The best use of a lump sum for a young family

D

dotTom

New Member
Messages
7
Hi Everyone,

I have been doing a bit of reading of the forum over the past few days but this is my first post. Hoping to get some thoughts/ opinions based on the details below. Any reaction would be greatly appreciated.

Many thanks
Tom


Personal details

Age: 35
Spouse’s/Partner's age: 35

Number and age of children: Two children (3 & 1) and 1 on the way (due Dec 2022)


Income and expenditure
Annual gross income from employment or profession: €98k
Annual gross income of spouse: €58k ish

Monthly take-home pay: €4,822 (or €7796 when both in full pay)

Type of employment: e.g. Civil Servant, self-employed: Full Time employee & Spuse: Teacher Primary School Teacher (currently on unpaid maternity, full pay due back Sep '22 to Aug '23)

In general are you:
(a) spending more than you earn, or
(b) saving?

When both working, mostly saving but at the moment on one and a partial income we are relatively balanced. However the savings we are making are for specific goals i.e. holiday fund/ car insurance rather than a long term/ rainy day fund.


Summary of Assets and Liabilities
Family home worth €420k with a €330k mortgage
Cash of €5k child allowance saved / €16k emergency fund (4 months expenses) / €120k from the sale of our first home.
Defined Contribution pension fund: Assume none for me as I have worked as a consultant and on a contractual basis for most of my employment post-college. Only 2 years of permanent pensionable role in that time. Have recently moved into a full time role however employer contribution is only 2%. My wife would have 10 years or so of a Teacher's pension scheme but value is unknown.



Family home mortgage information
Lender: Haven
Interest rate 2.85%
If fixed, what is the term remaining of the fixed rate? 3 Yr fixed ceases March 2023. Having spoken to them recently, have the option to break now and re-fix (5yr 2.55% 7yr 2.65% and 10yr 2.85%) - Need to make a decision on this.

Monthly repayments are €1270 and term left is 32.5 years.

Other borrowings – car loans/personal loans etc

No other debt.
We have a credit card which we use but pay off regularly throughout the month or next pay day.


Other information which might be relevant
Approximate monthly expenses (mortgage, food, fuel, disposable income, amounts below) = €5415 4 week month or €5883 5 week month
Life insurance: We have dual life insurance over 10 year term, pay out €500k per individual €48 p/m
Mortgage Protection: As required €32 p/m
Income Protection: Policies for both of us. Total €165 p/m
Family Health Insurance: €147 p/m
Car Insurance: €137 p/m
Car Tax: €69 p/m
Additional Savings: €100 Christmas €250 holiday fund

What specific question do you have or what issues are of concern to you?


Qs. What are our options to make best use of our lump sum of €120k which is currently sitting in an AIB savings account?

Life Context...
We will hopefully be a 3 child family at the end of this year
My wife will take a 2 year unpaid career break from Aug 2023 to August 2025 at which point she will likely be back in full time pay.
We are thinking of extending the house in 5 years time, we are in a 3 bed semi d and envisage it being a big job (2 storey extension). Not sure whether we would try to remortgage some and pay off some with partial lump sum or use lump sum as main repayment.

Recommendation to date
We have been recommended the Zurich Dynamic fund to auto-invest the lump sum over the next 6 months. 1.25% AMC and in addition, setting up a Savings plus account with Zurich for €500p/m contributions (101% allocation 1.25% AMC) using child allowance and topping up ourselves.

Are there better options for investment locations or better options for making use of the lump sum i.e. use some to pay down the mortgage now and keep some to invest long term? Or use all to invest in the shorter term should we need towards the house extension? Or any other recommended options e.g. pension etc

Any direction would be greatly appreciated.
Many thanks
Tom
 
In my opinion if you have an option to fix your mortgage at 2.85% for 10 years you should take it now while you still can.

If you are going to extend in 5 years, (why 5 years ?) I would keep the lump sum in cash.

Saving for car insurance cost €1644 pa ? With an income of nearly €160k this seems off.
 
Thanks cremegg.

We've been undecided as to when the best time to extend would be. I'd like to go now but costs are so high at the moment (not saying they'll come down in the future) and we've the 3rd on the way. 5 years we would start to hit school ages and may be more manageable.

May have overestimated car insurance based on monthly savings. must have added a cushion for potential increases/breathing room.

so Circa €1500;

Car 1 €630
Car 2 € 680 (not fully sure on this one)
Car 3 €190 vintage insurance)

Can I ask the rationale for keeping it in cash? and the impact of inflation?

Thanks
 
Last edited:
Start with some basics, ensure will, guardianship etc are all sorted out. Also, given your wife's unpaid leave, are you utilsing your tax credits to the max.

Secondly, you need to get your head around your pensions, should be easy enough on your wifes but if you did have 2 years contributions yourself, what is that worth, what is the transfer value, can you transfer it into your new one, etc etc. Once you know that, you might then consider using some of your lump sum as AVC's to give it a kick start
 
Peanuts20 said:
Start with some basics, ensure will, guardianship etc are all sorted out. Also, given your wife's unpaid leave, are you utilsing your tax credits to the max.

