What Am I Doing Wrong?

fiisch

Thanks all. Our high expenditure (outside of the cars!) stems from circumstances which meant me wife and I moved out very young (21, straight from university), and we probably lived beyond our means in our early years.

Five years ago, my parents re-mortgaged their house and "gifted" us £25,000, which we then paid directly - the loan was to help clear the final part of the second mortgage to free them from their mortgage, as they were thinking about moving...

It is time though to get on top of the spending and starting saving a decent amount - thanks all, puts it into perspective. And I promise not to buy any more cars until I've £20,000+ in an investment account plus an emergency 6-month fund!!


It's only recently I've enjoyed a very decent pay-rise - which is a shame, as it coincided with my wife going on maternity leave! But I reckon we can clear the reduce the big car finance to £200 / month and pay off the loan inside 12 months, and then we should be looking in a much better position to invest.

Bravepants

By the look of your income you are in the 40% tax bracket. Skim it off by paying it into your AVC (or SIPP). At the moment you can take SIPPS and AVC from age 55, thus retiring early if that is part of your plan.


Never use finance to buy a car! As well as interest on the loan, your car is depreciating...it's a total waste of money. Buy a small, fuel efficient car outright, perhaps no more than 3 or 4 years old.


If you are really into nice cars then pay outright for a modern classic ( a few k) and keep it well maintained. You may end up being able to sell it a few years later for the same or increased value!


If your mortgage interest rate is low enough some people suggest not overpaying your mortgage but investing instead.


My partner and I bring in nearly £4.5k monthly, our monthly housekeeping expenses (bills, food, car fuel, road tax, house insurance etc.) are £1k between the two of us. We have a paid off mortgage.


I've been reading this lately, and enjoy any opportunity to tell people about it...


www.mrmoneymustache.com

OldMusicGuy

Bravepants wrote: »

If you are really into nice cars then pay outright for a modern classic ( a few k) and keep it well maintained. You may end up being able to sell it a few years later for the same or increased value!

Regarding cars, what Bravepants said! Better to get a modern classic that's already taken a depreciation hit or a classic that's yet to hit the heights. You can then spend some money modifying it and having great fun into the bargain yet not get hit for finance costs and depreciation. I'm a car nut and have done this with Alfas, first a modern classic (156 GTA) and more recently a real classic (105 coupe). The latter is going nowhere but up in value.

However, if you have a new Honda NSX then at least that will probably hold its value provided you keep it long term. Maintenance and insurance might be quite expensive though.

chucknorris

fiisch wrote: »

Are my priorities/ideas in the right order? Is there anything from this I should/could be doing better in your opinion?

Well it is all very subjective, we are quite wealthy, and yet we have one car, a 10 year old Zafira that I bought for £8,600 cash from a car supermarket when it was 8 months old. I have always followed a similar pattern with cars, people have laughed at my cars in the past, but back then I used to put all my cash into buying investment property, to me cars just get me from a to b.

xylophone

as it coincided with my wife going on maternity leave!

Will she be returning to work? Will she then be looking into her pension situation? See post 8.

Even if she does not return to paid employment and has no relevant earnings, she (or you on her behalf) can contribute £2880 per tax year to a pension and £720 will be claimed by the pension provider.

A simple stakeholder might suit for this purpose.https://www.cavendishonline.co.uk/pensions/stakeholder-and-personal-pensions/

fiisch

OldMusicGuy wrote: »

I'm a car nut and have done this with Alfas, first a modern classic (156 GTA) and more recently a real classic (105 coupe). The latter is going nowhere but up in value.

if you have a new Honda NSX

Sadly, my Honda is not the NSX - it's only the Civic Type R, but as only 2,500 were sold in Britain I'm hoping residuals will be kind!


I'm a huge Alfa nut - last car was a MiTo QV (another car I took a hefty depreciation hit on.... £12k in 2 years). 156 GTA would have been a much better alternative.


Cars are a big passion of mine, so I accept a monthly outlay to have something nice, but somewhere along the line I got a bit out of control!


Re.: my wife's situation - she will be under the tax bracket (earnings around £11k a year) - presumably, we would be better off simply paying bigger contributions into my scheme so as to limit tax liabilities, rather than her setting up a separate SIPP?


£1000 expenditure a month!! That's incredible for a couple - I was looking at our aspirational situation re.: monthly outgoings, and I think I can get it down to around £2,000 (including bills; food; mortgage) if we forego certain luxuries/pay off debts, but aside from getting a big windfall to clear the lottery, I don't think I can really better that...


I have a spreadsheet with our outgoings on my home laptop - I'll post a copy when I get in to show what I mean (accepting I might get slated!).

System

https://www.mrmoneymoustache.com, read through the blog posts especially those about car ownership, reducing your spending, cutting back the waste.

This is the most thought provoking for me:
http://www.mrmoneymustache.com/2014/11/11/are-you-giving-the-shaft-to-your-future-self/

UK biased version of the above:

http://monevator.com/category/monevation/

Bravepants

fiisch wrote: »

£1000 expenditure a month!! That's incredible for a couple - I was looking at our aspirational situation re.: monthly outgoings, and I think I can get it down to around £2,000 (including bills; food; mortgage) if we forego certain luxuries/pay off debts, but aside from getting a big windfall to clear the lottery, I don't think I can really better that...


I have a spreadsheet with our outgoings on my home laptop - I'll post a copy when I get in to show what I mean (accepting I might get slated!).

That £1000 covers all our essentials, actually I just realised it's £900, not £1000. But I rounded up to take into account maintenance, insurance etc. on our car, a 14 year old Mazda 6.


We do spend extra on going out occasionally. We entertain at home with BBQs etc., I pay £29 per week roughly for piano lessons, and I have a "classic" car...a Fiat Coupe 20V Turbo Plus, which is 17 years old, and very well looked after!


But the £1k covers our basic necessities. If we had to, we would be able to live on £1k a month, but we would be hermits! :-)


So we have our luxuries, but we're not massively extravagant, my partner likes the Asda Yellow Labels! And we save a lot and we have no debt.

Wookey

What is the mortgage rate going to rise to once the fixed term expires? and will you be able to secure a similar deal for 3-5 years, if you can't then budget for a hefty rise in your monthly mortgage payments.

AlanP_2

fiisch wrote: »

Re.: my wife's situation - she will be under the tax bracket (earnings around £11k a year) - presumably, we would be better off simply paying bigger contributions into my scheme so as to limit tax liabilities, rather than her setting up a separate SIPP?

Down to the point where you no longer pay 40% tax and no longer get employer contributions I'd say Yes.

Once below that however it may be worth looking at a SIPP/PP for your wife as even though she is a non-taxpayer HMRC will add the "assumed" tax to her contribution and she can contribute up to what she earns in the year.

So, if she contributed £10k then HMRC would add £2.5K. Alright she may pay some tax when she accesses the pension but still a very good deal if you can cope with the reduced income today.

It also has the advantage of "smoothing" the income sources in retirement as different pots can be accessed at different times and managed to fit in with your respective tax / income situations.