# Young Family - How Best to Manage Finances



## Sean2020 (4 Feb 2020)

Hi there,

Having finally bought a house, we're looking at evaluating the best way to manage our finances in the short to medium term. We've (for right or wrong) delayed this until now to focus on saving for a deposit, so this is now all a bit new. Details as follows:

Age: 32
Spouse’s/Partner's age: 28

Annual gross income from employment or profession: 50k
Annual gross income of spouse: 15k 

Monthly take-home pay: 4k

Type of employment: e.g. Civil Servant, self-employed: PAYE Employee

In general are you: saving - difficult to get an idea of how much, but estimate about 1k per month. 


Rough estimate of value of home: 125k
Amount outstanding on your mortgage: 112k
*What interest rate are you paying? *2.9% fixed at 3 years - 35 year mortgage

Other borrowings – car loans/personal loans etc:  None

Do you pay off your full credit card balance each month? Yes

Savings and investments: 25k savings

Do you have a pension scheme? Yes, but just started. Contributing 5% matched by employer.

Do you own any investment or other property? No

Ages of children: 8, 3.5 and one on the way.

Life insurance: Mortgage protection only. 

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

Until now, we've just been putting away money to pay deposit and to show savings. We ended up buying a much lower value house than expected so have savings left, but will always be tipping away at house improvements. At the moment we have money sitting in savings doing nothing, which doesn't seem to best way to go. We'll be hitting college aged kids in about 10 years time and that'll likely continue (although staggered I guess) for 10 years or so. Looking for best thing to do right now to put our money to best use. From reading through similar experiences here, I feel like it'll be to find the best way to pay off as much mortgage as possible monthly, or pay maximum into pension but worth asking.


----------



## Alkers86 (5 Feb 2020)

Is your house a forever home or will you be looking to move again?
You need to do up an annual budget with you mortgage, bills, premiums, transport, holidays, groceries etc so you can see where you are in terms of your average monthly income and expenditure. Then you an decide what best to do with any surplus.
I'd separately do a rough cost estimates of any work you're planning to do on the house so you can see how this will impact on your savings,
You can put more into your pension and avail of tax relief on that up to a maximum of 20% (your contributions only) so that would be a good start if you have the €1k pm that you reckon,


----------



## Laughahalla (5 Feb 2020)

You have no consumer debt and a small mortgage. If you are wise you will keep it this way. You can't go too far wrong following the below steps in order

1)I would avoid debt like the Corona Virus.
2)Build three to six months of cash as an emergency fund that will could cover your basics if one or both of you lost your job,
3)15% of household  income into a pension
4) Savings account for children's education, a small bit each month
5) Any surplus pay off your house - 35 years seems way excessive. On a relatively small mortgage like you have it should be done in 15 years or less


----------



## Sean2020 (6 Feb 2020)

All good tips - thanks folks.

The home we're in now should be our forever home - no plans to change. I'll put together a budget and see where we are - thanks for this. 

Agreed that the duration of the mortgage is overkill. Our plan here (again whether right or wrong) was to pay as little as possible for the 1st few years while we were getting the house to a place we were happy with and then overpaying to reduce the length significantly.


----------



## Bangforbuck (16 Apr 2020)

Laughahalla said:


> You have no consumer debt and a small mortgage. If you are wise you will keep it this way. You can't go too far wrong following the below steps in order
> 
> 1)I would avoid debt like the Corona Virus.
> 2)Build three to six months of cash as an emergency fund that will could cover your basics if one or both of you lost your job,
> ...



Rather than putting money into a savings account for kids education does it not make more sense to pay off mortgage as early as possible?

I've heard it said often recently that putting kids education money into a savings account means it loses it's value and is not worth anywhere near as much by the time they go to college. You'd have to invest it. 

But if you clear the mortgage early before they get to college you would have spent less overall on mortage interest and with your mortgage cleared you can put the money you were paying towards your mortgage for their education now. 

That's what I switched to. Will clear my mortgage 3 years before my eldest goes to college and will have made a huge saving overall on the mortgage. 

Have I done the wrong thing?


----------



## RedOnion (16 Apr 2020)

Bangforbuck said:


> Have I done the wrong thing?


