Solid foundation but where to now

Tom_Brine · 16 March 2017 at 10:42AM

Hello All

I am looking for some advice and comments on my current situation. I have recently opened a S&S ISA but wanted to give a larger picture of my current financial situation in order to best understand where I should be putting money and how to spread my risk for the future.

So first the basics

I am 33 and in full time employment with National Grid on an annual income of £42,886 with a top cap salary of £46,500 which I should reach by June 2018.

I have a DC Pension Scheme where I pay 6% of my salary monthly and National Grid pays 12% for a total of 18%. As of today there is £28,582.35 in the pot with total monthly contributions currently sitting at £643.48.

I participate in National Grid Share Save Scheme at a cost of £500 per month after tax. This is a 5 year scheme which matures in March of 2021 with an option price of £7.45 per share. When the option matures I will have £30,000 worth of shares at the price of £7.45.

I also contribute £150 per month pre tax to National Grids SIP scheme with dividend reinvestment. I currently have 150 shares with this which must remain in partnership for five years to be taken out tax and NI free. Monthly contributions started in June 2016.

My Mortgage is currently £98,000 owed on a leasehold new build property brought in 2013 for £152,000 on a 150 year lease. It is 2.54% fixed until Feb 2021 and my equity is increased by approximately £500 each month with monthly mortgage payment of £789. Recently some locally have been put up for sale and have not sold which concerns me. Three rooms in the house are rented out meaning the house pays for itself. The rent covers the mortgage and bills.

I also have recently brought a new car with a loan for £14,000. Repayments start in April this year at approx £300 per month. However I do a lot of driving for work for which I am reimbursed. These milage payments should easily cover the car loan.

I save £300 a month cash into regular savers and currently have £2100 with First Direct at 6% interest

I recently opened a S&S ISA with Cavendish online paying £75 a month into the Scottish Mortgage Investment Trust. The idea being to put some money aside for the future but with a longer term investment in mind. I was looking to contribute another £75 a month into something such as the Vanguard Lifestrategy 80 Equity fund but have now come across SIPP's.

I am wondering if it is worth investing more into the S&S ISA in a different fund or whether opening a SIPP would be a better idea for the second £75 monthly contribution. This would ensure I have a second income pot for retirement which though not as big as my company pension would enable me a slightly better standard of living in my old age.

Any comments or thoughts on the SIP vs increased S&S ISA investment would be appreciated. Or any other general advice around what you would do in this situation in order to move to the next level would also be appreciated.

Linton · 16 March 2017 at 11:17AM

Do you have a significant amount of cash saved to cover emergencies such as redundancy/house maintenance or other unplanned major expenditure?

With your rental income are you into the higher rate tax band? If so it would be sensible to pay at least sufficient extra money into a SIPP (or possibly your work pension) to get below that level.

For a basic rate tax payer the tax advantage of pensions over ISAs is about 5% when you come to draw the money, so not major in the overall scheme of things. You may feel that the greater flexibility of S&S ISAs before 55 would justify putting more money there rather than into a pension, given the size of your current pension contributions. This would also reduce the risk of your retirement drawdown being seriously limited by the higher rate tax band.

With your moderately high salary could you afford to put more into long term savings?

Tom_Brine · 16 March 2017 at 11:54AM

Cash Savings are currently low (£2100) though the £300 monthly contribution to these is now ringfenced so I will not use this money for anything other than building up a savings pot. I want to get to a point of having £10,000 cash in an easy accessible place for emergencies/redundancy etc. My annual bonus will also be used to top this up speeding up attaining the desired amount.

The rental income is covered by the rent a room scheme as I also live in the property. So £7500 is tax free. With my annual bonus and the excess rental not covered by the scheme I do get pushed into the 40% tax band

I am thinking £200 a month would be my total contribution into longer term savings such as the S&S ISA. Then as the years go on and I get pay rises/promotions I could divert more into these. Medium Term I have the share save scheme, I suppose the short term cash availability is the current "gap" in my finances.

Fatbritabroad · 16 March 2017 at 8:48PM

Personally I would simply build your cash savings for now in several high interest accounts but that's just me I'm cautious so couldn't sleep with only 2k Aim for 6 months bills and living expenses ideally. Once you get over that you can drip money in every month or out bigger lumps in on say an annual basis (I do a combination of both atm.)
I've got about 5 months worth cash and am aiming to get up to 7 to 8 months. I'll then pay in a couple of k in one hit once I go above this

elephantrosie · 17 March 2017 at 1:31AM

echo fatbritabroad.

you only have 2.1k liquid cash and you are still thinking of investment? better saved up more money. you have got a lifetime to invest. need not rush.

Tom_Brine · 23 March 2017 at 2:13PM

Thanks for the advice

Ive decided that you are right and building up my cash should be my priority to make sure I have £10,000 behind me for emergencies.

I will keep the S&S ISA stocked with the £75 a month investment but not look to expand upon this until the cash amount has been hit.

In two weeks time I will have £2,400 in the First Direct fixed savings account at 6%. The account closes in September this year and I will have £3600 + interest. I will then look to open another regular saver for £300 at 5% and move the lump sum into a Nationwide Flex Direct at 5% (should they still be available)

The Share Save scheme currently also has £6500 invested and though this is a long term investment it should be noted that at any point in time it can be cancelled and I retrieve my money should an emergency occur.

Thanks again everyone

jimjames · 23 March 2017 at 2:28PM

elephantrosie wrote: »

you only have 2.1k liquid cash and you are still thinking of investment? better saved up more money. you have got a lifetime to invest. need not rush.

As an alternative view I think it really depends on your attitude to risk, stability of employment and access to credit in an emergency. If you can access sharesave money in an emergency with zero cost then that gives much bigger buffer.

It's all very well thinking that you have a lifetime to invest but you could then end up hitting retirement and wondering why you never were able to build investments. The beauty of investing is compounding returns which really makes a difference over the very long term so the earlier you start the better. Starting out with £75 sounds like a good compromise to build knowledge and understanding before looking to increase.

Paying money into savings or investments as you get paid is generally more successful than waiting till the end of the month and saving what you have left.

BLB53 · 23 March 2017 at 3:47PM

Also consider the new lifetime ISAs which will become available next month

Solid foundation but where to now

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