Secondly, you need to get your head around your pensions, should be easy enough on your wifes but if you did have 2 years contributions yourself, what is that worth, what is the transfer value, can you transfer it into your new one, etc etc. Once you know that, you might then consider using some of your lump sum as AVC's to give it a kick start
Click to expand...
Thanks Peanuts20.

I will look to confirm the value of both pensions.
 
dotTom said:
Thanks cremegg.

We've been undecided as to when the best time to extend would be. I'd like to go now but costs are so high at the moment (not saying they'll come down in the future) and we've the 3rd on the way. 5 years we would start to hit school ages and may be more manageable.

May have overestimated car insurance based on monthly savings. must have added a cushion for potential increases/breathing room.

so Circa €1500;

Car 1 €630
Car 2 € 680 (not fully sure on this one)
Car 3 €190 vintage insurance)

Can I ask the rationale for keeping it in cash? and the impact of inflation?

Thanks
Click to expand...
It is not that keeping it in cash is attractive but that a 5 year time horizon is a bit short to invest.
 
dotTom said:
Family home worth €420k with a €330k mortgage
Cash of €5k child allowance saved / €16k emergency fund (4 months expenses) / €120k from the sale of our first home.
Click to expand...

dotTom said:
Additional Savings: €100 Christmas €250 holiday fund
Click to expand...

You need to take an overview of things.

Having expensive borrowings and cash earning you nothing is not a good idea.

I don't understand your wife's income over the next few years. But if she is going to be on a full income from September next, then you will have two incomes and do not need an "emergency fund".

You might need to save money for the two years' unpaid leave. But if you do, you don't also need an emergency fund. And you don't need a holiday fund and a Christmas fund.

If your wife is taking 2 years' unpaid leave, I think you should leave the extension until after that when you will be able to see what your financial position is.

You probably need total spare cash of about €10k.

So pay €130k off your mortgage. That will reduce your mortgage payments by 1/3rd.

When you decide to extend your home, you will be able to get a mortgage top up easily enough.

Brendan
 
dotTom said:
Lender: Haven
Interest rate 2.85%
If fixed, what is the term remaining of the fixed rate? 3 Yr fixed ceases March 2023. Having spoken to them recently, have the option to break now and re-fix (5yr 2.55% 7yr 2.65% and 10yr 2.85%) - Need to make a decision on this.
Click to expand...

So you will have a €200k mortgage , which will qualify for you for a Loan to Value band of <50%.

You are paying a high price now for the cash back you got when you took out the mortgage with such an expensive lender.

Avant, would charge you 2.25% for 7 years or 2.4% for 10 years.

The problem is that rates may rise before you get all the paperwork through. I would still take that risk as it's important to be out of the clutches of such an expensive lender.

So start the application process to switch to Avant and maybe AIB at the same time. When you are ready to switch, check the actual rates. AIB might be easier to get a top-up from in 5 years.

Brendan
 
I would not put your savings towards the mortgage if you are planning to extend in 5 years. And you don’t want to go high risk in terms of investment unless you are happy with the risk, so there are not many saving options for a short time span like 5 years. But what if ye didn’t extend for 10 years?

I can see your argument in doing the extension now, kids are small, your wife will be on maternity leave, you will get a lot of benefit from it.

What would worry me is that your outgoings are higher than your income now that your wife is on unpaid leave and you are planning a 2 year career break after child no 3 which will add more expense. I would recommend using your childrens allowance each month for expenses related to the kids, clothes, shoes, nappies etc. You can decide to save for the future when you are both back in full time work. What will childcare costs be then?
 
Brendan Burgess said:
If you pay the €120k off your mortgage now instead of leaving it in a deposit account at 0%, you will save €16k interest over the next 5 years.

In other words, you will have an extra €16k in cash to put to the cost of your extension.

That is what you should do.

Brendan
Click to expand...
Hi Brendan,

Sincere thanks for the time taken to post your 3 responses and the clear recommendation. We discussed it over the weekend and can see how it makes sense, particularly for our upcoming circumstances.

In the short term it would definitely take the pressure off with such a reduced monthly mortgage payment.

If my wife goes back to work in a couple of years we'd hope to save a good portion of her income each month which we could put towards an extension.

Many thanks
Tom
 
Clamball said:
I would not put your savings towards the mortgage if you are planning to extend in 5 years. And you don’t want to go high risk in terms of investment unless you are happy with the risk, so there are not many saving options for a short time span like 5 years. But what if ye didn’t extend for 10 years?

I can see your argument in doing the extension now, kids are small, your wife will be on maternity leave, you will get a lot of benefit from it.

What would worry me is that your outgoings are higher than your income now that your wife is on unpaid leave and you are planning a 2 year career break after child no 3 which will add more expense. I would recommend using your childrens allowance each month for expenses related to the kids, clothes, shoes, nappies etc. You can decide to save for the future when you are both back in full time work. What will childcare costs be then?
Click to expand...
Thank you Clamball for your suggestion.

I think realistically the extension is such an unknown in terms of timing and cost. Something that should become clearer as the family grows but it's not an essential at the moment.

To your point, we're probably best off concentrating on the shorter term and our outgoings.

You're right, we have been under pressure with our higher outgoings recently and more to come. We've been focused on the longer term too with saving but probably not giving the attention to ensuring the present is more manageable.
 
You must log in or register to reply here.
Back
Top