# What to do with 200k savings that's currently sitting idle?



## Thinker (5 Jun 2019)

Age38Spouse (wife)39.Gross income80,000 PAYEGross income of spouse60,000 PAYEType of employmentIT Manager.Monthly take-home pay7800 (combined)Monthly outgoings6000 month including childcare, rent, petrol, car insurance etc.
This is higher than we'd like.Monthly Rent1,200.Saving per month1,400Savings204,734
(130,000 of which is in Australia).Investment PropertyYesValue of house220,000 (3 bed detached)Amount outstanding on your mortgage150,000
25 years remainingWhat interest rate are you paying?2.6 fixed 4 yearsRental income covering the mortgage..Other borrowingsNone.*Pension*Me25,000Spouse23,000Superannuation (Australia)110,000 (both).Ages of children:3 children
4 years, 2 years, 4 months..Life insurance:No. Looking at options at the moment

*Questions*

We believe we should keep the mortgage on the rental property as is, and just continue to pay that, and we dont intend to sell, but not opposed.
We would like to setup a home so planning on purchasing a house to live in long term. Costing roughly 500,000, so would mean a 400,000 mortgage.
We are also planning on putting regular savings into a savings/investment scheme for kids education fund, e.g Irish Life's Pinnacle.

*What would you recommend we do with our 200,000 savings?*
We're conscious that our savings is just sitting there, and over 1/2 still in Australia.

Some options include:
* Put savings towards new house (home)
* Purchasing an additional investment apartment use 75k savings and get mortgage for the rest. This would be in addition to a new house for us to live in.
* Leave as a rainy day fund. Looking at 25k for this?
* Other options

Thanks in advance.


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## moneymakeover (5 Jun 2019)

Seems obvious buy your home and put 200k towards it


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## noproblem (5 Jun 2019)

Over the next few years and more than likely the future long term interest rates on savings are going to be practically nothing which leaves you with State savings/post office certs as the obvious solution . The only other way is shares/funds and no guarantee there for your money . I would pay off most if not all of the mortgage and wouldn't touch a one off investment property with a barge pole. The reasons for not doing so are in enough forums all over the place for you to read, along with it being totally not worth it with the hassle and i'm being mild in using that word.


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## HollowKnight (5 Jun 2019)

I would use the money to reduce the amount you want to borrow for your next home.


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## Thinker (5 Jun 2019)

Thanks @noproblem and @moneymakeover and @HollowKnight 

So if an investment property is a bad idea, then putting money towards a home might be better in the long term due to savings made by not having to pay the interest over 25 years. And this perhaps is also a better option than long term savings?

If I've 200k and 150k was put towards a house (100 as 20% for 400k mortgage and 50 more to reduce mortgage) that would leave 50k. Perhaps 25k in savings that are accessible for rainy day fund and 25k in state savings/post office certs?

A concern I have in the back of my mind is that our Irish pensions are quite low, so the thought of an investment property would be to beef up this for when we turn 65, but maybe that's not a sensible approach?


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## gnf_ireland (6 Jun 2019)

@Thinker

I am in complete agreement with above. I would not consider a second investment property at this time. If you end up with a 400k mortgage on your PPR, you will have debts of 550k - nearly 4 times your current joint incomes.

I also think you need to realise you are in a very expensive stage of your life, about to purchase a house and high childcare bills. I think you should forego any major decisions like this until you at least come out of this stage, and potentially see what way the world economy is looking.

How comfortable are you that if either of you were let go tomorrow morning you would be able to get a new job at the same salary within 3 months ? How have salaries moved in your sector in the last decade - i.e. how subject to fluctuations during times of recession? 

Have either of you any ambitions to go back time or take 1 day parental leave at any point in the future? If so, you need to ensure you have the funds put aside to cover the reduction in salary.

Finally, the money in Australia - is it in AUD or EUR? If its in AUD and you are now settled in Ireland permanently, I would look to start bringing it home, at least in chunks to average out the exchange rate and not be subject to any potential fluctuation on that side. I know a few who were caught with GBP in the bank over a 10 year period when the rates dropped from 1.48 to below 1.2, because it was never the right time to bring it home !

If it was me, I would pay a 10% salary AVC into the pension fund for 2018, to give them a little boost costing 15k. I would put 30k into a rainy day fund (5 months expenses). I would then hold the rest in a demand savings account, waiting to purchase your PPR. 
I would get an 79% mortgage (LTV < 80%), and after I had the house refurnished etc, pay off any remainder against the mortgage. The interest rates are not high enough to warrant holding excess savings in cash.

Its also worth noting that the mortgage repayments on 400k over 25 years at 2.6% is 1814 euro - 615 higher than your current rental payments. This will reduce your current savings capacity once the house has been purchased to ~800 a month. Owning a house also comes with increased expenditure including mortgage protection insurance, house insurance, repairs etc, so it will eat into that as well.

