Unexpected £20k gift. What would you do?

hob_nob_bob

Hi,

I just received a very unexpected £20k gift from a relative, and I'm trying to get my thoughts in order on what I should do with it.

Bit of backstory, I have no debts - other than a £1,500 overdraft which I've just cleared with this payment - but I also do not have any savings (I did have, but they funded two stints of maternity leave for me in the last three years). I have a mortgage with my husband, I work 30 hours a week and have two infants in nursery.

I've just put £1k into a bit of an 'emergency' fund (I know I need to have more than this set aside, but it's just a starter), but I'm looking for input on what to do with the rest of it.

My very broad thoughts are -

1. I'd like to lock away probably £10k in a high-interest account, which I won't access.
2. I've also thought about putting another sum into another high-interest account and from there drip feed it in to monthly regular savers.
3. Open a saving's account for each of my two young children.

ETA that I've also thought about putting a lump sum on our mortgage. We're currently paying 1.91%, with our current deal due to end in November 2025. I'm very conscious we'll not get such a good rate again when we come to remortgage, so is it worth paying even maybe £5k off the mortgage as a lump sum?

What would you do? 

Thanks in advance!

AlanP_2

It may just be the way in which you have phrased things but I would start by saying that planning for "you" in isolation from the rest of the family unit can make things more difficult.

What is the overall situation as regards debt, pensions, savings etc?

I'm not saying don't have Independence and separate accounts etc. if that is what you want but look at the bigger picture when planning for the future.

You have given much information to be fair, like how much is the mortgage, how long left on it, plans to upsize / downsize etc.

In principle keeping some back to pay off the mortgage as you come to renew makes sense as you won't get such a good rate but probably no point doing it ahead of time, get it earning interest for a few months instead.

Emergency Fund - £1k is too low I would say with 2 young children but your OH may have some put aside? Ideal target is approx 6 months take home salary across the household, at least that's what we used to work on.

subjecttocontract

What would I do.....I'd probably blow it on a long break in the Seychelles.

hob_nob_bob

Thanks so much for your input!

My husband and I do keep our finances separate at the moment, although it's something I do want to consolidate for us - ie I'd love to have our income in one pot, we have our solo/joint savings and bills from that then split the rest, and really work together on joint financial goals. For now, though, this will be separate - my husband has his own pension pot and savings, although I'm not certain off the top of my head how much is in either of those pots for him. He is frugal and sensible with his money though - he's never been in debt and is for sure a saver. I'm very aware he and I need to have some proper sit-down conversations around finances, and how much we have and where.

During maternity leave I'd been putting the minimum 4% personal contributions into my pension pot, but as of next month this will be back up to 25%. A big jump, I know, but I can make it work financially and I'd like to 'catch up' from my three years of minimal contributions. Pre-maternity leave I was paying 21% into my pension.

In terms of housing, we currently have around £180k left on the mortgage, with a remaining term of just under 27 years. I'd absolutely love to reduce the term of our mortgage. We are currently overpaying by around £100 a month, but I'd really like to increase this now I'm not on maternity pay.

Totally agree that the emergency fund is too low. Would you put a larger sum from this gift I have into EF for now and then look at where to put the rest with what's remaining? 

PRAISETHESUN

Be careful if you're locking away money into fixed term/notice accounts. If you're planning for it to be your emergency fund then you might find you cannot access it in the event of an unexpected emergency! Ideally set aside enough to cover 3-6 months worth of expenses regardless of what else you do - keep these in a fully easy access account. Anything leftover you can then decide what to do with.

For putting money in savings, vs. overpaying the mortgage you'd need to compare the rates. Might not make any sense to save at 4% for example when the mortgage is 6+%.

Albermarle

Would you put a larger sum from this gift I have into EF for now and then look at where to put the rest with what's remaining?
Yes I would.
The good thing at the moment is that savings interest rates are quite good and above inflation. So by keeping your larger EF in an easy access savings account you can still be earning up to 5%.
As paying off some of your mortgage when the rate goes up in November is also an option, then you might as well keep this amount in the same easy access account.

1. Open a saving's account for each of my two young children.

As the children are young it is normally recommended to open an investment account rather than a savings account . Over 10 or 15 years it is very likely to produce a better return.
A Junior Stocks and Shares ISA, such as this one.
Junior ISA | Invest in a Junior Stocks and Shares ISA | Fidelity