What to do with £50k?

[watchstudent]

That is my pot of savings. I have been meaning to do something more sensible than keeping it in a cash ISA earning next to nothing for over a year but just haven't got round to it (I know , I know, stupid). But with inflation now going up it seems I really do need to put it to use or it will quickly start evaporating. I have no experience with investing or anything so just wondering what others might suggest?

Some context:
I'm 31

Other than my mortgage and student loan I don't have any debt. We have about 190k left on our mortgage, house is worth about 320k now I'd guess.

I am having a little change in direction career wise which means a short term pay cut. Next year I will be on £40k, this should go up steadily over next 5 years to about 65k, then all being well will jump to 85k-ish in about 6 years.

I haven't considered pensions very much as I work in the NHS and wife is a teacher and so hopefully our pensions should take care of themselves.

Partner is on about 37k but we are soon to have our first child and she will be taking a year of mat leave so she will earn next to nothing for about 6 months.

The 50k doesn't include about 15k I have put aside for a new kitchen.

I would like a rainy day fund - maybe 20k? Would premium bonds be a sensible place to put this?

So that leaves 30k. S&S ISA index tracker and forget about it? Any other thoughts?

With the kid on the way and my pay cut plus the mat leave I don't think we will be saving much for a couple of years.

Financial aims? Mostly just staying out of trouble! We would like a bigger house - although I think the main thing for that is just getting a higher salary. We will probably look to move in 5 years or so. I like the idea of being able to invest in something that can pay me back some money, getting a buy-to-let springs to mind although I hear that is not what it used to be. I don't particularly want to need to work after 60, I would like the choice!

Any thoughts much appreciated. I always think this forum can be a treasure trove of good life advice!

[Devonian]

Any answer here will be limited as we don’t know you so therefore it will be very generic.

Most important aspect I guess is risk - what do you understand about risk and how much are you prepared to take? Generally the higher the risk the higher the reward, but also the higher the potential loss. Also ‘capacity for loss’ - can you actually afford to lose your money?

An easy was to look at risk is to give 3 options and see what you are comfortable with. Assume you have £100,000 to invest, which suits you most:

A. Could be worth £120,000 in a year, but if it does badly, could be worth £80,000.

B. £110,000 or down to £90,000.

C. £103,000 or down to £97,000.

These are random figures but for good growth, you have to be able to stomach the losses. If you can’t, you need to stick to deposit based savings without loss of capital. Inflation means that the real value will be eroded severely in this current time, but for some the security is more important.

Premium bond averages are rising to 1.4% for people with typical luck so not too bad as the capital is safe.

You could overpay on the mortgage depending on your rate. If the rate is low you may find that you can get a better return elsewhere. If not maybe a good idea. Keep the payments the same and reduce the term maybe?

If you decide the stock market route, personally I’d drip feed in right now as there’s so much uncertainty on a global level. Yes you could put it all in and do very well, but there may be more hardship to come. No one can answer that, which goes back to my first points of understanding risk and capacity for loss.

Your pensions should be good so not an immediate priority.

Make sure your incomes are protected in the event of illness or death.

Keeping back £20,000 is very sensible.

FWIW if I was in your situation I’d probably be a bit boring and cautious right now and spread it 3 ways - £20,000 emergency, £15,000 lump sum off the mortgage and keep the payments the same to reduce the term and £1,250 per month spread over a couple of funds for the next year to drip feed into the stock market.

[watchstudent]

FWIW if I was in your situation I’d probably be a bit boring and cautious right now and spread it 3 ways - £20,000 emergency, £15,000 lump sum off the mortgage and keep the payments the same to reduce the term and £1,250 per month spread over a couple of funds for the next year to drip feed into the stock market.

This was pretty much the tactic I think I was likely to go for. Overpaying on the mortgage has been my main savings route over the last 5 years or so.

[chrisparker]

Depends on where you live but I’d put it into a deposit for a rental property, and let someone else cover the mortgage payments for 25 years.

[xellos99]

private pensions.

i think my aunty was on about the same as you and retired at 40 lol. Her husband had a good job also though.

[watchstudent]

private pensions.

i think my aunty was on about the same as you and retired at 40 lol. Her husband had a good job also though.

not entirely sure I am following there!

[Mick P]

Golden rule of affluence is to clear your mortgage and then play about with savings afterward. Living in a house that you don't owe a penny on is a very comforting feeling. Going from a debt of £190k down to £140K is a move in the right direction.

