What would you do if you had £400 a month to save?

AngelOfTheNorthWest

Hope this is the right place to ask this question.

If you had a mortgage of about 100k at 2.19%, cash savings of 7k with the ability to get 5% interest on another 4k if you save £500 a month, a stocks and shares ISA you don't understand with a couple of hundred in it and very little pension provision as a thirtysomething couple, what would you prioritise if you got an income bump?

Grateful for thoughts.

Alexland

If you are a higher rate taxpayer or if your employer operates salary sacrifice I would make extra pension contributions. Else I would consider a S&S Lifetime ISA.

Herbalus

My immediate thought is 5%, unless you are not contributing enough to your pension to either gain the full employer contribution, or to reduce you to under the higher rate threshold if you pay higher rate tax.

AngelOfTheNorthWest

We are both normal rate taxpayers and are paying as much as our employers will match into our pensions, ie legal minimum. Still only got about a 15k pot between us though, I have worked part time and not earned that much for the last few years.

There's 19 years left on the mortgage if that helps, payment is £530 a month and already overpaid to £600 just because it seemed like we might as well. Household income is roughly 45k. Will likely increase.

Alexland do you feel a Lifetime ISA is more advantageous than instant access savings? It's difficult to know what we should be aiming for in terms of instant cash. Will potentially want to do bits and bobs of home improvements but we can probably pay for most of this with bonuses and freelance income that we get, on and off.

PRAISETHESUN

It depends on what you want to use the money for - if you want to lock it away for 5-10 years then the S&S ISA might be the simplest way forward, otherwise if you want to keep it accessible then the 5% regular savers might be the way to go.

It's never too early to start planning for your retirement so you could at a bare minimum max out your employer's pension contributions (ie. if they match 1% of your contributions with 1% of their own, then take advantage of it) if you can spare the cash - at the end of the day it is free extra money from your employer and it definitely adds up over the long term.

Herbalus

A Lifetime ISA is more akin to a pension than instant access savings. Careful to not confuse the 2. There’s a penalty to access money from a LiSA before you are 60 as you already own a home.

It depends if you want access to the money before 60.

Alexland

Sounds like your mortgage is low cost / under control and £7k sounds like an ok cash emergency pot but it depends on your spend commitments and future employment prospects. Assume you have life insurance, critical illness insurance, etc? Especially important if you have any dependents.

As above a S&S Lifetime ISA is for investing for retirement. As a basic rate taxpayer it generally beats making additional pension contributions as you get the same 25% government top up but there is no tax on withdrawal from age 60. The only exception to this is if your employer offers pension salary sacrifice (to save both tax and NI) in which case it works out about the same.

In your 30s a combined retirement provision of £15k is on the low side so this could be an area you want to address. Have you seen how many hundreds of thousands of pounds it takes to get a comfortable retirement? Historically over the long term you would expect investment returns to beat your mortgage rate.

My view is that Hargreaves Lansdown offer the best LISA for regular contributions and they offer discounts on funds such as the mostly passive Blackrock Consensus 85 which should deliver a pretty good long term result (with some ups and downs along the way) without too much thinking.

What is it about your current S&S ISA you do not understand?

Alex

AngelOfTheNorthWest

WRT the stocks and shares ISA, maybe when I say I don't understand the ISA I'm not putting it right. I get the process: I invest money, only £20 a month as it's just been open a few months and I thought it a good idea to get started. I pay a fee for the platform to manage it for me, and it can go up as well as down. It's more that I don't understand the actual market! I am quite interested in this area though and have been having a read of some useful threads today.

We do have insurance as our children are young. All suitably in trust etc. Earnings, I guess we are both what you'd call bog standard professional regional salaries, 30-40kish if working full time, which I don't. One never knows, but I'm not sure either of us are likely to want to climb the ladder enough for HRT to be an issue.

Yes I have seen how much it takes to get a comfortable retirement! We actually don't have very expensive tastes and also the mortgage should be paid off a good 15 years before retirement age. But yeah the crapness of the pots does worry me, I feel like we're doing alright otherwise but that's one area that is really appalling. As we've matched what our employers will put in, I had wondered whether a Lifetime ISA would be better. But yes it's factoring this against whether we should prioritise getting a bit more of an instant savings cushion before thinking about locking money away.

Savings are with Nationwide Flex and their linked savings account if that's useful info to anyone, they let you put 2.5k in the current account then £250 a month in the linked savings account, all at 5% for 12 months. As people are giving me useful advice here I feel I should pass on the tip for anyone who might benefit!

Alexland

The more you understand the stock market the more you understand why going with a low cost mostly passive fund that balances your risk tolerance with ambition for growth is the best strategy for most people. It almost guarantees that your returns will be consistently good relative to the market without having to worry about if themes, countries, sectors or investment styles are going in or out of fashion.

If you feel you would want more than £7k in easy access savings then there's no problem saving up some more but don't get too cash heavy as (excluding short term promo rates such as Nationwide) it generally fails to beat inflation in the long term.

On the plus side at least you have seen the shortfall in your retirement provision early.

Alex

AngelOfTheNorthWest

Yeah there's not room for much more than 12k or so at 5% with cash even if you're a couple. There only ever seem to be one or two banks doing it, and I don't see that changing any time soon. I tart around for the best rates but it's not a strategy for substantial sums really.

The approach you describe is exactly what I've done with the stocks and shares ISA! The idea was that bleeding a little bit in would be a good way to get started. I definitely agree thinking about retirement is needed (we're not early 30s either we're mid...) but the decision is just Lifetime ISA v crap work pensions.

Tammer

Hi guys,

I don't think anyone else has mentioned this but £7k savings is not very much if you are quite high earners.

The current economic conditions are ok, but with large risks of disruption, and it would be good to have at least 6 months salary saved to cover you if one or both of you is out of work.

Also, it may be worth looking at Income Protection insurance, with a deferred period of 12 months, to cover you if you were unable to work for a long time through illness or injury.

Other than that, the topping up the pension suggestions are also quite a good idea.

T