Whatever you have left, you should either overpay your mortgage, increase your pension contributions or split between both ! There is little point in additional savings or investments given the low rates of return and/or high tax situations until your pension is decently funded and mortgage under control to handle any potential shocks along the way !


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## Pinkpanter (6 Jun 2019)

I would be worried about the exchange rate. It is moving against you at the moment. The economy in Australia is in for a bumpy ride.


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## Thinker (6 Jun 2019)

Thanks for all this fantastic and detailed feedback.

So what I'm reading is

*Investment Property*
We'll not consider this at this time.

*Mortgage*
400k mortgage will result in debts of 550k. Do you think that 4x joint incomes is pushing the boundary of recommended debt?
With respect to overpaying mortgages, I'll need to research this, but need to understand if theres anything that I'd need to do when selecting a mortgage to ensure that I can overpay.

*Parental Leave*
Yes, my wife is looking to possibly reduce down to 4 days in the future, so we would need to account for that reduction in salary. What's the most important considerations here?

*Rainy Day Fund*
We will look to maintaining a 30k rainy day fund.

*Money from Australia*
It sounds like I should move this back ASAP. I was waiting for a good time as mentioned, however possibly not a good approach. So I'll look at moving this as a priority.

*Savings*
It sounds like there's consensus that savings isn't going to yield much return so a 10% salary AVC might be something to explore. My concern (and I know it's shortsighted) is to ensure that we've enough of a rainy day fund and that 1. We're not spending more than earning and not eating into a rainy day fund.

*Kids Education Fund*
I'm still wondering the best approach for this. Is there a feeling as to whether an investment scheme like Irish Life's Pinnacle is a good approach? Or post office certs as suggested by @noproblem


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## WaterWater (6 Jun 2019)

Thinker said:


> *Parental Leave*
> Yes, my wife is looking to possibly reduce down to 4 days in the future, so we would need to account for that reduction in salary. What's the most important considerations here?


My wife turned 66 recently and just about qualified for a full State Pension.  I understand that the qualifying rules are set to change next year. I would look in to this to see if a 4 day week going forward will give her enough stamps to qualify for a full pension or will she need to sign on for some sort of "credit" to cover the 5th day.


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## RedOnion (6 Jun 2019)

Thinker said:


> *Kids Education Fund*
> I'm still wondering the best approach for this. Is there a feeling as to whether an investment scheme like Irish Life's Pinnacle is a good approach? Or post office certs as suggested by @noproblem


I used a life fund, and a bare trust structure so that the money is in my children's names immediately. Amount I put in falls under the small gifts exemption each year.

If I'm wealthy when they go to college, it'll be there's to do with as they please, with no tax due on the gift. But if it's needed for their education, it's there for them to pay their own way.

I've a 15+ year horizon, so it's invested in equities.


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## Thinker (6 Jun 2019)

WaterWater said:


> My wife turned 66 recently and just about qualified for a full State Pension.  I understand that the qualifying rules are set to change next year. I would look in to this to see if a 4 day week going forward will give her enough stamps to qualify for a full pension or will she need to sign on for some sort of "credit" to cover the 5th day.



I'll do my research on pensions as you're probably right, and I'm unsure what this means. Also not sure what you mean by 'credit'. We'd still have the Superannuation from Oz that we've built up but guessing this might be a pain to access and get back to Ireland.


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## gnf_ireland (11 Jun 2019)

Thinker said:


> I'll do my research on pensions as you're probably right, and I'm unsure what this means. Also not sure what you mean by 'credit'.


Not being funny here but its unlikely someone will decide for/against a 4 day week based on pension entitlements. Who knows what the state pension entitlement will be for OP when the time comes around in ~30 years time. Decisions to go to a 4 day week are around spending more time with kids and trying to achieve that elusive work/life balance and ensuring kids spend more time with parents rather than minders !!

But on a serious note, this will see a drop in salary by 20% (albeit at the higher tax rate), and unlikely to see a reduction in your childcare bill unless you are very lucky. This will need to be factored into any financial discussion. I would make sure you can live off the revised amount for a bit before making a final decision either way. School is approaching for one, and while it may be cheaper in theory, it does pose other challenges to families - especially around holiday time !


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## gnf_ireland (11 Jun 2019)

Thinker said:


> *Kids Education Fund*
> I'm still wondering the best approach for this. Is there a feeling as to whether an investment scheme like Irish Life's Pinnacle is a good approach? Or post office certs as suggested by @noproblem


A radical suggestion you might consider here is to see if you can clear your mortgage before the kids go to university and use your mortgage repayment amounts to fund their education... might work depending on the timeframe !


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