[Bondurant]

I wouldn't say that's correct at the moment Mick. Mortgages are the cheapest they've ever been (though going up now obviously).

EDIT I'd consider thinking about things along the lines that Devonian details.

EDIT#2 Coke and hookers.

[Boss13]

Just waiting for the 'coke and ...' replies

[Omegary]

You could always follow the example set by W.C. Fields.

“I spent half my money on gambling, alcohol and wild women. The other half I wasted.”

Cheers,
Gary

[Dr.f]

Or to paraphrase George Best, “ I spent my money on women and cars ,the rest I just squandered “

[wileeeeeey]

One thing to think about re how much to put on the mortgage would how soon you can remortgage and what LTV rate you’re on the verge of tipping into.

[Mick P]

I wouldn't say that's correct at the moment Mick. Mortgages are the cheapest they've ever been (though going up now obviously).

EDIT I'd consider thinking about things along the lines that Devonian details.

EDIT#2 Coke and hookers.

Back in the 1970s and 1980s young people loaded themselves with mortgages because as you have implied it made good sense to borrow at a rate below inflation.

The problem was that they lived from hand to mouth living in their expensive houses.

[Toshk]

What do they call you again? Babyboomers or something…

[noTAGlove]

Golden rule of affluence is to clear your mortgage.

Not true if you can make a better return by investing the money you would have spent paying off your mortgage. Mortgage is the cheapest borrowing you can get.

Between 2010 and 2021 you would have been far more affluent if you had invested in stocks rather than paying off your mortgage.

More difficult to do now

[RustyBin5]

Anything but crypto

[hansblix2001]

Re investments, premium bonds are safe but unlikely to beat inflation, same for any savings account at the moment.

A decent tracker fund is a probably a good idea but over a long time (at least 5 years) and you might want to look into a fund with more bonds than shares in the mix for a bit of stability (they should have a risk rating to give you an idea of possible returns and losses). Have a look somewhere like Vanguard, often passive funds return a similar amount as any managed fund and are cheaper.

I’d avoid buy to let as an investment at the moment due to increasing interest rates and reduced yield but if you buy sensibly with a good LTV it might work out long term.

Overall though, you should maybe get some full advice from a decent financial adviser.

[Mick P]

What do they call you again? Babyboomers or something…

Yes they call us that and rightly so, we were the luckiest generation ever. We never fought in a war, found it easy to buy a house which rocketed in value afterwards and we all enjoy retiring on good fat pensions after a lifetime of nearly full employment.

[g40steve]

Not true if you can make a better return by investing the money you would have spent paying off your mortgage. Mortgage is the cheapest borrowing you can get.

Between 2010 and 2021 you would have been far more affluent if you had invested in stocks rather than paying off your mortgage.

More difficult to do now

Not relevant here all stocks have tanked & markets are spooked, he could lose 15% if had gone into markets this year?

OP mentions baby on the way so probably one wage for a year, pay chunk off mortgage & keep the rest in Chase & P Bonds for easy access.

[Christian]

Golden rule of affluence is to clear your mortgage and then play about with savings afterward. Living in a house that you don't owe a penny on is a very comforting feeling. Going from a debt of £190k down to £140K is a move in the right direction.

Might have been the case when interest rate was 10%+ back in the 80s and history might repeat itself but in present day there will be plenty of people on less than 1.5% fixed...and you can now achieve that APR in some current accounts. Makes no sense to pay down a sub-1.5% mortgage...there are smarter ways to sit on your savings, have instant access should you need it and be ready to pay the mortgage down if the fixed period ends and interest rates have shot up. So the answer to the mortgage question depends on OPs rate and if it is fixed.

My experience with Premium Bonds over many years is pretty average. I think you'd be better sticking the £20k in an FSCS protected current account like Chase that pays 1.5% APR guaranteed. I've probably just about achieved the same income from premium bonds that I would have had in a current account. If you really want the thrill of a draw use a couple of quid of the interest to buy a lottery ticket each week.

[markbannister]

Talk to trusted financial advisor and don't listen to the WIS??

[Mick P]

Talk to trusted financial advisor and don't listen to the WIS??

That is the best advice without doubt.

However to answer Christians point, I agree it does not make sense to pay down a low interest mortgage, however if rates go up, and remember interest rates get raised to curb inflation, the mortgage payments will rocket, so looking long term I still say reducing the mortgage is the best long term solution.

