Investing, clearing debts, savings

StevenO

A friend recommended this forum to me, I must say it's great, full of lots of useful information

Anyhow, I'm currently struggling to decide what to do with my finances, and thought I would ask the experts for a little advice before I go mad.

I'm having a bit of a fight with myself over what to do with my money, which of course isn't a bad thing, it's certainly a better problem to have than to not have!

Anyhow, I have previously pretty much consumed all of my earnings in one way or another. Over the past five years I have been lucky enough to have had a pretty good job, and after going wild for the first few years and getting myself and my family set up and in a good position, I started to set some money aside. The first objective was easy, I'd never had any savings in my life, so just to start saving was in itself a very satisfying thing to do, but I soon found out that what ever you have isn't enough and it soon just turns to numbers sat on a page, and rather than being happy just saving it turned into a situation where I really don't know what is next or where to go. I thought just having some money saved or set aside would provide me with some security and satisfaction, but if the worst happened, I realized the money would only cover a few months earnings, so with that in mind having a pile of cash in the bank not working really is no substitute.

Over the past year or so I have yo-yo'd a bit, the wife needed a new car (her old car needed to be replaced) I've changed my car although made a good decision to consolidate my two cars into one, done a few things to the house and the usual maintenance or repairs on things have cropped up, we've been treated to a few things and some good holidays. I've really been trying to set us up with everything that we could need or want in case things took a turn for the worst at some point, and as well as that put some money aside.

I'm now getting to the stage where I need to get a little bit smarter with money, and really have no idea what to do with my money I have saved?

I don't have a great deal in savings, only 15k, but I have had the potential to save 1k per month for the past few years whilst still living to a good standard. Realistically though, catering for the unexpected things, the odd holiday and unexpected repairs on things a bit of that will come back out.

I've set a modest target therefore of 20k by January next year.

The issue I have then is that I am aware of the fact that having money just sat in an account isn't doing me or my family any favors. Thankfully inflation and other things are at an all time low, so my money won't be 'shrinking' as much as it could, but still, on the flip side it is only in a taxable savings account earning a measly 1.7% net.

We've contemplated investing in an apartment, putting this money down as a deposit, renting a property and hoping to turn the 20k into 100k in say 18 years as a long term proposition, but we've also considered investing in stock and shares (which can be a dangerous game of course!).

The other option which to be honest, was one of the last considered was to pay off existing debts, or at least try, IE our mortgage. We don't have any credit or store cards, we cleared them off a long time ago and vowed never to use credit cards or the like again.

With mortgages at an all time low, perhaps if we can get a good long term return on investing in a property it would be a good plan, but then again, if in years to come interest rates double, we could easily be paying instead of 50k interest on our remaining mortgage more like 80k.

I guess I am confused and we are struggling which way to go. We don't want to throw the money away but we need to make it work for us.

So I guess I am trying to get my head around our options, which are lock away in a bond, invest in stocks and shares, invest in property or clear down debt.

Any opinions and advice would be appreciated.

Lois_and_CK

Do both you and your wife have pension provision in place? If not, then after having put in place an emergency fund (which you should keep as cash savings) then i would consider retirement provision as your next priority.

How do you plan on turning £20k into £100k in 18 years with property? I wouldn't put all my eggs in the property basket - consider s&s as well, but of course that depends on your financial goals, which you seen very uncertain of at the moment. What are you saving towards? Emergency fund? Holiday? Retirement? Children's education? You need to decide your goals before you plan how you will reach them.

atush

Seems to me, you should leave your mtg, unless it is higher than you can get in savings.

And you should keep some savings in cash (say 6 months spending) for emergencies in Cash ISAs.

but savings beyond this, I would look to equities of some sort. In a Pension, S&S ISa or better, both.

Given you own a home, until yo have built up a larger savings/investment pot, a BTL is not a great idea (unless you are in a trade such as the building trade so have skills to make this work at a lower cost)

FatherAbraham

StevenO wrote: »

We've contemplated investing in an apartment, putting this money down as a deposit, renting a property and hoping to turn the 20k into 100k in say 18 years as a long term proposition, but we've also considered investing in stock and shares (which can be a dangerous game of course!).

I'm surprised that you would think that a leveraged play (via a BTL mortgage, presumably) on real estate is less dangerous than simply investing in an equity fund. With the latter, you're unlikely to lose everything; with the former, you could lose more than your stake.

Warmest regards,
FA

Totton

The best financial decision we made was to pay off the mortgage, that has been a fantastic stress buster and allowed us to save for retirement. I know at current interest rates the mortgage is cheap but clearing debt made more sense and has proven to be right for us.
Bet of luck for the future,
Mickey

AlwaysLearnin

In addition to the points already made, a couple of observations:

-don't confuse budgeting with saving - putting away in the short term for things like holidays etc should be approached differently to putting away for the long(er) term.
-inflation isn't at an all time low, in fact it's probably higher than some of the savings rates you've got so the value of your money could in fact be getting less over time (commonly refered to as "inflation risk", or similar).

It sounds like you've got past the (sometimes hardest) first step in thinking about it and deciding it makes sense to put something away today for an easier tomorrow. Smart move. I think the next step is to really think what you want in the future, and the priorities. Then you can look at how best to reach those targets.

