Review my budget: what should we do with an extra £500/month?

dgerrard

Hi all,

Not sure if this is allowed here, but:  I'd love to have you look at our household budget & tell us if there's anything glaring, either that we aren't doing and should be, or that we should stop doing.

General Situation
My wife & I live in SE London.  3 bed house, no kids, 1 cat.

We owe ~£288,000 on our mortgage (2% interest fixed for 5 years), and ~£15,000 on our car.

Income
After tax & pension contributions, we take home £6,876.21/month.

Expenses (per month)

Mortgage:  £1,753.01
Life Insurance:  £128.05
Home Insurance:  £25.79
Pet Insurance:  £24.54
Phone & Internet:  £20 (work covers most of this)
Gas & Electric:  £56
Water:  £32.39

Car: £767.50

Road Tax £13.56

Car Insurance £52.64

Petrol £100.00

Cleaning supplies:  £12.51
Council Tax:  £150
Entertainment (Netflix, Lottery, magazines etc):  £116.02
Groceries:  ~£230.53
Health (gym etc):  £75.73
Other Pet Stuff:  £29.08
Union fees:  £15.38
Learning Courses:  £14.99

Total:  £3,596.73/month.

So that leaves us with £3279.48 to play with each month.  We've been redoing much of the house over the past year so this has been going to that, but now that work's done, plus we have an extra £500 coming in per month from raises etc.

Savings

Santander 1-2-3 savings account:  £9119.18.  0.3% interest.
Premium Bonds:  £10000
Vanguard ISA:  £10869.08 (10.53% return thus far)
Nutmeg:  £2655 (24% return over various shares)
Hargreaves & London:  £318.49 (5% return over various shares)
Revolut:  £704.58 (15.66% return over various shares)

Total (the above + some bits and bobs elsewhere):  £33,778.26

Total pensions:  £70,166.61

Next Steps

Long story short:  I feel like our finances could be doing a lot more for us.  We've not had any real guidance on any of this, we've just followed our gut.

With our mortgage:  we could overpay up to roughly £2400/month with no penalty.

With the extra £ we've got:  should we be putting that towards the mortgage until it's fully paid down, before anything else?
Or should we be putting it further into the ISA?  My wife's not got one herself, the Vanguard's all me.

I hate having the £9000 in the 1-2-3 savings, with such low return.  Should we move more of that into the ISA or Premium Bonds, if we want it to be liquid savings?

Any expenses that stand out as surprisingly high?  

Thank you!

SaverRate

dgerrard said:

Hi all,

Not sure if this is allowed here, but:  I'd love to have you look at our household budget & tell us if there's anything glaring, either that we aren't doing and should be, or that we should stop doing.

General Situation
My wife & I live in SE London.  3 bed house, no kids, 1 cat.

We owe ~£288,000 on our mortgage (2% interest fixed for 5 years), and ~£15,000 on our car.

Income
After tax & pension contributions, we take home £6,876.21/month.

Expenses (per month)

Mortgage:  £1,753.01
Life Insurance:  £128.05
Home Insurance:  £25.79
Pet Insurance:  £24.54
Phone & Internet:  £20 (work covers most of this)
Gas & Electric:  £56
Water:  £32.39

Car: £767.50

Road Tax £13.56

Car Insurance £52.64

Petrol £100.00

Cleaning supplies:  £12.51
Council Tax:  £150
Entertainment (Netflix, Lottery, magazines etc):  £116.02
Groceries:  ~£230.53
Health (gym etc):  £75.73
Other Pet Stuff:  £29.08
Union fees:  £15.38
Learning Courses:  £14.99

Total:  £3,596.73/month.

So that leaves us with £3279.48 to play with each month.  We've been redoing much of the house over the past year so this has been going to that, but now that work's done, plus we have an extra £500 coming in per month from raises etc.

Savings

Santander 1-2-3 savings account:  £9119.18.  0.3% interest.
Premium Bonds:  £10000
Vanguard ISA:  £10869.08 (10.53% return thus far)
Nutmeg:  £2655 (24% return over various shares)
Hargreaves & London:  £318.49 (5% return over various shares)
Revolut:  £704.58 (15.66% return over various shares)

Total (the above + some bits and bobs elsewhere):  £33,778.26

Total pensions:  £70,166.61

Next Steps

Long story short:  I feel like our finances could be doing a lot more for us.  We've not had any real guidance on any of this, we've just followed our gut.

With our mortgage:  we could overpay up to roughly £2400/month with no penalty.

With the extra £ we've got:  should we be putting that towards the mortgage until it's fully paid down, before anything else?
Or should we be putting it further into the ISA?  My wife's not got one herself, the Vanguard's all me.

I hate having the £9000 in the 1-2-3 savings, with such low return.  Should we move more of that into the ISA or Premium Bonds, if we want it to be liquid savings?

