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How to split £35k

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Makkusu
Makkusu Posts: 100 Forumite
Seventh Anniversary Combo Breaker
edited 16 December 2017 at 10:07AM in Savings & investments
I currently don't have a dedicated emergency fund and I want to maximise my investments. Any input is welcomed!

I'm 28 with no debt, live with partner who works part-time (25) no children but hope to soon, in a mortgaged property with around 3.5 years left at our fixed rate (2.59%), we overpay by £108 per month. I have £35k to spare. I cannot get any higher than 2-3% savings as I've used most good rates up already.

6 months emergency fund cover seems wise but I'm not sure whether to base it on:
(1) 6 months of highest earners salary (£2,300 pcm)
(2) 6 months of mortgage & expenses (£2,000 pcm)
(3) 6 months of deficit between lowest income and mortgage & expenses (£1,000 pcm)

I just think it's a bit overkill to assume option 2, where we are both unemployed for 6 months straight, I see that being near impossible. I also have 0% CC's available which would cover like 8 months of expenses at least.

If £6k is saved in an emergency fund it might be at around 2% interest which seems dire. I would have £29k to invest, I don't think I'm keen on a large pension contributions just yet as I plan to move job soon and it might come with a much better pension scheme, I am a BR taxpayer. LISA worth using up?

And I'm not entirely certain whether I should overpay the mortgage a little more or just wait till we reach the end of our fixed term in around 3 1/2 years time then can just use a lump sum to get the LTV rate down if needed?

I could just whack it all in my S&S ISA in Mar & April which I'm fairly confident with investing, but I like the idea of a little more 'spread' if that makes sense.

Any input welcome!

Comments

  • IanSt
    IanSt Posts: 366 Forumite
    If you are planning on having kids then it it were me then I'd be thinking that their may only be the one earner for at least some amount of time, so I'd be planning on an emergency fund that could cope with zero income coming in.

    Then consider how much extra you will need on a monthly basis for any child and add that onto you current monthly expenditure - then times that by 6.

    Yes I know that means you will have money in poorly paying accounts, but if it were me then the safety net of knowing that my family could comfortably cope for 6 month would more than compensate for that.
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    IanSt wrote: »
    if it were me then the safety net of knowing that my family could comfortably cope for 6 month would more than compensate for that.

    Quite!


    Mind you, the OP is chattering about a "dedicated" emergency fund - it may well be that he already has a substantial cash fund.

    Maybe he should just settle for the despised "2-3%" for part of it. The rest could go into an S&S ISA if his horizon is ten years or so, or part into two LISAs if their horizons are age 60.
    Free the dunston one next time too.
  • jimjames
    jimjames Posts: 18,665 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    If you already have sufficient cash, do you need it to be dedicated as an emergency fund? I have small cash savings buffer but the majority of my money is in investments and I also have access to large credit card balances if I needed to pay for something immediately.
    Remember the saying: if it looks too good to be true it almost certainly is.
  • Makkusu
    Makkusu Posts: 100 Forumite
    Seventh Anniversary Combo Breaker
    jimjames wrote: »
    If you already have sufficient cash, do you need it to be dedicated as an emergency fund? I have small cash savings buffer but the majority of my money is in investments and I also have access to large credit card balances if I needed to pay for something immediately.

    Those are my thoughts too, I think I have around £15k unused credit for emergency or somewhere around that! Main concern is the mortgage and 6 months would be £3500 so I feel £4K would be nice just sat there.

    So would be:
    £1k in current account 1.5%
    £3k in savings account 2%
    £20k S&S ISA 17/18 (already got in)
    £11k S&S ISA 18/19 (will have to sit in savings still till then)
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