[bambam]

There is something psychological about paying down a mortgage that gives you a warm feeling that many other options don’t give you.

[Ivan Drago]

That is my pot of savings. I have been meaning to do something more sensible than keeping it in a cash ISA earning next to nothing for over a year but just haven't got round to it (I know , I know, stupid). But with inflation now going up it seems I really do need to put it to use or it will quickly start evaporating. I have no experience with investing or anything so just wondering what others might suggest?

Some context:
I'm 31

Other than my mortgage and student loan I don't have any debt. We have about 190k left on our mortgage, house is worth about 320k now I'd guess.

I am having a little change in direction career wise which means a short term pay cut. Next year I will be on £40k, this should go up steadily over next 5 years to about 65k, then all being well will jump to 85k-ish in about 6 years.

I haven't considered pensions very much as I work in the NHS and wife is a teacher and so hopefully our pensions should take care of themselves.

Partner is on about 37k but we are soon to have our first child and she will be taking a year of mat leave so she will earn next to nothing for about 6 months.

The 50k doesn't include about 15k I have put aside for a new kitchen.

I would like a rainy day fund - maybe 20k? Would premium bonds be a sensible place to put this?

So that leaves 30k. S&S ISA index tracker and forget about it? Any other thoughts?

With the kid on the way and my pay cut plus the mat leave I don't think we will be saving much for a couple of years.

Financial aims? Mostly just staying out of trouble! We would like a bigger house - although I think the main thing for that is just getting a higher salary. We will probably look to move in 5 years or so. I like the idea of being able to invest in something that can pay me back some money, getting a buy-to-let springs to mind although I hear that is not what it used to be. I don't particularly want to need to work after 60, I would like the choice!

Any thoughts much appreciated. I always think this forum can be a treasure trove of good life advice!

How have you managed to save 50k on a 40k salary ?


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[wileeeeeey]

How have you managed to save 50k on a 40k salary ?


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The guy has been open enough.

[lewie]

There is something psychological about paying down a mortgage that gives you a warm feeling that many other options don’t give you.

Agreed

[Berty234]

No one going to suggest buying a load of watches?! :)

[eagletower]

If it were I’d still buy rental property. Paying down your mortgage isn’t going to make a huge difference per month. Eg if you have a 25 year term and 2% rate , instead of paying £800 pcm you’d be paying £600.

I know it’s not as lucrative anymore , but the returns plus capital appreciation are there. With £50k you could buy two house up to £100k each , spread your risk over two.

That’s personally what I would do. Good luck!

[watchstudent]

How have you managed to save 50k on a 40k salary ?


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As I said in the original post. The 40k is my current salary because of a bit of a career change that has put me back in terms of salary but hopefully should stop me from hating my job!

I have in the past earned more plus a lump sum when I left the military.

[lewie]

. With £50k you could buy two house up to £100k each

In the UK?

[Rodder]

Depends on where you live but I’d put it into a deposit for a rental property, and let someone else cover the mortgage payments for 25 years.

I think you’d be mad to get into the rental game now. No fault evictions are ceasing, things are going to get tough for landlords (even more so).

Out of interest what are moving to career wise?

[Rodder]

Not relevant here all stocks have tanked & markets are spooked, he could lose 15% if had gone into markets this year?

OP mentions baby on the way so probably one wage for a year, pay chunk off mortgage & keep the rest in Chase & P Bonds for easy access.

And that’s without 11% inflation. He could easily be 25% down over the year. Paying off mortgage feels sensible at the moment

[Rodder]

How have you managed to save 50k on a 40k salary ?


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4k a year with a little compound interest?

[Kitz]

I wonder how many financial advisers can put their hands on 50k ..


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[eagletower]

In the UK?

Yes

[lewie]

Yes

Lucky to get a garage here for £100k

[eagletower]

Lucky to get a garage here for £100k

I live in North london, but have rentals from
Belfast to Sheffield . Besides a flat I once lived in , and my home I don’t buy in London, yield is poor and not worth the headache. I’ve found the cheaper properties have given me my best return.

[Yeti]

Lucky to get a garage here for £100k

I rent lock up garages for a living. Earlier this year I bought two garages side by side for £50k. They are rented for £150 and £160 per month. I don’t normally pay £25k each for a garage as being in the trade I like to buy a lot cheaper IF possible. I bought these as I own another 10 on the same site. Decent south east London area. So £50k outlay, £310 per month income.
I much prefer garages over residential flats/houses etc. I’m signed up to various landlord newsletters having dabbled in the past and what I saw last week with the new rules coming into effect from government soon couldn’t cement my thinking any further. In life simple deals make simple profits. Anyhow, food for thought for you!

