Advice needed - £20k Bonus

Halfie

Hi all

I’m looking for some advice about what to do with a windfall of £20k. This is a commission payment from work and I have no idea what to do with it!

I’ve been terrible with money and my credit score reflects that but at the moment I have around £1k of debt which obviously I will pay straight off.

We don’t have any home improvements we need, or want, as we recently renovated the kitchen and bathroom except for carpeting the stairs and landing....

So what do I do with the rest?! I’ve never been “well off”, I’ve just managed to land a good job and started in November. (my salary last year in my last job was only £21k and I’ve never earns over £30k a year before!).

I genuinely have no clue but I don’t want to lock it away at the moment or risk it.

steampowered

What is your pension situation?

If you have not been contributing much into your pension you might be setting yourself up for poverty in retirement, in which case locking the money into a pension could be very wise and also highly tax efficient.

If you do not have any particular savings goals at the moment, and are looking to save for the long term, the best thing to do would be to buy a balanced fund of stocks and shares (e.g. a vanguard fund) through a stocks & shares ISA, and leave it there.

masonic

At least a few thousand should be saved as an emergency fund (assuming you've no savings to speak of already). A couple of high interest current accounts could cover this - this may help you avoid needing to borrow in future. The rest could be invested either in a S&S ISA or pension as suggested above.

ian1246

Open a TSB Classic Current Account, get your partner to open one also and then open a 3rd TSB Classic Joint Account - that would be £4,500 (£1500 in each account), earning 5% Interest (Minimum £500 into each account per month for interest) :-)

Then do the same with a Flex Nationwide Account - £7,500 (£2,500 in each), requiring a minimum pay in of £1000 per account.

To satisfy the minimum pay in, just set up a standing order from a Nationwide Account to a TSB Account, sending £500 on the 01st of each month to TSB, then sending it back on the 04th from the TSB to Nationwide, then on the 07th sending it back from Nationwide to TSB, then on the 10th back from TSB to Nationwide - this would basically "Pay In" £1000 into each of the accounts (TSB & Nationwide), satisfying the minimum pay in term to ensure you get the interest - you then just do this for each set of accounts (1 Nationwide & TSB Account Paired up).

You ll then reap the rewards of 5% interest on £12,000 (£50 a month) - all of which would be readily available for yourself should you need it.

In terms of the other £8000 - either invest into your (or your partners) Pension or invest it. I'd then open a NATWEST Current Account to get 2% Cashback on all your household bills and perhaps get a cashback credit card (1% Cashback on supermarket shops & 0.5% back on all other purchases) which you'd pay off In full each month - giving yourself even more "Free" cash to play with :-)

Alternatively, maybe look at the Santander 123 Account and stick the remaining £8000 in there (earning 1.5% interest) - whilst also putting all your household bills through them to get the 1-3% cashback on household bills.

The other alternative would be using the £8000 to overpay your mortgage (if you have one), being aware of any early-repayment charges which may be applicable.

Halfie

Thanks all! I love Ian’s advice so will do this with £12k. This way I can access it quickly if life takes a backwards turn and will provide me with comfort knowing that. And it’s earning me £600 a year.

Bearing in mind others advice I will stick the other £8k into my pension. I can’t make payments to my pensions directly from my gross salary so will see if I can make a direct one off payment. But this way I guess I get taxed on it twice?

masonic

Halfie wrote: »

Bearing in mind others advice I will stick the other £8k into my pension. I can’t make payments to my pensions directly from my gross salary so will see if I can make a direct one off payment. But this way I guess I get taxed on it twice?

That's a shame as salary sacrifice schemes are more tax efficient. You'd still get tax relief on the lump sum contribution, which would cancel out the income tax (20%), but not the national insurance (12%). Some of it may be taxed on the way out of the pension depending on your overall retirement income.

An alternative, if you are young enough is the Lifetime ISA, which gives a 25% bonus (equivalent to tax relief on a pension), but is tax free at withdrawal at retirement. However, the money would count towards your savings if you needed means tested benefits, whereas a pension does not.

Much depends on how much income you might have in retirement.

Halfie

It is salary sacrifice but we can only make set payments each month and can only change this once per year.

I’m 40 this year so will look at whether a LISA would be suitable

masonic

Halfie wrote: »

It is salary sacrifice but we can only make set payments each month and can only change this once per year.

You could consider increasing your salary sacrifice until you've paid the equivalent of £8,000 post tax income (about £12,000) extra into the pension, while living off the £8,000 you have in hand. You can't take your residual income below the minimum wage though, so it is likely you'd need more than a year to get that amount contributed.

Voyager2002

A word of caution: this bonus might have moved you into being a higher rate taxpayer, so be prepared for a bill at the end of the year. I would hope that your employer could advise you on this.

kidmugsy

It would be wise to open a LISA even if with only a tiny sum. That way you've kept your option open until age 50. That's a good idea - maybe you'll get more commission payments in future.

Fatbritabroad

Halfie wrote: »

It is salary sacrifice but we can only make set payments each month and can only change this once per year.

I’m 40 this year so will look at whether a LISA would be suitable

You should be able to put the bonus in. I had to complete a form for mine last year and that was it