What Percentage of Disposable Income?

getmore4less

Using % is for statistitions,and is rubbish way for for individuals to plan.

6-12 month expences is what is needed for the disaster plan of major loss of income.

There are 4 kinds of savings these can be overlaped to some extent

Disaster fund(loss of income) 6-12 months expences
This is to cover all expences till income returns
With 12month notice + the severence the loss of income is well covered.

PLanned expences(money to but stuff) as needed
White goods new cars etc most things can be planned for and covered here.

Emergency fund(something goes wrong not planned for) £1k-£2k or one month income buffer
To cover the things you forgot to plan for or premature failure of a planned expence.
Mosyt things can be planned for, the emergency is when the timing is a bit wrong, this can actualy be quite small if the planned expences is comprehensive.

Long Term(retirement planning) shedloads
This is debt free, pensions, savings to give more income etc.


A good goal is to get the long term up to a point where the disater fund become redundant because you can live of unrearned income if needed.

One issue is you live in MQ and will need the house back when you leave.
Haveing it mortgage free at that time could be a good goal(hoping you don't leave early)

Set some goals and base the spending/saving on those not some arbitury %.

Eg. mortgage free and a savings pot/pension goal on full term service might be a target to aim for.

As a guide if you split income, spend a 1/3, save 1/3, buy a house with a 1/3, anyone can retire in around 20 years. (a little more complicated for you because you have the service pension providing some of the save a 1/3.).


What I would do is a proper budget planning session.
Idenitfy all the ncome and essential outgoings(review them all to try and reduce)

Then look at your suplus income and decide where you want the dicretionary spend/savings to be is it sky/cable tv,holidays, going out, savings etc.

Prioritise with some goals like mortgage paid off in X years new car in Y years kids at uni in Z years.
review in 6 months.

A good starting point is a basic SOA and plan a year in detail.
http://www.makesenseofcards.co.uk/soacalc.html

KNowing where the money goes is the most important part of financial planning.

Then do a 5 year plan based on that( include some goals like the cars)
Then do the longer term planning identifying the long tem goals than need starting now like the pay the mortgage off goal.


Remember you don't have to be actualy paying off the mortgage it can be a pot of savings the same size as the mortgage, net assets is the total you are looking to grow.

jamesd

roger_ramjet wrote: »

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

Or low. My target has been to build up 100% of essential outgoings for the rest of my life initially, then enough to retire on, before clearing the mortgage. That way finding myself unable to work means I'll be able to survive.

roger_ramjet wrote: »

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

When do you want to retire? How will you get there? Military pension will probably be a large part of that, when you can finally take it, but probably not enough. Remember the importance of compounding which means that you'll never be able to recover from deferring retirement investing to save only the low mortgage interest rates while sacrificing higher investment returns.

For me it's all higher rate income going into a pension and the full S&S ISA allowance used each year, plus more going into investments outside the tax wrappers and that will continue until I can retire comfortably, at which point I'll consider when the best time to clear the mortgage is. I have the money to do that now or whenever I want to but it doesn't make sense to lose the higher investment returns and delay retirement just to be rid of some cheap debt.

roger_ramjet wrote: »

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.

It doesn't. It's a very popular myth. What it does is cut expected returns while decreasing the chance of being unhappy from investing a lump sum at the wrong time. Since people dislike losing money far more than they like making it, that's often a good trade. It also encourages people to keep on investing even during down times, when many are inclined to take money out with the worst possible timing.

Data on Yahoo Finance can be downloaded to a spreadsheet so I worked out the value of £100 a month starting back in 1984 using the FTSE 100. Here are some sample values using the first day in February:

2011: value: 62246 paid in: 32300 as %: 193%
2010: value: 55132 paid in: 31100 as %: 177%
2009: value: 38470 paid in: 29900 as %: 129%
2008: value: 57669 paid in: 28700 as %: 201%
2007: value: 59320 paid in: 27500 as %: 216%
2006: value: 54510 paid in: 26300 as %: 207%
2005: value: 45637 paid in: 25100 as %: 182%
2004: value: 40088 paid in: 23900 as %: 168%
2003: value: 31566 paid in: 22700 as %: 139%
2002: value: 42603 paid in: 21500 as %: 198%
2001: value: 48101 paid in: 20300 as %: 237%
2000: value: 49476 paid in: 19100 as %: 259%

That's the results for anything from 16 to 28 years of investing. No inflation adjustment for contributions, I just kept the flat £100 each month to make calculation easier for me. No fee deductions either.

As you can see, with just one unchanging investment, the time you take the money out matters hugely. It's why you see lifestyling for pensions that shifts to investments that move up and down less before retirement.

roger_ramjet wrote: »

My estimates on growth future in these are rather conservative and I will probably cash these in towards the end of the year.

You don't think any of these options will make more than your mortgage interest rate?:
1. investing in any part of the world
2. investing in any area of business
3. investing in any of the corporate bonds of bond or income funds that pay from 3.5 to 9%+
4. investing in any of the VCTs that pay the equivalent of 8-10% tax free after allowing for the 30% tax rebate you get on buying them.

roger_ramjet wrote: »

Doing it already!!

You're letting out the property? Why on earth are you looking to clear the mortgage when you can deduct 100% of the mortgage interest for a loan from rental income (up to the value of the property when you first transferred it into the letting business)? Every Pound you pay off that mortgage is costing you extra tax. Doesn't make sense to choose to pay extra tax. Better to accumulate the money to clear it when you no longer want to let the place, or the deposit to buy another one.