Emergency fund/savings, debt or mortgage overpayments?

Yellow_mango

I’m in a similar situation and keep toing and froing over priorities.

I’ve (almost) reaches the conclusion that it doesn’t really matter right now what I do with the money. I just need to focus on saving it. So I’ll keep squirrelling away as much as I can into my savings account, and then it’ll be there ready when I decide what the best thing to do with it is!

Socajam

Positive_Thinking wrote: »

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

You use their credit card, you then have to pay for the use. Nothing in life is free, but I am glad that you light bulb moment went off and here's hoping that you keep that light burning.

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?

Me personally I would save for a emergency fund and a life happens fund (say 6 months of each, more if you can) - save that money in a account marked: DO NOT TOUCH
Get rid of that 0% credit card debt, yes you are not paying any interest, but it's still debt.
Tackle the home improvements, there is nothing like being comfortable in one's home
Once you have all of the above in place, start overpaying on the mortgage

Positive_Thinking

Unicorn_cottage wrote: »

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

Hi, the savings account is just an easy access savings account with a rather pathetic 0.2% gross interest rate. I could change this to a monthly savers account with a rate of 2% but you have to save the same amount each month by standing order and if you withdraw any cash you cannot replace it. Plus if I had any spare money left over at the end of the month I wouldn't be able to add it to the monthly savers account, whereas I could add it to the easy savers account. Mortgage rate is 3% on a two year fixed rate 90% ltv.

getmore4less

Emergency funds can be a line of credit when in debt.

With 0% debt you keep your funds in available cash earning interest ready to pay off debts when the interest kicks in.

You can cycle funds onto 0% purchase cards to keep the 0% going longer(cheaper than BT cards)

The measure is net wealth is going up through reduced spending.

DrEskimo

Positive_Thinking wrote: »

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.

In which case, I would save £1,000 in your EF, then direct all surplus in your budget to the £6k debt. Sounds like you have around £500 to direct at this, so could be gone in 12months.

Next, start adding to the EF until it's at a good level, then open up a Marcus online saving account, which offers 1.5% with no requirements, and start saving for the home improvements.

Then it's a case of balancing saving for other things in life so you don't have to resort to credit again and overpaying the mortgage. I wouldn't get too hung up on the mortgage though. Your rate is quite high (mine is only 1.44% on a discounted variable), but it's still not high relatively speaking.

You've also got other things like pension provisions to consider, but start with getting debt free, having a fully funded EF and saving for immediate requirements!

ThatKiss

Positive_Thinking wrote: »

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?

Hi PT,

I'm in a similar position to yourself in that I'm approaching the end of my DFW journey and aiming at the next targets, ie EF, home improvements and mortgage overpayments.

I've come to realise that as much as the lovely folks on here can give an opinion on what they would prioritise or what order they would do things, they are only opinions and you have to do what suits you and your situation best.

Unless you've been financially savvy from a young age, we're all playing a game of catchup, and there are no real rules.

For instance, I've been hitting my debts hard over the last year, with a minimal EF as I know that I have a 0% spending card to fall back on if I need to. Not ideal, but there will always be bumps in the road, and if I end up setting my DFD back a month it isn't the end of the world. Would I rather that backup was cash savings? Yes, but you play with what's at your disposal.

Personally I am looking at the middle ground going forward. I'll increase my EF before I start looking at getting quotes for home improvements, but that EF may also form part of my savings FOR said home improvements.

What I would say is that mortgage overpayments should probably be at the bottom of the list, if only because it's a long term and flexible debt. You could, for instance, save a lump sum and pay that off at renewal. You could reduce the term at renewal, or if you're comfortable with the payments as they are, ask to keep paying the same even if your interest rate drops. Or any combination of the above.

As much as there is standard advice, you will know best (hopefully!) how secure your job is, what your priorities are and any future plans on a personal level; it's all about taking it on board and finding the right balance for you.

getmore4less

If you have an emergency fun and debts at a higher rate you are just borrowing the emergency fund.

As long as you can get new borrowing at a the same or lower rate than your highest rate debt(0% spends cards are good for this) then there is no point in an emergency fund, pay down the debt and borrow it back if you get an emergency.

Unicorn_cottage

Positive_Thinking wrote: »

Hi, the savings account is just an easy access savings account with a rather pathetic 0.2% gross interest rate. I could change this to a monthly savers account with a rate of 2% but you have to save the same amount each month by standing order and if you withdraw any cash you cannot replace it. Plus if I had any spare money left over at the end of the month I wouldn't be able to add it to the monthly savers account, whereas I could add it to the easy savers account. Mortgage rate is 3% on a two year fixed rate 90% ltv.

You can do better than 0.2% for an easy access savings account. The best rate is currently 1.41% https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/#easyaccess

Mortgage rate is pretty high. You could save an amount into a regular saver, (I know HSBC are offering 2.75% and you can save from £25 a month up to £300 BUT you can to have a HSBC current account for this but they are offering a bribe of £175 if you can pay in a regular month payment of £1750), then you could pop this into your mortgage.

Food for thought?