Pay rise - what to do with it?

newbie_bonnie_blue

Hi all,

I've been a lurker on these forums for ages, and have finally created an account to ask a question that has been bothering me for the last few months!

I'm in my late twenties, and I'm not great with money but over the last two years I've been getting better. I'm slowly paying off a credit card bill of around £4000 from my wild spending in my youth (already balance transferred to a zero % card). I have no savings, and nothing saved for my pension. I currently rent in London.

A few months ago I started looking for a new job, and it seems there are very few people with my skill set. This being the case, I have been offered a job that is a £36,000 gross increase on my current salary.

Until this point I've lived quite frugally, paying my rent, travel costs, bills, paying off credit card, with nothing much left at the end of the month. I am due to start this new job in the new year, and am petrified that I'll just start spending up to my earnings unless I have a plan.

I want to finish paying off my credit card, start building a deposit for a house, start saving towards my pension, and building an emergency fund. However, I don't have a clue where to start.

What would you do if this happened to you? If anyone can direct me to a thread where my questions have already been discussed I'd be grateful. Otherwise I'd be interested in your opinions.

Thanks in advance

opinions4u

I want to finish paying off my credit card, start building a deposit for a house, start saving towards my pension, and building an emergency fund. However, I don't have a clue where to start.

I can't suggest better than this.

Contingency: 3-6 months net pay in easy access accounts.

Pension: Find out what your employer offers and maximise their contributions.

House deposit: Mix of regular savings accounts and cash ISA.

newbie_bonnie_blue

Helpful to know that I am at least thinking of doing the right things!

getmore4less

As you can live on the current wage then I would look to invest all of the extra(after any extra costs) for a year.

You want to be well settled into the job before increasing spends.

Unless very low pay before you might as well assume 42% is gone in tax/NI for at least some of it maybe all if allready over £40k

You could start with a pension for some or all that takes you into the 40% bracket also check for any matched contributions and salary sacrifice.

Look for flexable arangements where you can vary the amount should circumstances change.

The rest I would save/reduce debt.

Once you have 6 months expences in the bank/ISA/investements as back up then look at restructuring your costs and maybe live a bit more, trying to build up to a house deposit.

The 6 months loss of income funds can be in longer term products since you hope not to need access but if you do a hit on return is not that big a deal

TBagpuss

Congratulations on the new job!
Personally, I would set up standing orders to go to a pension, ISA and other savings immediately - it's much easier to save if you don't let yourself get used to having the extra.

I would also allow myself a little bit of the extra for myself - even if it is only and extra £100 a month, but this depends a little on how much you are currently earning and whether you feel you've got enough for 'fun'. One of the reasons I'd allow myself a bit extra is that if you aim to keep your outgoing roughly what they are now, you'll have a bit of lee-way so if you do want to spend a bit exsta one month, you will be able to do so without being tempted to dip into savings.

Check out your new employers pension scheme, and get some advice about what's best for you. If your employer matches contributions you make then it will probably make sense to put money into a pension via your employer. If they don't, you may want to shop around and start a pension elsewhere, separate to whatever your employer provides.

Saving into an easy access ISA, or a mix of cash and stocks and shares ISAs will allow you to have the money easily accessible while getting the tax breaks on your savings.

atush

Ok, pay off the card, open a saving acct and put a min of 1K in and increase to 3 months spending.

For spending, keep to the same spend as before. Save/invest the new increase.

As to the increase, it will bring you over the HRtax threshold so you will lose 40% of it. So, join the work pension. Pay in enough to take out out of HRtax. This will start you off on saving for your post work future AND save you tax. Anyting your employer puts in (and they will have to) is known as 'free money' so take all they will give you.

Save/invest anything over that once debt is paid and savings started. Use regular savfers, Isas, S&S isas.

newbie_bonnie_blue

Thanks

Yes, this new salary does take me over £40k, and even with he increased deductions for tax and NI I'll still have a significant amount more than before.

My employer offers no pension scheme so I guess that leaves it down to me to look into what's out there.

I'm a bit clueless about what's a good deal etc, so if anyone can suggest a good "Personal Finance for Dummies" resource I'd be very grateful - I'm quite motivated to educate myself right now!

I will definitely be allowing myself a little extra, but otherwise most of this increase will be going away for the future.

I really appreciate all the comments and the time you've taken to answer what must seem like a rather obvious question. Thanks!

morganedge

newbie_bonnie_blue wrote: »

What would you do if this happened to you?)

pinch myself.
I'm your age. Always been minimum wage and always will be. (lack of education, intelligence and confidence)

What is your skill set that commands such a high wage out of interest?

cheers.

CKhalvashi

opinions4u wrote: »

I can't suggest better than this.

Contingency: 3-6 months net pay in easy access accounts.

Pension: Find out what your employer offers and maximise their contributions.

House deposit: Mix of regular savings accounts and cash ISA.

Agree with all of this.

As a company, we will match pension contributions to 12.5%, so it may be worth seeing what you can get out of the employer on this basis, too.

CK

atush

My employer offers no pension scheme so I guess that leaves it down to me to look into what's out there.

Who will you work for?? how many employees? They will HAVE to pay into a pension for you, under law soon. In the mean time, you could set up a PP at at least put in all salary over 41K.

Archi_Bald

Here's a selection of books and websites to read: https://forums.moneysavingexpert.com/discussion/4752194