Paralyzed with indecision.

enthusiasticsaver

It is good to think of these things now but personally I do not feel an ISA is the right investment vehicle for paying off your mortgage.  I much prefer a repayment mortgage as it is a more secure way of paying it off. You also benefit from better mortgage rates when remortgaging as  the higher the equity generally the lower the rate. 
I think stocks and shares isas are a great way of subsidising early retirement but to secure the roof over your head a repayment mortgage is better. 
I would maximise your pension contributions to make sure you are getting the maximum employer contributions. As Albermarle says review the pension performance to make sure it is invested at the right level for you given you are young and need maximum growth.  

What I would say is that on a fairly modest combined salary of £28600 you are doing well to accumulate those savings/benefits.  I am not sure if that £200 weekly bills includes your interest only mortgage and/or food but your spending money looks fairly low too.  What percentage of your income are you saving weekly as that is a good indicator of how you  are doing? 

eskbanker

Sebo027 said:

I pinched the below flow chart from a reddit page, but it outlines the above in more detail. 

That flowchart is now published at its own separate URL, together with a collection of associated explanatory articles, at https://ukpersonal.finance/flowchart/

noClue

Sebo027 said:

Hope that helps. 

Nice to see a new version!

Sailtheworld

Dr0o said:

Hello.

I'm a 30 year old male, married, my wife is 33. I think we're doing quite well financially, but I feel a bit "lost", I'm unsure what the "best" thing is to focus on. Our situation is as follows:

That's life. You'll likely never have the luxury of just being able to focus on one thing and it would be a bit obsessive to do so anyway.

I'd look at whether it's worth changing the the mortgage to improve your rate - 2.8% is easy to beat (depends on ERCs). If you did this you may as well pay off some of the mortgage from savings because you're currently just over 75% LTV.

I'd try and increase pension payments & mortgage overpayments. Pension payments are likely to give the best return over the long term but mortgage overpayments will derisk your life and the return is guaranteed. Mix and match to a level you're comfortable with.

The biggest impact on your net worth and future wealth will likely come from earning more and making sure a good proportion of increased earnings get saved rather than spent. No need to be anxious about where to put your spare cash - nice problem to have and you look to have a reasonable savings rate already.

So, ask yourself what you need to do to get that £550 take home to £750 / £1000 / £1500 - maybe it's worth investing some money in that project rather than saving it?

Dr0o

Wow, thank you to all for the detailed responses, I have read each one carefully and it's been a treat for me to read
I'd like to clarify a couple of points:

Bills - This encompasses EVERYTHING we must pay for, including mortgage/food etc. We have one current account that all the bills come from and £200 a week covers everything.

Pensions - We each have 8% going into each of our pensions automatically, this includes the employers contribution. I realise this is low, this is why I've added a lot more money manually over the last couple years. 

Income - It is quite low, we live in an area that doesn't provide many amazing job opportunities, I have been working on this though. I'm hoping to get my father in laws job once he retires, this would mean I take home our current combined salary alone, which would be great.

Mortgage - It is a repayment mortgage. My ISA doesn't "literally" offset the mortgage, it's just a tool, in my mind, that I could use to pay down, or off, the mortgage, while allowing me to keep money available and accessible.

Savings rate - My life, for the last 4-5 years, has been very heavily skewed to saving and investing, literally "everything" we comfortably could, I've always had a particular goal, get of out debt, buy the house, build the emergency fund, increase my pension contributions, contribute to the ISA as a means to (possibly) overpay the mortgage. It's obvious to me that my rate of savings is unsustainable forever, I feel like I've "done" everything I can do, it just feels like I'm in "limbo" now, because I can't clear my biggest obstacle and I've used up all the available cash that I'm willing to save/invest. Maybe I need to take my foot off the accelerator and relax a bit, my attitude has been, "take care of the important things first, then have fun", we "should" save/invest everything we can now, while we can afford it, if kids do come along it'll be difficult to save as much, I'd also hate myself if I looked back and thought "Well...you could have done more and been in a better position at this point". Admittedly, the last 4-5 years haven't been overly exciting, except getting married and the occasional treats, but I value the position we're in now, it's been worth the planning and effort and commitment.

steampowered

As you are age 30, you have something like 35 years to go until retirement, so that is a good yardstick to look at for the long term.

