If you had £100 extra a month...

dilby00

Hi all - I've recently had some conflicting advice, and thought it was an interesting topic for discussion. My wife and I are starting to think more about how we save, and want to put an extra £100 per month aside. The question is, is it best to put this towards:

1) a stock and shares ISA ( we don't have one yet)
2) mortgage repayments (we are 6 years in)
3) pension (we pay ourselves a pension through our own business so have tax relief).

Hope that's not too subjective!

Annisele

I'm not surprised you've had conflicting advice on that. If I was authorised to give advice (which I'm not) I'd give very different advice to people in different situations.

Are those definitely the only options you're considering, or is it OK to add options 4, 5 and 6? Assuming it is...

Do you have any debts other than your mortgage? If so, chucking the money at whatever has the highest interest rate might be appropriate.

What sort of state is your cash emergency fund? I think self employed people should ideally have at least three months expenses in cash (I actually prefer a year's worth myself, but opinions on that differ quite a bit).

What sort of personal and business protection do you have? (Or, in other words, if one of you dropped dead or became unable to work, would you be stuffed?) Depending on the level of protection I already had, I'd be tempted to put the £100 into income protection products.

dilby00

Thanks for the detailed questions, Annisele. Don't worry, I'm to after 'authorised' advice, was just curious to get people's thoughts and experiences on the matter.

For you and anyone else:

- No debts other than mortgage.
- We do have a good cash emergency fund with more than 3 months expenses in business, and good fund for personal.
- We have good income protection with 2 policies in place.

steampowered

I prefer 3, then 1, then 2.

I prefer the pension over the others because tax relief makes it a no brainer. If you are a higher rate tax payer you'd be getting £1.40 in your pension for each £1 on your ISA or mortgage.

I prefer a stocks and shares ISA over paying off the mortgage because interest rates are so low. You can easily get a dividend yield exceeding the interest you pay on most mortgages.

dilby00

Thanks steampowered! That all makes total sense. You've helped cut through a lot of confusion.

george4064

How old are you and your wife?

Assuming your mortgage rate is pretty low, I would definitely go for options 1 or 3 but leaning towards option 1 as that gives you the flexibility to draw on the money before you reach retirement age.

enthusiasticsaver

I would also go for option 3 first then 1 then 2 assuming you are not close to retirement age and your mortgage rate is low. If you are coming up to retirement then I would go for 2 as reducing expenditure effectively gives your pension a boost. If you had more than £100 spare I would do all three.

jimjames

I agree with previous replies and the order suggested depending on your age. The only variation would be between 1 and 3, item 2 would be bottom of list anyway.

darkidoe

george4064 wrote: »

How old are you and your wife?

Assuming your mortgage rate is pretty low, I would definitely go for options 1 or 3 but leaning towards option 1 as that gives you the flexibility to draw on the money before you reach retirement age.

I second that. 1>3>2 for me. Depends on the mortgage interest as well. Flexibility is key to any plan I subscribe to.

Rolandtheroadie

Been doing a lot of thinking about our retirement planning recently, we'd been overpaying the mortgage for a couple of years but from reading on here, it might not have been the best option.
I've kept up the overpayments, but have been putting the same amount into our pensions.
Still thinking we could do more, I opened a S&S ISA around 6 weeks ago as well. Small lump sum initially, and adding half of any overtime I do each month.
So we've spread it between all three. Roughly 20% mortgage, 20% pension, 60% ISA.

My thinking on the mortgage is, once it's paid, it'll give us extra money to put into the ISA. Pension payments will be increased in line with pay rises.

dilby00

Hi all - we are aged 31 and 30.

After taking all comments on board, my thoughts are 3 - 1 - 2.
I would say 1,3,2, but since we get tax relief on pension, the point about automatically having 20% extra (we are lower rate tax payers) is persuading.