Emergency fund/savings, debt or mortgage overpayments?

Positive_Thinking

Hi All

A lot has happened since I last was on this site. I was left some money and hubby and I bought our very first home. I'm down to one credit card which is on a 0% deal and which will be cleared before the deal expires (just recently switched to a new card as the previous 0% was coming to an end soon), and I think I've finally had my lightbulb moment. I've been a slave to credit cards for far too long and I could cry at the amount of money these companies have had from me over the years

Anyway there's lots I want to do but I'm not sure what to concentrate on first. I know I need an emergency fund and I have just over £600.00 saved so far for that. However I also want to save some money towards home improvements that we want to do, and I would also like to start making regular overpayments on the mortgage. The trouble is I don't know which to do first, or whether to save a bit each month towards all three. How do you all decide?

Moneyminded

The general rule of thumb is to have 3-6 months worth of expenses in an emergency fund. Does the 6k you already have saved cover this? If not, I would start here first to build it up to the level you need. Once you have the EF at the level you need I would then turn my attention to the renovations and OPs.

With the house renovations are they things that NEED to do or things that you WANT to do? Personally if it is a NEED I would tackle this next and then start the OPs. If the renovations are things that you would like to do but don't need to do I would focus on OPs, especially if this would drop you into the next LTV bracket when it comes to remortgaging.

This is just my personal opinion, only you can determine what the right order/ ratio is for you.

Good luck! Sounds like you have made a really positive start already

DrEskimo

You could take the Dave Ramsey baby steps approach, where you save £1,000 as a starter EF, then make a budget to help you clear your debts as fast as you want. You only have one debt, and it's interest free, so that makes things simpler.

I personally would look to clear it as fast as possible, as it would just be hanging over you. Once it's cleared, then you could use those payments towards saving for your home improvements and building your fully funded EF (3-6months of expenses). But given there is no interest and you have budgeted to clear it before the end of the interest free period, it's up to you.

Mortgage overpayments can come later. To be honest, I currently use spare money for mortgage overpayments in long-term investments, as my mortgage rate is so low.

Positive_Thinking

Thanks Moneyminded, I wish it was £6000 in savings that I had but alas it's only £600 (still a start I suppose!). I do have a standing order set up for £100 a month to go direct into the emergency fund account but was wondering if I should increase this or put the extra towards something else. The home improvements are a mixture of wants and needs, to be honest probably mainly wants at this stage. We fixed our mortgage only for two years as we didn't want to be tied into the same product for too long. So the credit card needs to be gone by the time we come to do the remortgage, which it will be.

I've been looking at some of the DFW challenges and I think I might try the MFW 1% challenge, see how I get on.

Positive_Thinking

DrEskimo I'm torn between wanting to get rid of the debt as soon as possible or letting it run its course for the two years since I'm not paying any interest on it anyway.

JayRitchie

First step is a decent emergency fund - say £1,000. Then clear the credit cards (they won't be 0% forever) then build up to 3-6 months expenses in savings.

Its better to have a decent savings account than to overpay the mortgage unless you are in a position to clear the mortgage outright.

DrEskimo

Positive_Thinking wrote: »

DrEskimo I'm torn between wanting to get rid of the debt as soon as possible or letting it run its course for the two years since I'm not paying any interest on it anyway.

I doesn't really matter either way. The end result will be the same. I guess it depends on whether you want some money to start home improvements sooner?

CanadianDream

Emergency fund first then clear your credit card debt.

Positive_Thinking

JayRitchie wrote: »

First step is a decent emergency fund - say £1,000. Then clear the credit cards (they won't be 0% forever) then build up to 3-6 months expenses in savings.

Its better to have a decent savings account than to overpay the mortgage unless you are in a position to clear the mortgage outright.

Emergency fund is increasing by £100 a month at the moment as I have a standing order set up for that that goes out of my account as soon as payday comes around, so I don't really miss it. Realistically after crunching the numbers I can comfortably afford to save around another £150 to £200 per month, I just don't know whether to throw it at the emergency fund or start overpaying the mortgage.

The reason I'm keen to start overpaying now is because age wise I'm at a disadvantage in terms of mortgage length. I'm only 44 so not exactly ancient but I will not be able to get a mortgage term past the age of 67 (and nor would I want to), so when it comes to remortgaging, or if we ever need to move house, I feel like it would be better if I didn't need to borrow so much as I would be paying it back over a shorter term. So the more I overpay now the better (I think!). Does that make sense or am I just being stupid and worrying unnecessarily??

Positive_Thinking

DrEskimo wrote: »

I doesn't really matter either way. The end result will be the same. I guess it depends on whether you want some money to start home improvements sooner?

This is part of the problem why I got into credit card debt in the first place, because I am an incredibly impatient person and when I get an idea into my head I HAVE to do it straight away.
In the past I would have said sod it and stuck it all on a credit card and worried about it later but I never want to fall in to that trap again.

Unicorn_cottage

Where are you saving your £600? Are you prioritising the highest savings rates & regular savers etc? What rate is your mortgage?