Relatively Debt Free 29yrs old with £100k - What should I do?!

GBH72

Hi All, first post on this forum.

I am looking for some advise on what I should be doing to best make my savings work for me!

To give a bit of back ground, I am 29yrs old and have managed to accumulate 100k in personal savings. I am a construction professional on circa £50k a year, but also run my own limited company teaching martial arts which is turning over around 5.5k a month and growing constantly (120 students) with around £1500 of operating costs. Since leaving home at 17 I have been financially independent and received no help from parents/relatives/Inheritance etc.

I have no student loans - I am an apprentice trained joiner and also have a degree, but both have been completed part time while in employment so were paid for by my employers.

I am married, my wife has a decent job (midwife coordinator £40k ish a year) with a baby on the way and we own our own home although have a £240k mortgage over 34yrs which we over pay to bring down to 26yr period. Other than this and my Wife's personal loan for a car (£12000) we have no other debt. We both have a decent work place pension scheme - my current pot is around £33k and £600 a month being added each month from myself and employer, invested in a medium risk plan.

Current savings are spread between £50k in premium bonds for easy access,
£18K in an instant cash ISA,
£12K in a savings account
£20K in Business account

I am adding about £3k a month to my personal savings and the business account grows nett at about the same (taking into account tax)

My goal is to eventually go fully self employed once the martial arts side can fully support my family but allow me the freedom to pursue property development or consultancy etc. I cant keep working 16hr days 6 days a week for the rest of my life! So timeline for this is to leave my current employment in the next 18 months to 2 yrs.

My question ultimately boils down to - what should I be doing with my money? I have had a few thoughts but not taken any professional advise...

1: My current intention was to try keep saving until i could put a significant deposit down on 1/2 apartments through a limited company - but i really do not know how easy this will be?? I have no idea on banks attitudes to lending to a newly formed LTD company and what kind of deposits they would require? I cannot buy one personally as the tax implications of owning a second home when paying higher rate tax make no sense?!

2: Keep saving until I can cash buy one apartment or flip a property - kick starting the next and the next (hopefully?!)

3; Pay large sums off my mortgage at the end of our next fixed term or maximum each year (10%) - this just seems counter intuitive though? Surely I'll always need a house to live in - its not going to pay me money - so paying off over along term is better and using money to invest in what will give you returns is better???

4: Invest in stocks and shares ISA each year as much as i can - nut i don't really like this idea as i have a pensions plan already.

5: Keep saving and see what happens with Brexit.

I'd really appreciate some constructive advise from anyone that has started property companies, invested in 2nd homes or entrusted money to an investment specialist?

Thanks in advance

MaxiRobriguez

Take advantage of salary sacrifice pension or SIPP to get tax benefits from your salaried income and potentially consider using some of the savings to fund the growth of your business?

Wouldn't bother overpaying the mortgage. Let inflation eat that one away. Wouldn't bother trying to flip a property because it's not easy to do anymore with the market subdued due to Brexit and you'll pay additional taxes for a second home.

abz88

GBH72 wrote: »

3; Pay large sums off my mortgage at the end of our next fixed term or maximum each year (10%) - this just seems counter intuitive though? Surely I'll always need a house to live in - its not going to pay me money - so paying off over along term is better and using money to invest in what will give you returns is better???

It depends on what your interest rate is vs what you can earn with the money you would overpay with. There is an MSE calculator that works out what level of savings interest you need to be better off saving vs paying off your mortgage. Worth remembering that on 50k you can only earn £500 of savings interest tax free (excluding ISAs). Also, if you can use a LS to get down into the next interest bracket, you will free up more cash monthly to save/invest.

If your savings are all in a single easy access account its also worth while making sure its the highest paying account you can get and then look at drip feeding it into Regular Savers to maximise interest (so earning 2-5% on it instead of 1.45%)

Socajam

I would go for #3 try and pay off the mortgage then if you really want to go self employed you can.
Also if you and your wife decides to have another baby, that's one major big you will not have to worry about.
As a midwife, your wife could do part-time (something I would encourage - maybe 3 days a week).
As a mortgage free person, I can tell you this is something that have made a huge change in my life and will I am sure in yours (with wife and children).
Even if your business were to slow down, you should still be able to manage, because the largest part of your debt (mortgage) have been paid off.