The logical place to start is looking at your pension. It is a fact of life that you are going to need an income to live on when you are retired - that is just as fundamental as owning a property. You have about 35 years to go until retirement, and you could easily be retired for 35 years after that.

Have a play around with pension calculators to work out what level of pension contribution you and your wife need to make to have an acceptable standard of living when you retire. A sensible figure to aim for is having 2/3 of your current income in retirement.

Once you are contributing that, then the decision to make is overpaying the mortgage VS contributing to your stocks & shares ISA. As you have correctly identified, the returns on a stocks & shares ISA are almost certainly going to exceed the interest paid on a mortgage over a 30 year time frame. So it does make complete sense to continue paying into the S&S ISA.

steampowered

MaxiRobriguez said:

The Vanguard ISA isn't an appropriate vehicle to "offset" the mortgage. It is a capital at risk vehicle whereas the mortgage is not. At any given point the Vanguard ISA may drop 30, 40, 50% whereas your mortgage cost is fixed. That said, it's not a bad thing you have this ISA, you just may need to be more flexible with it - in that in the future if the balance of it is close to matching a mortgage, then you simply wait out any volatility if you're wanting to pay off the mortgage but the ISA value has declined, which may take years. If you aren't content with being more flexible then the Vanguard ISA isn't appropriate and you should move it to a non-capital at risk vehicle instead. Ultimately the most efficient thing if you choose to do that will simply be to pay down the mortgage, which at 2.8% interest is more than what you will earn in any Cash ISA or savings account. 

Your comparison assumes that you are comparing £200k of mortgage principal against £200k in an ISA.

That is not a correct assumption. The Op is investing money today, so you should be comparing the outcome in (for example) 10 years time. You are not factoring in the returns generated by a S&S ISA.

If the Op overpaid the mortgage for the next 10 years, they might clear £150k of principal (for the sake of argument). If they invested in an ISA instead, they are more likely to have £200k. Over the long term the increase in the value of investments provides the 30, 40, 50% buffer you are talking about - the investment gain gives you that flexibility.

enthusiasticsaver

A minimum of 8%  going into your pension (is this with employers contribution or just yours?) is reasonable given your age and if you are adding further contributions you are doing well.  Keep doing that.  

I am glad to see that the mortgage is not interest only and I think you have to take the view that a mortgage is a long term debt and unless you massively overpay in the short term you will not be able to clear it anytime soon.  There is some body of opinion that says with interest rates so low investing in pensions and isas rather than overpaying the mortgage is a better option anyway. Personally I always found the benefit of clearing the mortgage to be psychologically beneficial rather than the best financial decision. Certainly it is worth clearing it before retirement as having minimal outgoings helps at a period of your life when normally income goes down. As you have a way to go before then I would not make that a priority. 

I think you have done massively well to get yourself into the position you have where you are in a position to save and invest at your age and no debt apart from the mortgage.  Kids can change your priorities (they did ours as they are expensive) so don't be surprised if you are unable to keep up the level of savings if they come along. I think really keep on following your plan is the way to go with investing in pensions and isas, getting a good rate on the mortgage and saving while living your life.  It does not sound exciting but you have put in the foundations for a successful financial base.  I would also say that your annual spends apart from bills are fairly low which indicates a fairly frugal lifestyle.  Fine if that is what you are happy with but generally having a good balance is  a good idea when it comes to saving and spending.  Make sure you do not always prioritise saving for the future over living in the present although that may be unpopular on here. 

Thrugelmir

Dr0o said:

- Vanguard ISA value: 16,000.00

Which fund are you investing in? 

thegentleway

I think you've done extremely well. Very impressive to save that much relative to income!
It feels amazing to pay off debt so it makes total sense that you want to pay off your mortgage. However it doesn't make financial sense to overpay at your age because of compound interest. You only need to invest £270pm when you're 30 to become a millionaire by the time you're 65. That goes up to £780 if you wait until you're 40, and £2,480pm if you're 50. Paying into your pension/S&S ISA will be worth a lot more than the tiny positive feeling of having reduced your mortgage by an insignificant amount. You are better off investing than paying off your mortgage at your age. You can make paying off your mortgage your priority once you’re in mid 40s.