Edit to add my yield is about 7.5% yield per year. Garages are creeping up in value very nicely as well so room for capital growth as well.

[wileeeeeey]

I live in North london, but have rentals from
Belfast to Sheffield . Besides a flat I once lived in , and my home I don’t buy in London, yield is poor and not worth the headache. I’ve found the cheaper properties have given me my best return.

Interesting. I’m not far from you and have been looking at BTLs for a while now but can’t stomach 300k on a one bed but equally don’t want to be driving an hour or more for a broken washing machine.

Do you rent yours fully managed? What type of properties do you usually go for, house/flat, purpose built/conversion?

[Boss13]

I rent lock up garages for a living. Earlier this year I bought two garages side by side for £50k. They are rented for £150 and £160 per month. I don’t normally pay £25k each for a garage as being in the trade I like to buy a lot cheaper IF possible. I bought these as I own another 10 on the same site. Decent south east London area. So £50k outlay, £310 per month income.
I much prefer garages over residential flats/houses etc. I’m signed up to various landlord newsletters having dabbled in the past and what I saw last week with the new rules coming into effect from government soon couldn’t cement my thinking any further. In life simple deals make simple profits. Anyhow, food for thought for you!

Edit to add my yield is about 7.5% yield per year. Garages are creeping up in value very nicely as well so room for capital growth as well.

Can you finance these purchases or you need to pay cash?

Followed with interest some of your posts in the past about letting out garages, an interesting business model.

[eagletower]

Interesting. I’m not far from you and have been looking at BTLs for a while now but can’t stomach 300k on a one bed but equally don’t want to be driving an hour or more for a broken washing machine.

Do you rent yours fully managed? What type of properties do you usually go for, house/flat, purpose built/conversion?

Hi wileeeeey

I’ll drop you a PM

[J J Carter]

You're both in public sector jobs, there's negligible risk of redundancy which is what puts the skids under people's finances.

At 31, I'd say you can take a longer view and go higher risk than a FTSE100 tracker. That said, lump sum investment of any sort loses the advantage of pound cost averaging from regular investment and increase the risk of buying-in just before a dip.

You should be keeping the equivalent of 3 months salaries in cash as your emergency fund. I assume you're all sorted for life assurances policies, wills made etc.

AN option would be to pay off mortgage capital if you can do so without penalty. Then 'ring fence' the monthly savings to pay 50:50 into

1) A stocks and shares Junior ISA opened in the name of the baby, which holds a FTSE100 tracker

2) A stocks and shares ISA which holds an investment trust that is higher risk such as internet/computer stocks.

[luckyhands]

I'm a similar age to you. This is what I did:
Remortage by house/flat - mortgages have never been cheaper.
Filled my LISA/ISA and SIPPs with shares. They've take a massive tumble but it doesn't phase me as I'm young enough for me to take risks.
Personally I would avoid investing in property - I want my investments to be passive as I don't have the time to maintain them.

[M1011]

Golden rule of affluence is to clear your mortgage and then play about with savings afterward. Living in a house that you don't owe a penny on is a very comforting feeling. Going from a debt of £190k down to £140K is a move in the right direction.

I was paying down my mortgage in pretty sizeable lump sums (no fee for early repayment so long as it's not in full), but then the penny dropped that my fixed rate mortgage can be ported to another property without any penalty and I can't get a rate like that anymore at any LTV due to the base rate bumps. So in effect if we upsize in the near future, which we may, we'll effectively borrow back money we repaid early at a worse rate. Meanwhile, we can pretty much match our current mortgage rate with super safe savings like premium bonds.

I only say this to emphasise that paying off mortgages may not be the best choice for anyone who intends to take on additional mortgage debt in the not-distant future.

[Derrils]

Buy bitcoin?

[dickbrowne]

Buy an MX5? Almost fill it with petrol?

Being serious, my focus in my early 30’s was debt reduction and now, I’m my mid-50’s, I can see the benefits.

It depends on your view of short-termism. I’m a long game guy and very risk averse but would always reduce debt over a high-risk investment (even with potential high rewards).

The storm is deffo coming, I’d look at your overall picture and see how you could ride the worst case scenarios out, especially with a family on the horizon.