No. The interest savings on your early mortgage repayments are far greater than any risk adjusted after tax income you'd receive on savings. It's a psychological thing of having separate 'buckets' of money, but it makes zero financial sense to have savings and borrowings.


----------



## JamieV (17 Apr 2020)

RedOnion said:


> No. The interest savings on your early mortgage repayments are far greater than any risk adjusted after tax income you'd receive on savings. It's a psychological thing of having separate 'buckets' of money, but it makes zero financial sense to have savings and borrowings.





Bangforbuck said:


> Rather than putting money into a savings account for kids education does it not make more sense to pay off mortgage as early as possible?
> 
> I've heard it said often recently that putting kids education money into a savings account means it loses it's value and is not worth anywhere near as much by the time they go to college. You'd have to invest it.
> 
> ...



You could try something like this.
We added a few Euro to the childrens allowance from birth and invested that at the start of each year into ETFs.
After 18 years we should have plenty for education and then some.

example.
€150 per month after 18 years at growth of 4% should give you almost €50,000.
In practice after 7 years we are on track to double that target.  Also years 18 to 22 you will only be drawing out enough for college each year, so it should be even better return.
Down about from 8% from this time last year though, so there will be ups and downs you should be prepared for.


----------



## Clamball (17 Apr 2020)

I think I would start with a budget.  You are very lucky you have no debt and you are clearly living within your means which is brilliant so I would think you can do a budget pretty easily.   Then when you have your budget divide it into essentials (food, transport) & non essentials (gifts, entertainment) & frivolous.  But then look at your sections and decide what is good for your family and what you want to do or be.   Do you want the family to be into cycling or GAA, or surfing, or art or choir or whatever it is that you all enjoy and have an interest in.   So budget for that, buying gear, upgrading, travelling to events, planning holidays around it.  Move that to essentials, because it is essential for your family.   Look at your leisure time and budget for each family individual pursuits or decide together that a sun holiday once a year is essential etc and then move that to the essential budget pot.  Maybe it will be house repair and improvements and gardening, and the kids doing dance and soccer each week, it is so individual for each family.  

I would think if you do your budget like that there might not be a lot left for saving for college or putting the childrens allowance away but maybe the type of family life you have until the kids are 18 is more important. Maybe start telling them from a young age that you would love them to go to college but they need part time jobs, scholarships, etc and would need to fund it themselves. The future is hard to predict.

Having 3-6 months saving as a buffer for emergencies is a great idea but some short term, medium term and long term saving goals would be good as well, and i would not recommend all the goals be long term, retirement, or college education.  A mixture works.   The idea of shortening the term of your mortgage is well worthwhile, because small additional payments now will have a big impact on the end date.  But don’t ask the bank to reduce the term permanently even if you start to pay off more, because if your circumstances change you may be happy to pay what’s left over 35 years.


----------



## RedOnion (17 Apr 2020)

JamieV said:


> example.
> €150 per month after 18 years at growth of 4% should give you almost €50,000.


You'd have less than 40k. There's something called tax that you have to pay on the investment returns.

Or alternatively, pay 150 extra off your mortgage. Assume a rate of 2.5%, and your mortgage balance will be 40k lower. Risk free.

What you're suggesting is borrowing money at 2.5% (or whatever your mortgage is), to invest it, in the hope of making a taxable return.


----------



## Laughahalla (17 Apr 2020)

Bangforbuck said:


> Rather than putting money into a savings account for kids education does it not make more sense to pay off mortgage as early as possible?
> 
> I've heard it said often recently that putting kids education money into a savings account means it loses it's value and is not worth anywhere near as much by the time they go to college. You'd have to invest it.
> 
> ...



You are doing a great job, I would say you are way ahead of most people just by asking these questions and taking on board the varying advice. There is no one right answer.

Paying your mortgage off early gives a lot of satisfaction and freedom.

Trying to cash flow college expense from your wages might be difficult (or it could be easy) in ten years time. Nobody know's what they will be doing in 10 years time but 100 euro per month invested could take the sting out of paying for it when the time comes.

Everybody (most) will at some stage come to retirement age.

You can do a bit of everything in different ratios.  e.g. 2% of income into education savings, 15% of income into retirement saving i.e.  pension and some other percentage into paying off the house.

There is no one right answer but by doing / starting down this path you will be ahead of most people.


