Please recommend my next financial move

starkiwi26

Dear all,

I have been reading many articles in MSE, and i really learned a lot, especially switched my account to Santander 123! But i am now uncertain on my next move, and hope the guru here could point me some tips and recommendation.

my current situation:
bought a small house last year (£130k, 80% mortgage still, 3.2% interest)
£20k cash in Santander 123 as emergency fund (enjoy 3% interest)
I am 33 now, single male, have stable job and income at basic rate 20%.

After deducting all expenses, i have disposable money monthly of about £1200
i save £200 monthly for my annual holiday travel/entertainment
so, left about £1000, which I plan
a) £500 for short term investment (3-5 years)
b) £500 for medium term (5-10 years)
but i have no idea where to start. even more confuse after reading MSE articles, because i feel they are for big investor >£10k...

Another idea is to sell my current small house and pour my money to a bigger house, which i could have a spare room and take benefit from Rent-a-Room scheme.
Advantage: tax free income £7500 annually :T
Disadvantage: hassle to find and manage housemate, risk of living with a nightmare housemate :eek:

Dear all MSE guru here, i am just an ordinary guy who try to manage the financial for better future. Please shed some lights, and point me to the right direction. any comments are welcome.

Many thanks!
:beer:

additional info:
my company provide private pension scheme, which i contribute 7% of my salary and the company contribute 10% (7%+3% extra). this should build up quite significant amount when i retire, therefore i have no worry about pension
i contribute 7% because my company will match it and add 3%. but, 10% is max my company will contribute. mathematically, this encourage me to contribute 7%.

Ray_Singh-Blue

1. Spreadsheet gross assets and liabilities.
2. Use this to chart net wealth and gearing.
3. Imagine your perfect future. Then forget about that, and imagine a good enough future. What will your assets look like? Assets can generate income of course.
4. How are you going to get to that destination? What are the way points? What is the most efficient route for you (double wins, tax shelters etc)

For example by year 20XX I want at least £N split roughly equally between a house, a pension, and investments. The charts show if I'm on track. In the early years the distribution of asset was skewed towards house but that counted as a double win as it provided a place for my family to live as well as appreciating in value. I personally would not have bought another house because that would have skewed the disttibution further, and ramped up the gearing beyond my comfort zone. However if my skill set was property development or maintenance this might have been allowable as another double win.

Does that make any sense? There are probably a million ways to skin the rabbit

AnotherJoe

What's your pension situation?

bigadaj

Your situation looks good and stable, the process for many if not most people is straightforward, with some variation for personal preference.

You have a decent cash emergency fund, this could be expanded upon by utilising other high interest current accounts and regular savers. You can get £50k imto the current accounts paying 3-5% and over £2k per month into regular savers paying up to 6%.

Do you have a pension currently, given that you're a basic rate taxpayer the benefits may be limited but if your employer offers one then contribute what you need to get their full contribution.

In terms of property you seem happy enough, the option of upgrading and getting a lodger doesn't look as though it is your first choice from your description so I'd stay as you are. There is the option of paying down your mortgage, the rate you are currently laying is middling, so may be worthwhile, particularly if your overpayments can get you to a figure of debt to value that would open up soem cheaper deals.

Next in the list, or for many before mortgage overpayments as investment returns can be higher, is investing through stocks and shares isas. These should for, the medium to longer term part of your savings and investment, £500 per month is a good contribution level but only if you have enough emergency cash and are happy to keep for at least five, better ten or even twenty years. Have a read thorough the monevator website for the process and suggestions for funds and brokers.

At your age and given current conditions then bonds are difficult, so the other area you might want to look for is p2p lending. Returns can be high, particularly if you avoid the poor rates and unsecured lending of the big players like Zopa and rate setter, other platforms are paying 10-14% with lending secured in assets such as property, vehicles, invoice debt etc. I use Moneything, Ablrate and Savingstream though some people have concerns about the latter. Many people like Moneything, though the key to this is to spread risk so that a sing,e default doesn't affect you too badly, that applies to platforms as well as lenders.

starkiwi26

my company provide private pension scheme, which i contribute 7% of my salary and the company contribute 10% (7%+3% extra). this should build up quite significant amount when i retire, therefore i have no worry about pension
i contribute 7% because my company will match it and add 3%. but, 10% is max my company will contribute. mathematically, this encourage me to contribute 7%.

ajdj

Is you current mortgage rate fixed? Do they allow overpayments?

A short term move could be to overpay enough to drop your LTV enough to benefit from a remortgage before interest rates start to rise again.

Otherwise you could consider a S&S ISA with a provider that allows low cost regular investment. I use AJ Bell. This should really be a 10+ year time scale though. If you don't want to look long term then high interest current accounts/regular savers are the way to go.

starkiwi26

I started to look into ISA stocks and shares, and found that many funds claimed to have track records of return >10% on good years. this case, i probably will double my money in 5-6years times, this is a lot better than bank account interest.

I understand there are risks on investing these funds, all money used for investment is disposable.
but why the general advice is to plan for long term >10 years investment in these funds?
if i can get good return, i can walk away with the profit?

I am relatively new in investing, hope fellow members and gurus could please explain to me.
Many thanks in advance.

bigadaj

starkiwi26 wrote: »

I started to look into ISA stocks and shares, and found that many funds claimed to have track records of return >10% on good years. this case, i probably will double my money in 5-6years times, this is a lot better than bank account interest.

I understand there are risks on investing these funds, all money used for investment is disposable.
but why the general advice is to plan for long term >10 years investment in these funds?
if i can get good return, i can walk away with the profit?

I am relatively new in investing, hope fellow members and gurus could please explain to me.
Many thanks in advance.

Because investing is a long term gain and inherently volatile.

Funds can return 10% or more in a year but they will probably average less than that 7% is a figure that people often quote. This will be made up of different years returning say 10%, -3%, 6%, 15%, 7% etc etc and could well be up and down far more than that 20% in one year, and potentially down 30% occasionally with a stock market crash.

There's nothing wrong with taking profits but its notoriously difficult to time the market, so when you take money out the market shoots up, when you invest it then might drop. Over the long term then the average tends to apply because you revert to the mean over a longer timescale, in probability at least.

sharpe106

I would look at overpaying mortgage as to get same in interest you will need to earn about 4% which unless you want lots of accounts will not be easy to do in the medium term. I think your emergency fund is fine, probably a little higher then mine would be in same situation.

With regards to p2p I would be looking at ratesetter, zopa and the like and then maybe moving on to the higher paying ones after a while not instantly.

With moving into a bigger house would you really want someone else there all the time annd you would lose having your own space.

Pincher

I vote for bigger house, with Tracker mortgage.

BOE is not going back up for five years, if you believe the press.

If you don't like the lodger, you are in control.

Thrugelmir

starkiwi26 wrote: »

i contribute 7% because my company will match it and add 3%. but, 10% is max my company will contribute. mathematically, this encourage me to contribute 7%.

17% sounds a high %. But what will it actually build too as a pension pot in £'s. The earlier you save the earlier you will be able to retire on your terms.