Never have savings but now lump sum might be on way

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High Hopes 75

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Age: 43
Spouse’s/Partner's age: 45

Annual gross income from employment or profession: €67,000
Annual gross income of spouse: €39,000

Monthly take-home pay: €5,820

Type of employment: Self – private sector, Spouse – public sector

In general are you:
Just about breaking even on a whole.

Rough estimate of value of home: €400,000
Amount outstanding on your mortgage: €92,000, monthly repayment €1,000
What interest rate are you paying? Tracker 1.25%, approx. 9 years left.

Other borrowings – car loans/personal loans etc
Home improvement loan (APR 8.5%) - €6,500, monthly repayment €400
Car loan (APR 7.7%) - €15,000, monthly repayment €450

Do you pay off your full credit card balance each month? Usually, but still has balance since Christmas
If not, what is the balance on your credit card? €1,300

Savings and investments:
No savings at present – used small savings together with car loan to replace car following emergency situation.

Do you have a pension scheme? Yes
Self – 1.5 years in current job. Pay 8% of salary and employer pays 12% of salary into scheme. Awaiting annual statement.
Spouse – 1 year in current job. Pays pension levy.
Neither of us had pension before that.

Do you own any investment or other property?
Spouse has investment property co-owned with family member.
Rough estimate of value of home: €180,000
Amount outstanding on your mortgage: €57,000, monthly repayment €750

What interest rate are you paying? Tracker 1.25%, approx. 7 years left.
Rental income €600 p.m. with long-standing (excellent) tenants

Ages of children: 7, 10, 12

Life insurance: Three policies - €165k, €100k, €120k (first one linked to home mortgage). We both have death in service benefit through work. Self – 8 times salary while children are minors (4 times salary after). Spouse – usual public sector cover of 1.5 times salary). Both have benefit of illness cover through work also.

What specific question do you have or what issues are of concern to you?
We never seem to be able to build up any decent level of savings. We don't have flash cars, a trophy house, or much in the way of socialising. But we spend approx. €7k per annum on a family holiday. Last year was a bumper year for travel because we wanted to celebrate having steady work and income, so in total €12k was spent on holidays and trips abroad.

Building up some savings again is a priority once credit card bill is cleared. Will do this by setting up a monthly standing order for pay day to save €500 per month. Also, will stop using child benefit to cover emergencies and start saving it towards college expenses.

However the big question is what to do with a lump sum that’s hopefully coming our way in the next few months. Spouse’s investment property is likely to be sold as tenants have come into an inheritance and want to buy out as they are very settled there. Spouse’s share before CGT will be €80,000, but his tax bill won’t exceed €4k (based on very little “gain” on what they bought the house for originally). Looking for some recommendations on what is sensible to do with the €76k. We want to clear both loans, but after that we’re not sure. Might re-invest another €20k into an investment property with sibling again? Or would be better paying down our mortgage?
 
Clear the credit card this month.
Pay the 21.5k to clear the 2 high interest loans.
Put 3-6 months spending in an easily accessible account for a rainy day fund (see best buys section for best rates).

I would suggest that your pensions are underfunded so use a chunk of the remaining windfall to pay in the max AVCs for this year and last year.
Set up a standing order into a regular savings account to come out on the day you get paid.

Lastly, and most importantly, examine your monthly spending.
You have a disposable income of €4820 after your mortgage is paid which you seem to be burning through every month.
Even for a family of 5, that seems crazy high. If you don't know where it's going, keep a spending diary and be forensic about it. This is the key to your financial health in the long term.
 
This 80k is an opportunity to get your family finances back on track for the rest of your life. Whatever you do, do not take on debt ever again.
Spending 10% of your household income on holidays is excessive. Time to get serious about your finances as it looks like you're both are in new jobs(less than 2 years).This means that your family is in a vulnerable position financially if one or both of you lose your job.

Life insurance: I understand the life insurance for mortage but why buy life insurance if you have life insurance through work. No need to buy more if you have it through work already.

Do not reinvest this money until you are debt free. You owe €115,000 and if you lose your job(s) you will not have built up any redundancy payments.