----------



## Bangforbuck (18 Apr 2020)

Laughahalla said:


> You are doing a great job, I would say you are way ahead of most people just by asking these questions and taking on board the varying advice. There is no one right answer.
> 
> Paying your mortgage off early gives a lot of satisfaction and freedom.
> 
> ...



Thanks all for the responses. Makes me feel far more reassured. 

I have been putting away my bonuses from work each year into company shares and also putting salary foregone of about 1500 extra towards shares also. Just to get the reduction in tax after the three years is up. I use this as my long term savings scheme. No savings scheme gives this good a return. I also have been putting in 8% toward pension on top of my companies contribution of 12%. Also putting away 200 a month towards medium term savings and another 100 a month into our rainy day fund. 

After bills, paying double my mortgage payment, all the savings I have said above, I'm left with very little for luxuries. But I wouldn't have it any other way. For too long I was careless with money and I feel far less anxious these days because of greater financial security. 

I have ways wondered though. Is it worth getting advice from an accountant to make sure you are getting the best out of your money and to ensure you are on track to reach your financial goals? Or is this something that only those on 100k+ salaries will be getting value for money from?


----------



## JamieV (20 Apr 2020)

RedOnion said:


> You'd have less than 40k. There's something called tax that you have to pay on the investment returns.
> 
> Or alternatively, pay 150 extra off your mortgage. Assume a rate of 2.5%, and your mortgage balance will be 40k lower. Risk free.
> 
> What you're suggesting is borrowing money at 2.5% (or whatever your mortgage is), to invest it, in the hope of making a taxable return.




There is a simple way to structure investing €150PM it so that you can earn over €2500 per year without paying any tax on it.  IUf you do earn over €2500 per year on it then im sure you wont mind paying tax on the excess  ) So tax is not an issue on investing just €150 per month. 

It works for me.  Paying €150 pm off the mortgage for 18 years is far inferior to putting it into equities for me.

OP make sure you work all the scenarios out properly yourself.  Only you can decide what is right for you.


----------



## RedOnion (20 Apr 2020)

JamieV said:


> There is a simple way to structure investing €150PM it so that you can earn over €2500 per year without paying any tax on it


Using capital gains exemptions for married couple? You said to use ETFs.

If you've a suggestion, can you outline it rather than talking in riddles?



JamieV said:


> It works for me. Paying €150 pm off the mortgage for 18 years is far inferior to putting it into


Inferior on a risk adjusted basis? Keep in mind you've a 0.8% tracker. The OP is paying 2.9% on their mortgage.


----------



## Leper (20 Apr 2020)

Normally, I don't read the "What should I do now with my money" threads as I never had an overflow of spare cash. But, Sean2020 sounds like an exact copy of me forty years ago. Two children and one on the way a job in the public service and a partner earning the additional income. 

My Advice:- For the moment put your life on hold. You will not have extra cash for quite some time to come. And when you do you probably will have more than 2 + 1 on the way. Primary education costs. Secondary education costs more. 3rd Level costs an astronomical amount.  There's your future in a sentence.

If Sean is lucky he will start to have some spare cash at age 59 (mortgage paid, term loans paid and an empty nest). Advice on how to use ETF's etc is bringing an ironic smile to Sean who is contemplating next week rather than 20 years hence.


----------



## Sean2020 (7 Jul 2020)

OP here - I (shamefully) didn't keep an eye on this after the initial set of messages, so thanks for all the replies since - lots of food for thought. We've since had baby number 3 so have been a bit wrapped up in the meantime


----------



## cremeegg (7 Jul 2020)

Sean2020 said:


> OP here - I (shamefully) didn't keep an eye on this after the initial set of messages, so thanks for all the replies since - lots of food for thought. We've since had baby number 3 so have been a bit wrapped up in the meantime



It was probably no harm that you didn't keep up with this, there was a lot of bad advice.

On a best return for least risk basis, paying down your mortgage is the best approach. You might get a better* after tax* return by investing in equities, but unlikely.

The only downside is that any money you pay off your mortgage cannot easily be gotten back again. With €25k in savings you aren't tied for cash, pay any excess off your mortgage. A 35 year mortgage is a maximum term and its great to have that flexibility if you need it, but a guaranteed 2.9% after tax return, with no effort, go for it.

Congratulations on the baby !


----------