Not sure what your pension situation is, but always a good idea to look at that (employer contributions = free money, tax advantages etc). Investing in stocks & shares can work well over the long term too, however I would suggest reading up before diving in (i.e. do you want to use individual shares, bonds, funds, IT's, ETF's, use an ISA etc). A frequently recommended book is Tim Hales Smarter Investing, but I personally think that could be quite tough as a first read (and we don't want to put you off!) so you might want to google things like "monkey with a pin" and "slow & steady steps" for slightly less intense reads to start with. An excellent site is monevator.com too. These all lean towards passive investing, but you should understand what that is too, so that you're making informed decisions when you do decide to take the plunge.

No-one says it's easy, but the longer term benefits can be well worth it so 'keep the faith' as it were.

Good luck, and happy reading!

StevenO

Thanks for taking the time to reply all - much appreciated. I'll try to cover all the points you have mentioned.

Oh and sorry for the late response, something else has come up recently which has been taking up all my time and causing a few sleepless nights!

Back to the savings or investment.

We do both have a pension in place. We both thought it was wise to pay into our company pensions some 8 years ago (previously we did not think it was worth it). I've been putting £180 a month into the company pension for this time, and the company has been doubling that since. We both plan on keeping our regular pensions going in much the same manner.

In terms of our goal and turning 20 into 100, it was simply based on using or leveraging the 20k as a vehicle to get a 100k one bed apartment locally. Focus on getting longer term tenants in paying the mortgage. Other than the usual upkeep and maintenance we have the tenant pay the mortgage, so although the interest needs to be repaid someone else is putting money in the bank for us. At the end of mortgage we would have the income from rent as a small income to help retire and left with the asset.

When we pop our clogs our daughter can have the flat as an income or sell to get a lump sum.

We will pay our mortgage off of course, that is a longer term goal at the moment I think. The thought is that we will have the equity in the house, be mortgage free, and have the apartment give us some pocket money. When we move into a retirement home or if we need care, our main property is sold and foots the bill while the flat is as I mentioned kept separate and handed to my daughter for her inheritance.

It is true that putting all of our eggs in one basket may not be such a great idea, but I feel because of lack of previous savings we are behind in the game and need to try and do something sooner rather than later.

BTL - a bad proposition until we clear more of our mortgage down? Is this because of the risk of loosing more money if interest rates rise?

A property seemed like a more sound investment as it is bricks and mortar, unless something like the mid 90's happens again in a hurry I thought it was a good proposition.

Clearing the mortgage earlier is an option, but I can't help but feel that putting all of our money into that for perhaps the next 8 years to clear it off early will put us behind in the investment game and we again will be playing catch up.

Thanks for the other pointers and information / articles, I will certainly do some more reading

Kind Regards,


Steve

atush

Until you have built a larger investment pot, I would not consider putting all of your 20K into a BTL.

You seem to at least forgotten the need for an emergency pot (even more necessary with a rental property that needs funds set aside for taxes, maintenance and the like). So that cuts you investment money down to 10K.

You seem to have the property bit in your teeth, no matter what we said here, and will do it anyway. Maybe you just want someone to rubber stamp your idea?

I say wait until you have tried the S&S Isa route in funds and trust and other such collective investments. I have some ITs that are up over 30% in a year.

Having all your money in property (plus 2 still small pensions) is all your eggs in one basket, which no one here really recommends.

AlwaysLearnin

I have to agree; you look to be convincing yourself on a BTL and you're hoping someone here will ratify that choice. However, it's not the cup of tea of many here, for a number of reasons (in no small part the aforementioned 'eggs in basket' point, but also effort, maintenance, legal issues etc). That's not to say it can't work, but read around the boards/Internet and you'll see a few first hand stories about how it's not necessarily as easy as the romantic notion of having someone else paying a mortgage for you may sound. The large capital gains of the noughties are no longer as easy to come by either.

However, it's your money, and your decision.

StevenO

Thanks again.

I guess it is down to the company you keep. I know no one that has made money in stocks / shares (that is to say that is public knowledge, they may keep their cards close to their chest). I know several people that have either followed the property development route or buy to let though and speak openly about it.

The only experience I have has of S&S's or the like myself is from my parents bad experience - loosing 25k some 8 years ago by going on a high street banks advice and putting it all into one thing in particular, that story makes me a bit jumpy and has really had a big impact on them.

I'm no expert by any means, hence welcoming advice from more experienced people such as yourselves So no path is yet set in stone.

To simplify our goal:

Own our own main property / homestead
Be debt free
Have an income when we retire
Leave some form of inheritance to our daughter or income stream

We don't want to be millionaires, just have a good quality of life for our family and try our best to secure our future

To sum things up, at the moment we have the following in place:

Small pot of savings (15k aprx, but building now)
No debts other than mortgage on our home
The two standard pensions I mentioned
Daughter Savings / fund for higher education and adulthood

What we really need to do is find out the best way forward from here, which is where we are getting stuck.

I will suggest we have a read up on S&S Isa's.

Many thanks,


Steve

atush

spam from jstockz, reported.

As for shares/funds you have met lots of people here like me who have made money in the markets. I expect you know others, but it isn't something people really talk about.

There are some rules to follow (which you fell foul of before) such as don't get advice from your bank. Don't put all your eggs in one basket (be it property, cash, a single share/fund etc).

The rest is either learning about it, or hiring an IFA (not a bank advisor). To start, you could just invest in lifestyling funds suited to your attitude to risk. Or a diversified portfolio of trackers.