How do you decide where to allocate what money to?

Novice_investor101

Fingerbobs wrote: »

Are you sure your Sharesave contributions are taken from your pre-tax salary? I thought Sharesave schemes came out of net pay after tax - mine certainly do.

Yes, the £50 comes off before tax (but not NI?). It's actually a share incentive plan where I purchase shares each month at market value & my employer then matches these with free shares. The blurb they have on says that this is from pre-tax wages & my payslip shows gross pay & taxable pay which has a £50 difference on it.

Novice_investor101

In response to the OP - you have mentioned pensions & LISA & cash, but not a S&S isa?
I felt that keeping a lot of cash in case of the really remote chance something really terrible happens was costing me money in real terms via inflation.
Granted I feel I have a pretty secure job with 12 months full sick pay, but keeping anymore then a years living expenses in cash felt wasteful. A S&S isa keeps more money accessible but working harder than cash whilst I don't need it & if I ever did I can get to it - but only as a last resort.

Money into pensions is purely for retirement, & the cash in premium bonds is for possible immediate expenses but the S&S isa covers the middle ground. Same with the LISA - the very, very last resort.

Also I would use up to 50% of my cash fund to pay for things like work on the house - I just then focus on building it back up again. Small things like a new washer goes on the credit card & I focus on paying that off. This flexibility comes from giving myself with an amount of disposable money each month that I can use as I please & recognising when I can fritter it & when I need to save it.

Rich1976

JustAnotherSaver wrote: »

I haven't answered my own question...


My wife's pay is pretty fixed, give or take small pence. Mine varies. For example within the past 12 months the least i took home in a month was £1,478 whereas the best month i had was £1,989 ... £511 difference and as stated in my previous post my earnings in the last tax year were for the sake of £20, £25k. My wife currently earns just shy of £1,500 per month so very roughly we have £3,000 per month coming in.


We don't drink, we certainly don't smoke however we do have a habit of eating out once per week, more when we're on holiday. Takeaways were becoming a bad habit so they've been curbed. Aside from your regular expenses that everyone has (usual bills, transport etc) the only other major one i can think of that we have is a gym membership approx. £900 per year for the pair of us.


I'll talk about a mixture of the pair of us (e.g. emergency pot) but when it comes to retirement i'll talk about my own...



- Bills are paid on the 1st of the month where possible
- Currently putting in £135p/m to build an emergency pot (by emergency pot i mean being put out of work so therefore have no income and not washing machine has broken). I'm 2 months away from having 3 months of wages. This will then be reduced (i haven't decided what to yet, possibly £100p/m) to continue towards 6 months wages and then the monthly contribution will be reduced further as i build towards 12 months wages - and then stop. My thought process behind this is that 3 months is breathing space but not all that long, 6 months allows a bit of comfort but not complacency and 12 months covers a good stretch of time.
- Workplace pension: I pay in the minimum as my work pays in the minimum. To give you an idea, last month this was £80 from me. Salary sacrifice is not available.
- SIPP: Currently £200p/m with Cavendish. After reading various books i'm changing my mind on my investment approach (the funds i've selected) which is a thread i'll make in the coming days/weeks as i'd like to discuss and get viewpoints on that. Total pot is currently just shy of £18k with annual return of 6.5% apparently. I realise £200pm and £18k at my age (mid 30s) is not awful but certainly not great - so i realise i could do with increasing the monthly contribution. Starting late at 28 with lowly amounts through an IFA didn't help. I don't have a specific age i want to retire at, other than ASAP. I'd like to retire today but that's not possible, so simply ASAP.
- Lifetime ISA: Currently opened but not used. Investigating this avenue at the moment.


So whatever is left once the bills have been paid and the retirement pot has been contributed to goes in to a savings account - currently have £8k in cash available.

Last year we started with £2.4k, hit a high of £6.3k and ended the year with £4.6k.



The problem i have is - i know i need to pay more in to my retirement pot but then i don't want to leave myself short in ready cash and be unable to pay for something we need, e.g.:
* car needs replacing
* washing machine/fridge/freezer/dryer/TV etc needs replacing (or more likely in our case, a few of those at once)
* Roof needs renewing (or in other words, major house repairs)


Which makes me ask myself - how much do i need in cash and how much can i afford to pump in to retirement (as i'd like to do as much as possible without leaving myself short and allowing myself to sleep easy at night - naturally an anxious person anyway).


