newbie - need advice on cash lump sum

pfsfsf

Next month (feb) I will receive 40k from work. What is the best thing to make this money work for me (isa etc..). The only debt I have is 148k mortgage. I am married, my wife earns below the tax threshold and I have a 13 y/o son. Any advice before a financial adviser visit is most welcome. I have no other savings, I have a pension as does my wife and son.

jimjames

If you literally have no other savings then making sure you have enough cash savings to cover at least 6 months expenses (or equivalent of 6 months wages if you prefer) should be a first step.

You can use both your cash ISA allowances this tax year and next which would give you over £20k that can be saved tax free.

Beyond that you may want to look at share based investments in a S&S ISA if you won't need to access the money for 5 years plus. If you are likely to want to use it then keep it as cash savings in the best deposit account. If your wife is below the tax threshold then any savings interest would be tax free on any savings account so worth keeping it in her name.

If your mortgage allows overpayments and charges a higher rate than you can get on savings then overpaying into that may be an option to investigate.

Aegis

Can't easily be answered, unfortunately. You might have a number of different financial goals which you would like to plan for, each of which might have wildly different time horizons and levels of tolerable risk. Without knowing what you're aiming for, it's very difficult to give you options.

Broadly speaking, there are a few generic categories:

• For a short term goal (3-5 years or less), keep it in cash and spend it as and when required
• For a medium term goal, consider investing some of it into a diversified portfolio to build up the value in excess of cash. Cash can still be held as part of this strategy to reduce to overall risk, but this depends very much on the current and projected shortfall.
• For a longer term goal or your retirement savings, cash should probably be minimised, as it rarely performs well enough to even match inflation after tax over the long term.
• If you don't have any specific goals, you could certainly do worse than paying off some of your mortgage if it allows overpayments and has a fairly high interest rate. You may also wish to see if a repayment of some of the capital will allow you to re-broke onto a cheaper mortgage

As you can see, lots of options, and this is only in broad terms.



Hope this helps to start identifying some defined goals.

Linton

You say you have no savings so I suggest you put about 6 months living expenses in an instant access deposit account to cover any emergencies.

Beyond that it really depends on your timescales. What do you want the money for and when will you need it? This is key to making a sensible allocation of your money. Also, what is your mortgage interest rate? If its high it may be worth paying off some of that debt. Is it worth putting more money into your pensions? It would probably be sensible to split the money into different tranches: For example:

1) Treats for now: £1K
2) 6 months living expenses/emergencies: £7K
3) Big expenditure in 4 years time:£12K in fixed rate deposit account
4) Pay off some of mortgage: £10K but keep repayment the same.
5) Long term (> 5 years) savings: £20K invested in broadly based funds in 2 X £10K S&S ISAs (his and hers).

Your needs may be very different, so this is just an example.

atush

I am a bit concerned you have 2 working adults but no savings (until you receive this sum).

Do you have any debt at all? how will you go forwards from here, will you be able to save additional funds? Are you saving for your child (for Uni for instance)?

Linton's list sounds good, but I am slightly concerned you haven't been able to save so far.

pfsfsf

I have never needed savings; live life to the full. my son has money ready for uni. I just want to make the 40k work. Thanks for the comments, most welcome. I also plan to recieve in the region of 50k this year. All this is on top of wages etc..the mortgage is the obvious choice.if I gave 40k to the bank, what could I expect in 5 yesrs?

brasso

pfsfsf wrote: »

if I gave 40k to the bank, what could I expect in 5 yesrs?

How hard is it to Google your bank website? Or give them a call on Monday?


I'm all in favour of people coming on here to ask for information that isn't easy to come by, but really, you must know that there are such things called savings accounts that have advertised interest rates.

You should also know that interest rates are historically low at the moment. If you're lucky, your 40K might just retain its value as the best interest rates are roughly the same as inflation. So you are unlikely to make anything at all by "giving" 40K to your bank.

kidmugsy

1) If your wife doesn't earn enough to pay income tax you might like to gift her some of the money to put into a savings account in her name so that she receives the interest tax-free - or into a joint account so that her half of the interest can be tax-free. In either case the bank/BS can supply an R85 form for her to complete to ensure that no tax is taken off her interest. As others have said, you might both open ISAs this tax year and next.
2) Your mortgage: (i) would it be possible to get a cheaper mortgage by using some capital to arrange that you have a lower LTV (Loan-to-Value ratio)? (ii) Would it be possible to overpay without charge? What's your present interest rate? (iii) Overpaying into a mortgage is particularly attractive if you are allowed to borrow the overpayments back later, because that gives you flexibility if unexpected expenditures arise.

pfsfsf

brasso wrote: »

How hard is it to Google your bank website? Or give them a call on Monday?


I'm all in favour of people coming on here to ask for information that isn't easy to come by, but really, you must know that there are such things called savings accounts that have advertised interest rates.

You should also know that interest rates are historically low at the moment. If you're lucky, your 40K might just retain its value as the best interest rates are roughly the same as inflation. So you are unlikely to make anything at all by "giving" 40K to your bank.

I just think the bank will do what is best for them not me

atush

pfsfsf wrote: »

I just think the bank will do what is best for them not me

I suspect you are correct. And even if you save in cash, your bank may not be the best place to go.


I dispute your assumption you don't need savings. what would you do if made redundant? Fell ill and could not work? Is your pension sufficient to live on in comfort and if not are you considering adding more to your pension?

bigadaj

pfsfsf wrote: »

I just think the bank will do what is best for them not me

No one is disputing this, it's just that your original question was formulated such that it sounded like I can't be bother to look at rates and then calculate approximate interest, which sounds very lazy.