As soon as the 80k comes in - The very same day do 1,2 ,3, 4, 5
1) Pay off Home inprovement loan 6.5k
2) Pay off your Credit card of 1.3k
3) Pay off your car loan of 15k
You now have an extra 1k in your pocket per month now that this 23k is paid off.
4 ) Put aside 3 months worth of expenses as an emergency fund ~approx. 12k
5 ) Put ~40k against your home mortage and aggressivley pay down the balance. With the extra 1k in your pocket you could pay off the remaining 50k of the mortgage in about 2 years.
6 ) Put at least 15% of your family income into pensions
7 ) Start putting some money away each month for your kids college education. You have 8 years before the first child will be at college age.

Consumer debt keeps families POOR.

Do yourself and your familiy a huge favour and tune into Dave Ramsey . He's on you tube and also has a podcast. He's a bit preachy but if you can see past that and follow his advice you will be on a good footing with regards to money management.
 
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Thanks both for the replies so far. That's amazing to think that if we put the balance against our mortgage, and then overpay aggressively, that we could be mortgage free in 2 years! I can't believe it! To be mortgage free at that age would be fantastic and something we would be very interested in.

I've been filling in an online spending tracker and I can see where a lot of the money goes - on absolutely nothing!

I'm going to keep a spending diary for the next 30 days to try and put some control on spending on "incidentals".
 
I think you need to start with a budget and a spending diary. As you say you normally clear the credit card I assume that current balance is just the Christmas hangover and you have a clear plan to clear it. Though I will say, it can awfully easily turn into a constant low level overrun so if you can avoid using it altogether that would be best (into an iceblock in the freezer with it!)

From your outline, you have listed the following monthly outgoings:
Mortgage 1: €1000
Mortgage 2: (750-600)/2 = €75 ??
Home Loan: €400
Car Loan: €450
------------------
Total: €2025

Take home income: €5820

Unaccounted spend: €3795

Obviously there are other expenses in your life (property tax, car tax, life insurance, house insurance, car insurance, electricity, waste collection, gas perhaps, mobile phones, broadband, netflix?, sky?, school expenses, sports/leisure expenses, fuel costs, food, clothing, holidays, etc) you are probably aware of them but I am not quite sure if you have a full view of them. You need to sit down and write out all of the regular expenses that you have, estimating those that vary and see where your money is going. Include everything, even the sneaky little things that you'd barely notice going out like bank charges. Write down the amount and whether or not it is an annual expense or a monthly one, and use that to calculate the actual monthly cost of your life. That will probably show you why you are constantly dipping in to emergency money, you are spending more than you think and annual expenses are probably not properly accounted for because they are not on your regular monthly radar.

When you have worked out your current budget, keeping a strict spending diary for a month (preferably) will help to validate your budget calculations. I'd start it straight away though, as it will inform your budget outline.

In terms of the potential windfall, that is an unknown out to the future. By the time it comes you will have pared back a little on your mortgage, your car loan and your home improvement loan. Clearing some of that debt would be useful. However, you probably need to consider your pension, even with such a generous employer contribution you are starting from a fairly low base at this point, the earlier you can get money into your pension the better the outcome.
 
Re Life Assurance, would you recommend we cancel the two non-mortgage associated policies?
I've just checked them: -
one is BOI Life cover of €100k each - costs €20.79 per month
the other is Zurich Life cover of €120k - costs €14.57 per month

The one tied to our mortgage is BOI Life cover of €145,000 (less cover than I thought it was) - costs €25.39 per month


@Brendan Burgess - a bit of both. Good timing for us to have some equity released and it suits spouse's sibling also. And also because the tenants really want it and have offered 20k over what it's worth- something we are unlikely to achieve again.
 
High Hopes 75 said:
Both have benefit of illness cover through work also
Click to expand...
For how long? I have illness benefit, but only for 26 weeks.
You are probably over covered for life, costing 60 per month, but what if something serious happened to one of you leaving you unable to work?
 
If your employers are paying your life insurance (probably connected to pension) then you are probably over insured and paying out monthly unessesarily.
 
Most of this advice is good.

Don't pay off the tracker early, put it into increased pension contributions if you can taking advantage of tax benefits. Over the long run a pension is almost certain to give you a better return than the 1.25% you are getting by paying off the tracker.

I think you are over-insured against death. Check into your illness cover carefully. Serious illness is far more likely than death in the next 20 years given your age profile, and being down to one income would be a heavy burden.
 
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