Sadly i've not found an answer to that question yet. I'm struggling to figure out a balance. Earlier this year for example we had two house repair issues that came to a total of about £2.0-£2.5k which really came out of the blue. We'd have liked to have gone away on holiday later this year and technically we could afford to but after an unexpected £2k outlay we're reluctant to then spend more on going away because 'what if...' XYZ needs repairing/replacing around the time also.


So yeah that's really where this thread came from. I struggle to decide on what to allocate where as i know i need to put more to retirement but at the same time don't want to leave myself short in the immediate which throws up the question of how much do you need in the immediate to then allow yourself to put more towards retirement - and then i wondered how others deal with this juggling act.


Hope that explains my thought process some

Really interesting thread and resonates with me a lot as we are currently re-evaluating how we do things although we are a few years older than you.

Your emergency savings and goals for the next year- are these all lumped into one account or do you have a separate account for each goal?

We have separate accounts such as holidays, car and home energency but unless there is enough in each one we find we have to dip into one of the other pots. For example we had 400 in our Car Fund but 2 servicing and mots plus new tyres has meant there is not enough to cover the insurance next March or unlikely to be.

JustAnotherSaver

Rich1976 wrote: »

Really interesting thread and resonates with me a lot as we are currently re-evaluating how we do things although we are a few years older than you.

Your emergency savings and goals for the next year- are these all lumped into one account or do you have a separate account for each goal?

We have separate accounts such as holidays, car and home energency but unless there is enough in each one we find we have to dip into one of the other pots. For example we had 400 in our Car Fund but 2 servicing and mots plus new tyres has meant there is not enough to cover the insurance next March or unlikely to be.

My emergency savings - i'm actually committing a bit of a sin as far as people on here would see it. They're in a Vanguard S&S ISA, VLS40. I'm gambling that i'm not going to be put out of work any time soon, though i do consider withdrawing the lot and having it in a cash account. I was considering saving the 3 months wages in there (which i will hit with October's payment) and then another 3 months wages in a cash account.



Aside from my pension, i have no other account actually dedicated to anything specific. I have regular savers open just because they're 5% but nothing specific. I have money in a Marcus account and cash on my current account. If i need to buy a new washing machine then the cash is there. I don't like to keep more than £1000-£1500 or so on my bank card at a time as it gets no interest. I have TSB accounts that are maxed out, not for anything specific other than the interest.



I mentioned i have free range to deal with my wife's finances as i see fit. I actually also have the same free range with my brother, sister & mother. I know people on here will think that a) strange and b) a recipe for disaster but i don't do anything stupid and i inform them of everything. They know why i do it (to help them) and they allow this as they wont put the work in themselves. Some on here would say well leave them be and make them do it themselves. They just wont and i enjoy helping.

My sister is the only one who has asked for anything specific such as what you touched on. She asked for an account specific for her b/day and Xmas money to go in to, an account specific for saving for a holiday, an account specific for car insurance and tax, a savings account for just everyday type savings, a pension, a HTB ISA ... so she puts a bit in to each category out of her pay each month.



Me i couldn't do that. The car account and holiday account and everyday savings account in my case would all be the same account but i know some people can't operate it the way i can just like i can't operate it the way others do.

JustAnotherSaver

ricky_v wrote: »

A friend once said to do everything in 3rds, .

That isn't the first time i heard that.



I remember when i started with a Saturday job, my dad left my mother to deal with taking board from me. He said i should pay 1/3 but she didn't take that much. He said it was always 1/3 in his day. I've heard others speak about this 1/3 also.

Afraid_of_Kittens wrote: »

£10 on the National lottery.

Good luck on Tuesday. I play the Set for Life at £1.50 per play each Thursday.

JustAnotherSaver

ricky_v wrote: »

1/3 into overpaying mortgage

I knew i forgot to comment on something.


This is something i've considered and tbh i'm not 100% sure on what to do with it.
Our spare cash pot took a massive hit (as in wiped out) when we bought our house as it came with major issues we weren't aware of - so we're building cash from scratch, which takes time.


We took out our mortgage when i was 30. We increased it to 30yrs from 25 to bring the monthly payments down to make things easier for us.
I've considered overpaying but then i wonder:
- How much would be a minimum per year, as in would i be wasting my time with an amount that i may as well not bother with?
- Am i better putting the money elsewhere - my day-to-day savings or pension for example, since i started my pension late and the pot is small for my age?


We're in to our 2nd year fixed at a rate of 2.14% with Nationwide. The first 5 years were at 3.19% IIRC. Looking back we would've been cheaper on a variable but we like the security of fixed.