Any expenses that stand out as surprisingly high?  

Thank you!

Life Insurance seems high but depending on age and amount that may be right? Did you get it via a broker?

Car also seems high. Is the car on finance? If so can you overpay on that?


Personally I would look at paying the car off first, then split between savings/investments and overpaying the mortgage.

eskbanker

dgerrard said:

After tax & pension contributions, we take home £6,876.21/month.

[...]

Total pensions:  £70,166.61

How old are you?  £70K across a couple's pensions when earning six figures (gross) is probably OK if you're, say, 25 but would be light if you're 40, so, depending on that and the nature of your pensions, it may be worth considering upping your contributions?

Albermarle

Regarding pensions , you can work on a ball park figure , that a pot of £100K will generate a lifetime income in retirement of £4K pa .
Another ball park figure is that you need two thirds of your income in employment for your retirement .
So if you currently earn £100K pa between you , then in simple terms you really need a pension pot ( between you ) of approx £1.7 Million when you retire to keep up a similar lifestyle . 
Now luckily the real picture is a bit better . When you are nearly 70 you will get state pensions of around £10K pa each .
Also if you work until you are 70 then you will have a lot more time to build up pensions, savings etc .
However if you want to retire say 10 years earlier then you really need to get working on building up those pension pots and taking advantage of the tax relief on contributions . Especially if either of you pays any higher rate tax and/or your employer operates salary sacrifice arrangement for pension contributions. 

Grumpy_chap

The OP does not appear to have said what age they are, but I'd be looking at paying down debt (highest first) and additional pension contribution.

Matt8888

This is one where asking strangers in the Internet is not really much use, not least because there is so much crucial information missing from your post, of which your ages is the most obvious. What you need to do next in my opinion is very simple: firstly, decide your goals. When do you want to retire, and on how much income? Do you intend to have children? Are you always likely to live in SE London etc? Once you have thought about this go and see at least one independent financial adviser and ask them the best way to make your money work to realise those goals. This is what these guys are trained for and paid for, so use them.

dgerrard

Hi all,

Thank you for all of your advice.

RE our ages:  I am 38, my wife is 32.

Point taken RE the independent financial adviser.  We have worked with one in the past but he's since retired & we've not found a suitable one since.

I guess my biggest question is:

Should I be bothering with putting additional money into the ISA or pension (outside of work salary-match contributions) at the moment?  Or should I be putting every spare penny I can into paying off the mortgage first (without incurring early payment dues), and then worry about ISAs & pension once the house is paid off?

I'm leaning towards the "pay off mortgage" option, but just in case things go sideways with the housing market, I'm wondering if I'd be smart to try & at least put 10k / year aside in ISA.

Appreciate that it would just be educated guesses without having a proper sitdown with us.

penners324

Pension....

Every possible penny. And look at what it's invested in....

penners324

As someone earlier said you £70k in your pensions, to have a similar lifestyle in retirement you'll need 10 or 20 times this amount.

Take your £10k a year of ISAs and put it in your pensions. And ensure the investment is correct for your risk level.

Why wouldn't you when it's basically the same as S&S ISA but with the tax added to it....

Albermarle

dgerrard said:

Hi all,

Thank you for all of your advice.

RE our ages:  I am 38, my wife is 32.

Point taken RE the independent financial adviser.  We have worked with one in the past but he's since retired & we've not found a suitable one since.

I guess my biggest question is:

Should I be bothering with putting additional money into the ISA or pension (outside of work salary-match contributions) at the moment?  Or should I be putting every spare penny I can into paying off the mortgage first (without incurring early payment dues), and then worry about ISAs & pension once the house is paid off?

I'm leaning towards the "pay off mortgage" option, but just in case things go sideways with the housing market, I'm wondering if I'd be smart to try & at least put 10k / year aside in ISA.

Appreciate that it would just be educated guesses without having a proper sitdown with us.

I think you need to reread some of of the answers .
The choice is between mortgage or pension , not an ISA. 
If it makes it easier to decide then use half of excess money to overpay mortgage and half to increase pension contributions 

Grumpy_chap

Albermarle said:

I think you need to reread some of of the answers .
The choice is between mortgage or pension , not an ISA. 
If it makes it easier to decide then use half of excess money to overpay mortgage and half to increase pension contributions 

I agree, but maybe refine the comment.

The OP needs sufficient cash to provide their emergency fund.  Probably 6-months combined income.  This could be in an ISA so long as enough is in instant access to cover any notice period with the ISA.  In fact, the way the £33k savings is spread looks to be reasonable mix of access versus return.

Then, the mix of pension or mortgage.  Given ages 32 and 38 with low total pension pot between them, I'd be prioritising the pension until they have used their annual allowances and then pay excess car / mortgage payments (whichever is higher interest).