Could I be better with my money?

joeyvicks

ColdIron wrote: »

Ballpark figure, 10% but as you are hovering around the higher rate tax threshold I would suggest whatever percentage takes you back under it including interest from savings. This way you pay no HRT on earnings or savings and your pension gets 100% of the benefit. Review it every salary increase, it's free money

With my car allowance added to basic salary I'm up to £47k so I'd have to be contributing 15% (is my calc right? 7000/47000 = 15%) to get me out of the HTR. What benefit would I actually get from doing this apart from the obvious increase in pension. By my calcs it will make me £312 a month worse off than I am now?

[Deleted User]

joeyvicks wrote: »

With my car allowance added to basic salary I'm up to £47k so I'd have to be contributing 15% (is my calc right? 7000/47000 = 15%) to get me out of the HTR. What benefit would I actually get from doing this apart from the obvious increase in pension. By my calcs it will make me £312 a month worse off than I am now?

Assuming £47,000 is your taxable income here are the 2 scenarios:

1. You contribute 4% to your pension:

£47,000 income
4% contributed to pension: £1,880 per year (+£752 tax relief)
Net wage: £33,273 or £2,772.81 per month take home pay
After 10 years your pension will have £26,320 in your contributions (+ investment returns)

2. If you contribute 15% to your pension:

£47,000 income
15% contributed to pension: £7,050 per year (+£2,820 tax relief)
Net wage: £29,788.72 or £2,482.39 per month take home pay
After 10 years your pension will have £98,700 in your contributions (+ investment returns)

If you saved £290.42 per month in take home pay you would have only £35,000 after 10 years. For £290.42 per month (the reduction in take home pay) into your pension you will giving yourself an extra £40,000 minimum over 10 years.

If you only consider your take home pay and don't care about your future, sure, you'll be worse off, but if you care about being able to retire you'll be much much better off contributing to a pension instead. You pay 40% tax on anything you take home over ~£42,000: if you contribute £5,000 to a pension instead you pay no tax on that £5k. You go from £3,000 in your pocket to £5,000 in your pension!

joeyvicks

Right folks, thank you for your honesty and comments. I needed a good stern telling!!

My plan (in the short term is this);
- To put away £300/month to increase my emergency fund to 5k
- to increase my pension contribution from 4% to 6% and review in 3 months
- increase monthly payment for little uns ISA from 25 to 50
- start an ISA for the new arrival also at 50/month.

The above should leave me with enough to cover everything else and I will put anything surplus at mid month time into the emergency fund saving pot to get to that 5k quicker. Hopefully this time next year I have finances to be proud of as opposed to being an area of concern!!

PenguinJim

That's a good start, but it sounds to me like you're still not making the most of your income. You've still got over £1,000 of "perk money" every month, which is excellent, but why not try to increase the amount of perk money you have to begin with?

Have you got your savings in 5% interest accounts? Considered where your investments will be when your 5% and 4% options are maxed out?

Have you reviewed your utility bills to get the best rates? Educated your family on switching off appliances at the wall, avoiding using the dryer, recycling water in the household (for example, showering with a bucket at your feet, and using that bucket of water to get a free toilet flush)? Do you need 50Mb ADSL, or can you drop down to 8Mb? How much time for TV do you have that justifies that expensive TV package? Gym memberships? Mobile telephone contracts? Why do you need a butler and TWO maids?

Have you reviewed your car usage? How many cars do you own - do you need two? Do you need an expensive gas guzzler? Is there any possibility of moving to bicycles - maybe not for work, but with a couple of backpacks, for weekend shopping?

How much food do you grow in your garden? How do you currently shop for food? Do you know which supermarkets have the foods you eat at the best prices, and what times they reduce food to clear? Do you stock up on non-perishables when you see them on a good special offer?

Finally, and I know I'm repeating myself: go without "perks" for two months and get your emergency fund up ASAP. All it will take is one unexpected bill of £2,500 (emergency re-roofing, boiler failure, perhaps even a fire with a slow insurance payout) and your family will be up a very brown creek. Naturally, that emergency fund will be generating 5% interest each year.

Your plan to get an emergency fund together by Q1 2016 (!) is better than nothing, but exactly how many weekends away do you need next month?

joeyvicks

Can you point me in the right direction form these 5% accounts. Are they easy anytime access?

Am I better off changing my childrens nisa's (they're in my name by the way as I didn't like the thought that at 18 they could pull the money out and use it for whatever they like!) to stocks and shares? Bearing mind in the eldest's there's only 1000 and it has 25 going into it each month. Can this work?

PenguinJim

£4,000 in TSB Classic Plus at 5% interest, £2,500 in Nationwide FlexDirect at 5% interest, and £5,000 in Lloyds Club at 4% interest.

Over 16-18 years you'd likely see a good return on a balanced investment portfolio. As I'm not a UK person, I'm not eligible for an ISA, so you'll need someone else to suggest the best method of putting your shares in an ISA. Just make sure you do ACC funds (or dividend reinvestment, if you're feeling lucky about some specific shares ).

bowlhead99

joeyvicks wrote: »

Am I better off changing my childrens nisa's (they're in my name by the way as I didn't like the thought that at 18 they could pull the money out and use it for whatever they like!) to stocks and shares?

Yes, if your eldest is 3 and your other is unborn, you have 15-18 years plus before it's going to get spent, over which time, with inflation, the value of £10k will not buy anything like as much as it buys today. So people should generally use S&S investments over that time period which is plenty long enough for the markets to bobble up and down along the way and end up with substantial growth.

Bearing mind in the eldest's there's only 1000 and it has 25 going into it each month. Can this work?

If you are doing this in your own name, remember you can only contribute to one S&S ISA in a year. So you can't set up an S&S ISA in your name x 2. Also for 'adult' products the minimum monthly amounts are sometimes a bit higher than specialist children's products. But £50pm going into investments each month between the two of them is perfectly realistic and it sounds like you have more than enough 'space' in your annual ISA allowance without that making much of a dent. Especially if you have a wife/partner who also has annual allowances.

Alternatively you could invest in their name in their own JISA or in a 'bare trust' arrangement leaving your own ISA allowance completely unused. The downside as you mentioned is that they get access at 18 so maybe you don't want to do that. An advantage of them having their 'own little pot of investments' is that you might get grandparents and uncles etc willing to throw money in to a S&S JISA for them, while they might be less willing to just give you cash to add to your own ISA, depending on your relationships.

Secret_Saving_Squirrel

You could also think about overpaying your mortgage if the interest rate goes higher than that which you would receive on savings. Then the money saved on mortgage payments can go into the investment pot too.

A new baby in the house will take up all the family's time and energy for a couple of months so it might be a good time to have a frugal fast and spend only the bare minimum during that time. Little kids don't need stuff from shops.

Good luck!

anoncol

I dont have much helpful advice OP, others have already been so helpful. But i'd like to just thank you for showing so much gratitude on here. Many get pretty annoyed when they get such helpful/honest advice on here.

ViolaLass

You've been given some good advice on here OP. I would second what people have said about an emergency fund - we've just replaced our boiler, costing us c£2k. With only a £1k emergency fund, we would have been stuffed.