Currently paying £390p/m with £88k outstanding.

enthusiasticsaver

I look after my and my husbands finances although savings are separated as Marcus don't do joint accounts and our investments are obviously sole in stocks and shares isas and sipps and our IFA deals with those.

Our income at the moment is purely DB pensions and we have a large cash buffer in emergency/reserve as we have 7 years until state pension kicks in. Therefore our income is regular and the same each month. Our monthly direct debits covering utilities, gym, Sky, mobiles/insurances etc come to around £550 which is around 20% of our income. A further 20% or £500 is split between us as personal income to cover clothes, hobbies, sole entertainment etc. 20% is saved towards holidays and home/car expenses and 20% goes to repay our credit card bill which pays for food and fuel. The remaining 20% covers gifts, joint entertainment, meals out and any surplus goes into savings towards holidays etc. No long term savings any more.

When we were still working we set aside bills money, personal money and food/fuel/holidays/gifts/car and house annual maintenance and monthly entertainment money. What was left we divided into thirds. One third for short term/emergency savings, one third medium term savings for car replacements and house projects and one third long term which was either overpaying the mortgage, AVCs or sipps or stocks and shares isas.

Fingerbobs

Novice_investor101 wrote: »

Yes, the £50 comes off before tax (but not NI?). It's actually a share incentive plan where I purchase shares each month at market value & my employer then matches these with free shares. The blurb they have on says that this is from pre-tax wages & my payslip shows gross pay & taxable pay which has a £50 difference on it.

Ah, ok, thanks for the clarification. That's not really a "Sharesave" scheme in the usual sense. We also have something similar in addition to the Sharesave, but it's called something else. Under that scheme, we have to keep the shares for a minimum of 5 years before selling them to avoid paying tax. If we sell before the 5 years are up, we pay tax and NI on the purchase price, so no incentive.

A Sharesave scheme is a specific thing where an amount of money is taken from your net pay each month, and after 3 or 5 years you can either use the pot to purchase shares at a discounted price (set at the beginning of the term), or you can have the money back.

Alexland

JustAnotherSaver wrote: »

My emergency savings - i'm actually committing a bit of a sin as far as people on here would see it. They're in a Vanguard S&S ISA, VLS40. I'm gambling that i'm not going to be put out of work any time soon, though i do consider withdrawing the lot and having it in a cash account.

The problem is that, even if you are comfortable with the risk of selling low, it could still take around a week or more to sell down the fund units and withdraw money from the platform.

I maintain at least enough easy access cash to match my 0% credit card liabilities. I then organise my cards so that none have their deal ending in the next 12 months and I always have a long dated line of future credit. This, and the possibility of a mortgage holiday, gives a buffer before I would need to draw on our investments. Our living costs are fairly low and the impact of drawing from investments, even in adverse market conditions, gets less significant as they grow larger.

Alex

Eco_Miser

How do you allocate what goes where with your money?

I use a spreadsheet. To explain better:

I'm already retired.
I have

• an annuity derived from works pensions. That's £185 on the 16th of every month.
• my State Pension paid four-weekly, so one month a year I get two payments.
• various investments, mostly paying dividends quarterly, but at the whim of the directors, so in any particular month dividends may be anywhere from zero to £2k.
• Council Tax and water each payable for 10 months of the year by DD.
• gas, electric, broadband/phone/tv, previous month's credit card spending each payable monthly by DD.
• a few irregular or annual DDs
• debit card spending and ATM withdrawals

So while most of it is predictable and samey, there are massive variations between months.

All the income is listed on a spreadsheet sheet, each row a month, most columns an income source (the others being the month name and total expected income).

All the spending is similarly listed on another sheet.

On yet another sheet I have a template for a month's income and outgoings, including transfers between my various current, regular saver, and savings accounts. The amounts are mostly links to the two above-mentioned sheets.

Using copies of the template I have sheets for the current month and several months into the future. These show the predicted balance in each account on each day income is expected to be received or a payment made. Using both formulae and manual tweaking I ensure that each account has a positive balance at all times, preferably the one that will earn me most interest.
Yes, it's complicated - I started simple and built it up over the years. I have other separate spreadsheets recording the buying, selling and dividends of individual investments; the changes in utilities etc. over the years; actual bank account transactions; and actual in-person spending.

Each April I consider whether I should bung some more into my S&S ISA, particularly from maturing regular savers.

When contemplating any other spending I can run what-if calculations to see the best way of funding them.

What I don't do, and have never done is allocate a specific bank account to a specific future liability or group of liabilities; nor do I specify a particular fraction of my income for any particular purpose.