No Savings

Aaagh

I am a bit obsessed with paying off my mortgage early and at the moment pay the extra we can afford each month off the mortgage. I hope to have it paid off in about 6 years, possibly less, when I'll be 45.:j

However, I don't make any regular payments into a savings account. We have around £2000 emergency in an ISA, and that's it.

I figure that I might as well make mortgage overpayments while the interest rates are low, and when it's paid off I'll pay into a savings account and do all those jobs that I'd like done, but aren't essential.

Should I be paying less on the mortgage and saving more?

StuartGMC

I would say you have too little available!

Consider something like the boiler failing (£1500), car major problem (£500) and the washing machine needing replacement (£300).... where will this be funded? If you have to do so via a loan etc then you will pay much higher interest on this than the £300 in your mortgage.

Usual recommendation here is 3-6 months required expenditure saved in ready access funds.

Whilst it is good to OP and pull down, do please look at a balanced portfolio, ensure your annual household budget allows for e.g. annual amounts to save towards replacement car, household white goods etc. I have a spreadsheet which I've sent others for household budget let me know it you want a copy (PM your e-mail address).

You may find some of my musings on our plans and aspirations of interest in my thread http://forums.moneysavingexpert.com/showthread.html?p=15321447#post15321447

Aaagh

Thanks for that. I'll pm you for the spreadsheet.

We have had a one of those months this month, when the car cost us £420, washing machine £300, vet bills £200 (and counting) - there was something else but I can't think what it was at the moment. Luckily, we have just stopped paying for childcare as DS has started school and we finished paying for the car in July. If this had happened 6 months ago we would have really been in the s**t and had to use the savings and if anything else had happened would have had to have a loan. Don't want to have to do that again.

I think now that we have the extra cash we need to put more into our savings fund, and once that's up a bit put a small amount into it each month as well. The car is going to need money for upkeep/replacing and need to think about when DS is older - although we do put into CTF, we need to put money by in our own accounts as well.

But I really want to see that mortgage go down too!

Thanks for the advice.

Aaagh

I'm sure you're not interested, but the other thing was that the computer blew up. Luckily DP bought me a laptop for my birthday in August, but we have to share it now.

Read through some of your previous post. Very interesting. I am taking notes. Golft TDI for me for the foreseeable future.

StuartGMC

I think you've answered the question already then.

I've sent you a PM about the spreadsheet.

Our aspiration for "annual savings requirements" cover:
money to save to replace cars (obviously a few years to get enough)
holiday a few thousand and it covers leaving the door to return
decorating in house
spend on the garden
amount to cover furniture (again several years)
IT/entertainment systems etc

and I see I don't have white goods.... mmm must add that in the IT bit:rolleyes:

These then give a total and thus monthly saving aspiration (our S&S ISAs are in addition to this).

Then we have annual costs which are all the things like insurances, breakdown cover, memberships, child's swimming lessons, club memberships, school trip (can be about £300), about £200 to allow for our glasses (OH and me), out-of-school and summer holiday cover costs, car maintenance, professional subscriptions....

These are actual costs that must be expected so again, totaled then divided over 12 months.

Hope that gives you some ideas?

FairyElephant_2

OP - it does also depend on the type/terms of your mortgage.

I am fortunate enough to have one which allows me unlimited overpayments, but I can get these back (as long as they over £500) whenever I want - it just takes a phone call and 3 days later the money is back in my bank account! So in an emergency I could pay with my credit card and easily have the money back to pay it off at the end of the month.

I do have savings in ISA's, and a reg saver (10% Halifax) - but at the moment I would takle money back out of my mortgage in preference to breaking into aither of these, as the savings rates are better than I pay on the mortgage.

I used to keep an 'instant access' savings account, being prepared to pay the 'premium for liquidity' and accept a lower rate on that so I could get it ASAP, but with the cuts in interest rates, I worked out that I'm better off bunging this in the mortgage at the moment!

ATB,

FE

getmore4less

The real trick with estimating emergency savings is to have a proper budget.

For loss of income(does not need to be instant access) I have a disaster fund that will cover all expences for some time, over a year, held in premium bonds so near instant access on a monthly drawdown basis.

Getting this pot of saving right is important since you need to pay the bills till income is restored.

This is seperate from an emergency fund to cover cash flow issues due to un/miss planned events.

Real Emergencies should be rare since you can prepare for most of the things that can go wrong and put aside some money for those, the real risk is more than one happening at a time and that can impact cash flow.
Many things can be planned for in the regular budget(emergencies should only happen once since it should go in the plan),
eg for an older car the regular budget should have enough for repairs, an unexpected car issue could be a blow out, but part of that is funded by tyre replacment funds in the regular budget.

On top of the known outgoings add some to take account of the risk of a early repair or replacement based on an estimated life of the items. eg A fridge should last 10 years+ so put 10% in the pot to cover this.

When starting out with every thing new the risk is low for the first few years then gets increasingly higher requiring a bigger pot, then over time as things get replaced at different times the risk levels off so the fund can be reduced again.

Also don't forget the risks of having to make short notice visits to sick/dead friends/family, the risk/costs goes up the older and further away they are.

For cash flow a CC with some headroom can be a usefull tool.

How big a buffer of near instant money is down to how many things you want to cover in one go, remember we can do without most things for a while if we really need to.

As long as you are saving/overpaying the mortgage I think about £1k is more than enough instant acess for emergencies/risked breakdowns If you use up the £1k you stop saving/overpaying to top it back up again. A good budget will have most things covered anyway so the chances of needing to use the money is low.

On top of this will be the savings for the planned replacement cycle of things but this can be in much better savings vehicles or even in the mortgage if you can draw back over payments.

Aaagh

Obviously not really up on things, but I didn't realise that there might be the possibility of getting OPs back. I don't really want to do that, but in an emergency ....? Will have to look into that. I'm with Barclays, and more than happy there. Never had any problems with them, apart from actually getting through to the branch when I phone up.

I think I remember them saying we could pay up to double our basic repayment, but it's getting close to that as our basic goes down, so I will have look into it.

I can't ever imagine having enough in savings etc to cover us for a year. You are obviously much more organised than I could ever be. I do like the idea of having £1000 instant and the rest elsewhere.

ailuro2

fwiw when we took our overpayment out of our Co-op mortgage it only took a two working days, it should have been the next day but the team were snowed under because there had been an interest rate change.

hth