Any Dave Ramsey (or just general, what to do best with my money)types?

mrseff_2

I've recently started listening to The Dave Ramsey podcasts and itching to get started on the baby steps. I've left it very late in life to get my act together but absolutely determined to have a retirement I will at least be able to finance and at best, enjoy!

So, I have a patchy credit history - lots of silly stuff, all in the past now but it's led me to where I am and the kind of interest I'm paying on debt. Can I give you my situation?

I'm 54, single mum to two kids, one 17 and one now independent and left home. Informal maintenance for youngest will finish in November but ex will continue to pay £500 per month to me for 5 years to cover the pension he owes me from the marriage. (he will also continue to pay 50% of youngests costs such as university / car etc)

In the next couple of months I will be moving in to my own home (giddy!). The figures are as follows:

House price £197995
HTB             £40,000 (ish) 20%
Deposit        £10,000 (5%)

Mortgage of £148,900 (sorry, ish again, don't have paperwork in front of me)
Mortgage term 16 years, fixed for 5 years @ 3.99%
HTB 5 years interest free

Debt    £4700 on two credit cards with horrible interest - If I throw everything at them I can have them clear by January next year
            £4000 interest free family loan - will pay off with work bonus in november

Monthly income £3500 (net)

Pension contribution through work pension - me 8%, work 3%

Money available to save (after credit cards are paid off) - £900

Current pension pot - around 80k (eek!)

So, wise folk - as soon as I've moved in to my house, I will have £1000 emergency fund, around 3k most of which I may need for stuff for house (poss only 2k)

In order that I come out of work (latest aged 67) what's my best course of action - pension savings, over pay mortgage, pay off HTB (I don't understand overpaying mortgage at all so I need to get my head around that!)

Any wise words would be very much appreciated!

TheAble

I would focus on the pension. If you really work at it it's surprising how much you can build up in 10 years. You want to make the most of the tax break while you're still working.

mrseff_2

TheAble said:

I would focus on the pension. If you really work at it it's surprising how much you can build up in 10 years. You want to make the most of the tax break while you're still working.

Thank you!

Yes, that's kind of where I was at - as my mortgage is such a short term anyway, it's going to be paid off in 16 years (not the HTB but...) - everyone in 'real' life has been at me to overpay the mortgage but that means i have a lovely house but nothing to live off!!

Cheese1990

So my advice would be that in the first 5 years save hard so that you can pay off the htb before it starts attracting interest, I'd also try and save some extra so you can make an overpayment on the mortgage to tie the end date in with your retirement. For the remaining years pay every spare penny you can into your pension.

The reason I'd advise to do it this way is that the interest on that htb can get expensive quick after the 5 years and making it so your not paying a pension into retirement means your pension pot will travel a lot further not having to find £8/9k a year as a single person with no mortgage in retirement youd be able to live comfortably off about£15-20k a year and that includes a nice holiday or 2. 

MidsHollie

Hi there,
Congratulations on the home. 

Firstly, I’d say that you need to get your thinking straight around your emergency fund. Buying things that you need to get for your nee home is not an emergency - you already know you need it. Save up for these things. Make a list of what you need, save up and buy them when you find them at a price you are happy to pay. I’m in my home 2.5 years now, and I got 4 new pieces of furniture only - my bed, a spare bed for visitors, and furniture for the spare room so that I could get a lodger and make some passive income (the lodger is my HtB loan exit strategy). 

I think it would be worth you speaking to an expert about your situation. I’ve been advised to aggressively pay down my mortgage, so that I can remortgage the help to buy loan into the new mortgage at year 5. This is better than saving a lump sum for the help to buy because you don’t know what that lump sum will be, and you have also saved on the mortgage interest payments over that 5 years. Your situation may be different though, with the push for your pension. 

I know that everyone hates this advice, but I’d seriously consistent getting a lodger once your youngest moves out. The passive income is beautiful! 

mrseff_2

MidsHollie said:

Hi there,
Congratulations on the home. 

Firstly, I’d say that you need to get your thinking straight around your emergency fund. Buying things that you need to get for your nee home is not an emergency - you already know you need it. Save up for these things. Make a list of what you need, save up and buy them when you find them at a price you are happy to pay. I’m in my home 2.5 years now, and I got 4 new pieces of furniture only - my bed, a spare bed for visitors, and furniture for the spare room so that I could get a lodger and make some passive income (the lodger is my HtB loan exit strategy). 

I think it would be worth you speaking to an expert about your situation. I’ve been advised to aggressively pay down my mortgage, so that I can remortgage the help to buy loan into the new mortgage at year 5. This is better than saving a lump sum for the help to buy because you don’t know what that lump sum will be, and you have also saved on the mortgage interest payments over that 5 years. Your situation may be different though, with the push for your pension. 

I know that everyone hates this advice, but I’d seriously consistent getting a lodger once your youngest moves out. The passive income is beautiful! 

Hi there - thanks for your reply. Sorry, by emergency fund, yes I realise that furniture is not an emergency but the 3k I have set aside to get the bits I absolutely need for the new house - not just a new sofa because I fancy one!! I will actually already have this amount so it's not eating into that initial emergency fund or creating any more debt.  So I would have 1K emergency fund (baby step 1 if you will), be debt free apart from mortgage and yes that's where I need the help in terms of what to pay more into, HTB, mortgage and / or pension. I get what you're saying re the mortgage payments being key given that saving up for the HTB when I could 'roll' it into a new mortgage after 5 years...

Re lodger, again, absolutely get your advice re lodger, much as I adore my children, the day when they have both happily flown the next and come home for high days and holidays will be a happy day!! At the moment I cannot bear the thought of sharing my space with a relative stranger but agree it could be an option if things get sticky!!

kimwp

Your emergency fund should be 3-6 months of outgoings, unless your mortgage is very cheap, this is a lot more than £1000.

mrseff_2

kimwp said:

Your emergency fund should be 3-6 months of outgoings, unless your mortgage is very cheap, this is a lot more than £1000.

kimwp said:

Your emergency fund should be 3-6 months of outgoings, unless your mortgage is very cheap, this is a lot more than £1000.

Thank you Yes, the £1k is the baby step 1, then pay off debts bar mortgage, then the 3-6months emergency fund before saving - THEN i get to paying off mortgage pension saving!

kimwp

That makes sense. I went into buying a house with a year of outgoings set aside, but it makes sense to pay debt off first.