Financial planning for clueless fella

glasgowdan

I'm trying to glean a little information that'll help me, even if it's to steer me towards the best sources of information to teach myself a bit about things.

I'm 37, married with 2 small kids, mortgage of £110k, self employed with no pension (my only pension plan is to carry on work part time!). Between us we manage to save around 16k a year after life costs. The past 12 months we have put the extra money into the mortgage (a fixed term 5 year 2.2% offset deal, repayments now £450 a month). But voices in my head are telling me that putting all our spare cash into the mortgage isn't the best decision while it's on a low rate.

I'm happy to have money locked away, and definitely want to put it into a few different spots, but with a busy life and terrible memory I don't want to do anything that requires me to be super organised, shifting cash between accounts and so on.

So where should I begin learning what options there are? I often see people bandying around comments such as if you're not earning 5% on investments you're doing it all wrong etc.

I probably won't understand any terminology, but I'll try and I'll take all comments on board!

eskbanker

glasgowdan wrote: »

no pension (my only pension plan is to carry on work part time!)

I suspect you already know that this is an area worth focusing on - read up on some of the articles at http://www.moneysavingexpert.com/pensions/ (and/or the forum at http://forums.moneysavingexpert.com/forumdisplay.php?f=19) and get one started, to take advantage of the tax benefits and the reasonably long period of time over which you'll be invested.

ColdIron

glasgowdan wrote: »

no pension (my only pension plan is to carry on work part time!)

Addressing this would be at the top of my list of priorities

BLB53

So where should I begin learning what options there are? I often see people bandying around comments such as if you're not earning 5% on investments you're doing it all wrong etc.

Lots of threads on here about investing but it's not for everyone and some will be more suited to cash savings...I think much depends on your temperament and ability to understand different levels of risk/reward.

To get an overview of investing check out some of the free blogs such as Monevator http://monevator.com/category/investing/passive-investing-investing/
and DIY Investor http://diyinvestoruk.blogspot.co.uk/p/basics.html

Sarastro

You should listen to the voices. There is a benefit to overpaying on your mortgage in that it will save you interest in the long run, however, this benefit will be outweighed (in the very long run) by making contributions to pensions as the Government will top up that contribution. You don't have any private pension and, in my view, you should start shovelling money into one - it's very tax efficient. And it would be good to give it a kick-start if you have some savings kicking around not really contributing. It's the government top-up that effectively means the rate you would need to outweigh this has to be plus 5% if the end result is to be better.

https://www.lovemoney.com/news/11173/mortgage-overpayments-vs-pension-topups

What makes the most difference is investor behaviour and activity. If you've got time and your interested, then it might be worth actively investing some money instead of putting it into a pension, but I think you'd have to be pretty determined and have time to do it.

If you are self-employed are you putting this through a ltd company? There are lots of advantages to doing that (e.g. company can pay pension contribution for Directors (including your wife if she's a director) out of revenue, so pre-tax.

http://www.rossmartin.co.uk/starting-in-business-77750/140-sole-trader-v-limited-company-key-tax-a-legal-differences

Actually having your own ltd company isn't that difficult. Does your wife work? If not, she could run the company for you and receive a salary and make use of her personal allowance.

xylophone

Are you self employed or employed by your own limited company?

Are you a higher rate tax payer?

What is your wife's position re pension?

You have saved an emergency fund?

Thrugelmir

glasgowdan wrote: »

But voices in my head are telling me that putting all our spare cash into the mortgage isn't the best decision while it's on a low rate.

Being self employed. Overpaying the mortgage at least provides you with a safety net should times get more challenging. Personally I'd split excess cash 3 ways. Short term savings, overpaying the mortgage and contributing to a pension. Then at least you have all bases covered. Allowing flexibility as financial circumstances dictate.

frenchplonka

One thing I have no clue about is pensions i know that I have never paid into one with work but then again ive drifted most my life I too am 37 years old

Could someone explain to me like a 5 year old why its so tax efficent

glasgowdan

xylophone wrote: »

Are you self employed or employed by your own limited company? A sole trader

Are you a higher rate tax payer? No

What is your wife's position re pension? She has a good public servant pension where the employer adds 16% for 6%
employee contributions

You have saved an emergency fund? Not really though I have 10k in my working business account that can be drawn if needed and keep us going for 6 months

Thanks so far, a few interesting things to think about.

But I do wonder what the practical steps are regards a private pension. I don't understand the tax benefits at all, but I do understand that you build up a pot of money, and when you retire (at an age of your choice?) the pot of money is bought by an annuity company who then gives you X amount a month (plus an optional initial lump sum to go and splash on coke and hookers) over Y years, based on their underwriting decisions about how long they think you'll live? If you die young, the money's theirs, if you live longer you benefit. Am I totally stupidly wrong? Be honest if I am!

eskbanker

frenchplonka wrote: »

Could someone explain to me like a 5 year old why its so tax efficent

glasgowdan wrote: »

I don't understand the tax benefits at all

https://www.moneysavingexpert.com/savings/discount-pensions is written in pretty simplistic terms, point 2 covers the tax efficiency aspect.

eskbanker

glasgowdan wrote: »

I do understand that you build up a pot of money, and when you retire (at an age of your choice?) the pot of money is bought by an annuity company who then gives you X amount a month (plus an optional initial lump sum to go and splash on coke and hookers) over Y years, based on their underwriting decisions about how long they think you'll live? If you die young, the money's theirs, if you live longer you benefit. Am I totally stupidly wrong? Be honest if I am!

There are significantly more options regarding what to do with your accumulated pension pot nowadays, unlike when annuity purchase was the obvious (or only) choice, see point 15 in the article linked in the previous post.