Zero_Sum

Whats LTV on mortgage? As paying down could mean a better rate

enthusiasticsaver

I would not invest in property. Very undiversified, costly to maintain in terms of time and money and completely illiquid.

I would do a combination of 3 and 4. Whilst many advise not overpaying the mortgage due to low interest rates there is no denying that getting rid of the mortgage or reducing it helps cash flow and saves money in the long run due to the fact it is such a long term debt.

Overpaying the pension is a good thing to do as it is tax efficient but the benefit of stocks and shares isas is they are tax free when you come to withdraw them whereas pensions aren't. A balance of both is sensible. Depends on your aims and long term plans though.

Zero_Sum

enthusiasticsaver wrote: »

I would not invest in property. Very undiversified, costly to maintain in terms of time and money and completely illiquid.

I would do a combination of 3 and 4. Whilst many advise not overpaying the mortgage due to low interest rates there is no denying that getting rid of the mortgage or reducing it helps cash flow and saves money in the long run due to the fact it is such a long term debt.

Overpaying the pension is a good thing to do as it is tax efficient but the benefit of stocks and shares isas is they are tax free when you come to withdraw them whereas pensions aren't. A balance of both is sensible. Depends on your aims and long term plans though.

The pension v S&S ISA largely depends on what rate tax payer you are. If 40% then its pension all the way. If 20% then yeah mix of both.

enthusiasticsaver

Zero_Sum wrote: »

The pension v S&S ISA largely depends on what rate tax payer you are. If 40% then its pension all the way. If 20% then yeah mix of both.

There has to be a caveat to that in that if the pension is overfunded then there is a risk of hitting the LTA and pensions are taxed on the way out too. Stocks and shares ISAs aren't. Ignoring that risks the pensioner being heavily taxed in retirement. Admittedly if that £600 per month is for both OP and employer combined there is still a way to go if there is just £33k at the moment but the OP is not yet 30 so going full blast at the pension if he is a HR tax payer which he has not said he is might be a mistake. Not enough information to say.

My DH was a HR taxpayer and heavily overpaid into his pension so he has a substantial DB one now retired and is taxed on it albeit at basic rate. He is having to try and deplete the DC pension he holds before SP kicks in and he hits HR tax rate in retirement. That is in spite of me giving him part of my tax allowance.

GBH72

Thank you everyone for your comments. Very insightful. I am a higher rate tax payer (just). This has actually meant that since starting my business alongside my Employment it has been very difficult to draw money in a form of a wage from it. Dividends are taxed at higher rate just as would any salary so at the moment I’m just leaving the money to build up. Maybe I can draw a dividend at a lower rate in the future if and when I leave my current employment.

GBH72

YESTERDAY 5:50 PM
Zero Sum Whats LTV on mortgage? As paying down could mean a better rate



LTV is about 20/25%

kangoora

Actually, IMO the OP may be one of the better placed people I've seen on these boards to enter the BTL arena. Typically we get the 'I've been given a £100k and want to buy a BTL even though I have absolutely no knowledge about what it entails' person.

He's already in construction for 12 years, a qualified joiner, presumably has plenty of contacts in the trade to get 'mates rates' and supplier discounts, has no debt as such and decent savings, decent income from an alternative source and OH with a decent wage and presumably NHS pension on the go. If things go wrong he is only 29 and can earn substantial wages from 2 jobs (assuming if things go wrong he continues 2 jobs ).

I don't see why he shouldn't give it a go provided he doesn't over-leverage such that his other income streams are in doubt. Whether to flip a property or retain it for long-term rental income should be planned at the buying phase but revised upon completion - in conjunction with a good accountant. In fact, I would suggest he sits down with a good accountant (one with good experience in the BTL field) and create/thoroughly go over a business case before starting however.

Meanwhile, adding extra to pensions and LISA on a consistent basis to ensure a diverse income stream in future retirement is always a good choice for surplus income.

At the end of the day ignoring BTL and pumping up pensions is unlikely to be a bad choice and is the 'safe' choice. Nobody became a multi-millionaire entrepeneur doing this however and I suppose it comes down to how risk averse you are and what you really WANT to do.

Good luck on what you decide to do