Simple help

Cream_Tea

Hi,
I am 28 years old, I am saving for an extension, paying off debt, saving an emergency fund and I am currently pay into an NHS pension. I don't understand pensions or investments at all despite attempting to learn. Does anyone have a simple explanation or know where to find one. I am looking to put £200-£300 a month and don't know what to do with it.
Any and all advice welcome.
CT

jamesd

Unless you are a higher rate tax payer do not pay into a pension other than the NHS one until you have taken care of at least the emergency fund and any debt that has an interest rate above mortgage interest rate levels.

For an emergency fund the target levels vary but I like quite high levels, a year of spending plus another year or more invested in a S&S ISA. Before using a pension for more than the amount an employer will match.

If you aren't a higher rate income tax payer you should probably delay paying into a pension other than the work one for a while because:

1. You might be a higher rate tax payer later, in the reasonably soon future.
2. At least two significant political parties have plans to adjust pension tax relief that may increase the relief for those at basic rate income tax who are not in salary sacrifice pension schemes. The delay could see your tax relief increase from 20% to 30%.

Higher rate tax payers have the opposite incentive, to get all possible higher rate relief before a possible change to a government that might reduce their tax relief.

kidmugsy

jamesd wrote: »

Higher rate tax payers have the opposite incentive, to get all possible higher rate relief before a possible change to a government that might reduce their tax relief.

I think so too, but can't even persuade some of the younger people in my family.

Cream_Tea

I'm on the cusp for higher rate tax payer. If I end up over the line it will be by a couple of hundred maximum. It will depend how much unsociable hours I do in February and March. Our debt is on a 0% CC until next year and our mortgage rate is 2.49%

We are aiming for an emergency fund of three months outgoing less mortgage OPs. I plan to up that goal to six months then a year outgoing after that to keep it manageable goals. (The year outgoing goal has been added since reading your response.)

So do I understand this correctly you're saying just stick with my NHS pension and invest other money elsewhere? Save first whilst paying off debt and I will continue to OP mortgage.

Should I save the emergency fund before investing money elsewhere or both at the same time?

Thank you for both for your advice so far it's been very helpful.

mania112

Good to see you're on the right tracks in your 20s

I don't see that you have an ISA? That would be your next step -- this could be seen as emergency fund and an investment, it'll be quick access if you need it. You'll probably fit the criteria for a Stocks 'n' Shares ISA, rather than a crumby basic cash one... and you'd expect the returns to be better too.

I like Funds Network for S&S ISA's -- not sure the path to do this without an Adviser, but their website is https://www.fidelity.co.uk/investor/default-direct.page (it seems like you can apply online)

atush

You meed 3 months spending saved in cash, plus the amt of your debt that needs to be repaid in cash on the 0% deal. And any other non mtg debt you have.

Once you have that tucked away THEN overpay mtg and save for an extension?

How long from now would the extension build take place? If more than a few years away, could make sense to use a S&S isa.

It could make sense to start some msaller S&SS isa contribs from your spare cash even if the extention is close in time, and you save the rest in cash for that?

Cream_Tea

We plan to have the money for the extension together by March when we start it. It's only a small extension of a downstairs bathroom so will be finished within a few months maximum. DH friends are all in different types of construction so are all helping to keep costs down.

I'm just researching S&S ISAs. I like the idea of investing both for the fact there is potential it can go up (less that it can go down) but also so the money is not readily available, meaning I can't spend it on an impulse.

I will do my homework today and possibly come back with lots of questions if that's ok.

Thank you for all you help so far.

jamesd

Cream_Tea wrote: »

I'm on the cusp for higher rate tax payer. If I end up over the line it will be by a couple of hundred maximum. It will depend how much unsociable hours I do in February and March.

Many of the major consumer personal pension providers will let you open and account and pay in even on the 5th of April just before midnight, though that being on a Sunday this year will reduce the number. A popular and good choice for low value investments is Hargreaves Lansdown, which has a minimum lump sum payment to open their SIPP of just £100. Others have even lower minimums. So you could check your situation in early march and open an account then or later in March once you know your hours better. If you know you'll be at least £100 over it'd be wise to open the account earlier so you miss any really busy last minute time. Plenty of alternatives to HL around, of course.

Cream_Tea wrote: »

Our debt is on a 0% CC until next year and our mortgage rate is 2.49%

So no reason to pay more than the minimum payment on the CC until the business day before the end of the deal. At a minimum you would put that repayment money into a savings account to make some interest on it until then.

Cream_Tea wrote: »

We are aiming for an emergency fund of three months outgoing less mortgage OPs. I plan to up that goal to six months then a year outgoing after that to keep it manageable goals. (The year outgoing goal has been added since reading your response.)

That seems like a good plan. I didn't start at my current sort of level either, just grew it over a bit of time before I switched to investing.

Cream_Tea wrote: »

So do I understand this correctly you're saying just stick with my NHS pension and invest other money elsewhere?

Yes.

Cream_Tea wrote: »

Save first whilst paying off debt and I will continue to OP mortgage.

You can beat the 2.49% mortgage rate with investments easily so in this case overpaying is making you poorer than you could otherwise be. You might want to consider making some use of say the Ablrate peer to peer lending platform since you can get around 10% interest taxable there, with good levels of safety provided you spread your money around. All of the loans they offer are secured on physical property of some sort.

Cream_Tea wrote: »

Should I save the emergency fund before investing money elsewhere or both at the same time?

Both at the same time is best, though you could do it either way.

I'm generally keen on people getting started with investing as soon as possible so they have more time to learn about the ups and downs with actual money at stake, while the values are lower than they will be later. Typical 1% daily value variations aren't too painful when it's 1, 10 or a hundred Pounds but when it gets to be a thousand or ten thousand represented by 1% it's good to have had a lot of time seeing such things and realising that it's just normal ups and downs!

The change in value for me this month is about five times my net monthly pay. Up but that can be down and has been down in the past. It'd be really worrying to see that sort of thing without lots of experience to tell you that it'll just go back again later.

Watching the variations will also help you to get a better feel for what you can stomach without losing sleep over it. I know that with my current investment choices I have to be willing to see a drop in a bad year or week that could be in excess of £100,000. Just routinely, as part of something that happens once or twice every ten years on average: a 40% drop in a mixture of investments that's almost all shares. That would be nasty for me but I'd know it's normal. It could be terrifying for someone who didn't know what to expect and could cause them to sell at the low price instead of waiting for the usual recovery. Which isn't guaranteed and/or could take years or a decade or more if we saw a repeat of the Great Depression. Of course you don't have this sort of money at stake yet but it's really good for you to witness things when there's less to lose sleep over so you can apply that experience when there's more at stake.

You can vary your investment mixtures to reduce the potential drop levels, or increase them to try to make more money. For now relatively simple mixtures are good because of the relatively low amount of money involved and so you can see how you react at a gut level to things like a 20% or 40% drop in say a global markets share tracker fund. As you get more experience that'll help you to adjust the mixtures to better match what you can deal with emotionally.

Don't neglect the emotions. They are a critical part of investing. Mostly learning to control them. And recognising that newspaper or TV reports of huge market drops are how sales of financial products are announced, not as good news but as bad, unlike a Christmas sale in shops. A good time to invest more if you can handle it emotionally while recognising that there could be further price cuts later before they go back up.