What Percentage of Disposable Income?

roger_ramjet

New to the MFW thread and have started on the path to the end of the tunnel...I can see the light too!

I was wondering what others thought would be a reasonable percentage of disposable income to put towards mortgage overpayments.

After my monthly outgoings, I am left with approx £1500 to cover groceries etc. I have already factored out approx £200 in savings, etc. SO the question is how should I divide up the £1500? What would be reasonable for saving/spending/mortgage overpaying. I should point out that we have approx £7k in an investment ISA with invesco that we pay in £120pm is currently growing at between 10-15% per annum - which we could access instantly if required. We also have approx £1500 in cash, saved in various accounts - but that isn't paying much. I also have a 0% on purchases cc, but has zero balance at the moment. We are a family of four, son is 3 and daughter is 8 weeks old. There are also two dogs in the mix.

Jonbvn

I think you have inadequate cash savings. Consensus says you should have 6+ months of cash in an instant access account.

Generally, it is a bad idea having to liquidate investments to access cash, since they may have dropped just when you need the money. BTW, do not rely on a 10-15% growth forever - S&S just don't work like that!

Caroline73_2

I do it the other way around. I work out the regular bills, allocate a set amount for household spends per day (we do £25 per day which covers food, petrol, entertainment, after school activities, clothes, and anything other than a regular bill!) everything else goes towards the mortgage. We are a family of 4, needing two cars for work. In the past we have lived on less than £150 per month so we know we live well at the moment. I do actually save a bit of the daily allocation some days.

If I have a one off spend, our laptop needed replacing in January for example, I buy that on the credit card and then pay it off the next month. I take advantage of the interest free period and pay it at the last moment

roger_ramjet

Jonbvn wrote: »

I think you have inadequate cash savings. Consensus says you should have 6+ months of cash in an instant access account.

Generally, it is a bad idea having to liquidate investments to access cash, since they may have dropped just when you need the money. BTW, do not rely on a 10-15% growth forever - S&S just don't work like that!

6+ months of what, income or outgoings? Seems rather high. I guess it is based upon a degree of risk. As it stands, I have a pretty secure job, but if I were to be made unemployed, I would get 12 months notice and 1 year's salary on exit as a tax free lump sum. As it stands, we have £1500 is cash, but that is growing by a minimum of £250 per month, and after all regular expenditure, there is still £950 per month available in cash.

As for the S&S, yep fully aware they can go up as well as down, but we have a fairly diverse portfolio and the slow drip-feed into the investment should flatten out any peaks and troughs. My estimates on growth future in these are rather conservative and I will probably cash these in towards the end of the year.

LilacPixie

i would say your mortgage rate and savings rate has an impact on this decision. For example first direct offer a 8% gross regular saver with a maximum of £300 a month to be deposited.. This beats my mortgage rate so I save the full £300 here rather than overpaying it.. IMO save as much as you can if you can get a better rate than the mortgage rate.. Spends well it all depends on your lifestyle and what you hve counted as 'outgoings'

Jonbvn

roger_ramjet wrote: »

6+ months of what, income or outgoings? Seems rather high.

6 months income.

It may seem high but who knows what life will throw at you, regardless of job security? As an example, what would happen if your employer went bust? You will probably say you work for the govt!! But I hope you get the jist. IMHO it is always best to plan for the worst.

Perhaps several years of working in Africa has made me somewhat fatalistic?:)

dimbo61

What happens if you need a new car ?
Having a good emergency fund of 6 months income helps me sleep at night and comes in handy when buying big items ( cash is still king )
Everyone can lend you money AT A PRICE so why pay 12/15% APR for a car if you have £12K in the bank to pay cash and haggle down the price

roger_ramjet

But 6 months of my net income is close on £20K! I can't imagine a situation where I would need that sort of amount in a rush! As for my job, I'm in the armed forces. Yep, well aware of the redundancies at the mo, and most will be voluntary. However, if I were made redundant, I would have 12 months notice plus a hefty lump sum.

I appreciate the need for a pot of cash just in case, but I guess personal circumstances would dictate what that would be. Thanks for all the advice though - very useful.

slummymummyof3

Have you thought of moving into a MQ and renting the property out for a period of time and then throwing the additional monies saved at the mortgage overpayments? You need to ensure you have no profit on the rental versus expenditure to avoid tax.

roger_ramjet

slummymummyof3 wrote: »

Have you thought of moving into a MQ and renting the property out for a period of time and then throwing the additional monies saved at the mortgage overpayments? You need to ensure you have no profit on the rental versus expenditure to avoid tax.

Doing it already!!

slummymummyof3

Marveeelous! Its just a bit !!!!! living in a quarter when you have your own house!