how much tax you pay at the higher rate, you are a higher rate tax payer. Pension contributions will reduce your tax bill, so they are an efficient form of investment for your future. If you don't want to access TPS flexibilities, then you can always increase contributions into your SIPP."

    It's not that I 'don't' want to access further flexibilities. Although you previously convinced me that the TP is a good deal to stay in, i'm not clear on whether accessing the flexibilities is a good deal.
    I'm not convinced that sounds like an emergency fund. You shouldn't be dipping into it on a regular basis: it's meant to be for emergencies. Any spending that could reasonably be planned for should be separate, e.g. new tyres on a car. Emergencies are immediate and unexpected demands on your finances, e.g. your boiler breaks down, or, more importantly, you lose your job.

    Yes, you're right. I was trying to live off £600 a month (for food/social/car), and found that I was averaging £700 / 750 a month. As a result, I've re--budgeted to £850 a month to cover most expenses comfortably.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    How do you intend addressing the equity loan? Overpaying the mortgage would potentially help provide the equity to remortgage the entire debt.
  • Oliver1191
    Oliver1191 Posts: 132 Forumite
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    Thank you AJ23.
    Use it to clear your mortgage quicker. If you have debts, pay them off as soon as possible. it saves you money long term.

    This would give a sense of increasing 'peace of mind'. But with interest rates so low, do I risk loosing a lot more money had it been invested? The 'opportunity cost' is what i'm concerned about. If investments do well, in the long run they could pay off the mortgage...
  • Oliver1191
    Oliver1191 Posts: 132 Forumite
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    How do you intend addressing the equity loan? Overpaying the mortgage would potentially help provide the equity to remortgage the entire debt.

    That's a very good question Thrugelmir. It's not one I really have the answer to, other than eventually extend the mortgage to include it.

    The equity loan interest rates are quite cheap (I think it was 1.75%) when I do have to start paying it back. I'll need to look at that closer to the time (2 years away yet).
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    Oliver1191 wrote: »
    But with interest rates so low, do I risk loosing a lot more money had it been invested? The 'opportunity cost' is what i'm concerned about. If investments do well, in the long run they could pay off the mortgage...

    How long will interest rates remain low and investment returns exceptionally good?

    There are very specific reasons for why things are as they are. It's not because companies are performing spectacularly well (in general).
  • TheShape
    TheShape Posts: 1,779 Forumite
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    Oliver1191 wrote: »
    So take the bonus...but is waiting until 60 an issue - I might be able to get financial independence before that?

    Equally, with channelling it into S&S ISA / SIPP / savings account, do I run the risk of getting really stung if mortgage interest rates go up?

    Although the LISA can't be accessed (without penalty) until 60 you would at least know that it's accessible from that point. If you wish to retire before 60 you could then use different savings and investment products that are accessible before this.

    If you can save at rates higher than your mortgage rate you could save rather than overpay the mortgage and have a cash fund that could be used more flexibly, perhaps overpaying the mortgage if it gets you to a lower LTV. Once you've overpayed, the cash is often then not accessible.
  • ValiantSon
    ValiantSon Posts: 2,586 Forumite
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    aj23 wrote: »
    Use it to clear your mortgage quicker. If you have debts, pay them off as soon as possible. it saves you money long term.

    Not necessarily. The mortgage rate can make other options more efficient. Paying a mortgage off first is not always the best option.
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    TheShape wrote: »
    Once you've overpayed, the cash is often then not accessible.

    Strong point, that. We used to have a "flexible mortgage" whereby we could borrow back any overpayment. It proved really convenient.
    Free the dunston one next time too.
  • ValiantSon
    ValiantSon Posts: 2,586 Forumite
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    kidmugsy wrote: »
    Because of the Actuarial Reduction for early retirement. In itself it offers excellent value to the teacher and lousy value to the taxpayer.

    That's a matter of opinion. Some may argue that the societal benefits provided by teachers make it a worthwhile cost.
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