# Where to channel monthly surplus?



## 2blacklines (18 Aug 2019)

Age: 35
Spouse’s/Partner's age: 35

Annual gross income from employment or profession: 105,000
Annual gross income of spouse: 70,000

Monthly take-home pay: Approx 7,500

Type of employment: Both Private

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

Rough estimate of value of home: €600,000
Amount outstanding on your mortgage: ~€28,000 (over paying so will be gone by next summer)
*What interest rate are you paying? *3.7% (with 2% monthly cashback giving effective 2.3% rate)

Other borrowings – car loans/personal loans etc: None, trust fund for child @ €250/month each to capitalise on tax free gift allowance to provide for third level education/future house deposit. 

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card? 

Savings and investments: ~€30k

Do you have a pension scheme? Yes, approx 25% and 20% of respective salaries going into it in total. Pot is relatively small as only started in last 3 years.

Do you own any investment or other property? No

Ages of children: 1

Life insurance: Mortgage protection plus 4 times salary by employers. Also have income protection. 

*What specific question do you have or what issues are of concern to you?* 
We have always been very focused on paying down debt with a plan of being mortgage free. Due to this we have not really been investing in pension etc but will now max AVCs going forward. 

Now that the mortgage is nearly cleared and with AVCs maxed, we will still have a bit of surplus cash each month which we do not want to leave on deposit due to the poor interest rates on offer, so are seeking advice on how to manage our money going forward. As we have nothing urgent to save for, our target is to have maximum flexibility i.e. to be able to take a career break in the future / allow for illness etc. We would also like the option to retire early but appreciate that our low pension pot may not allow this to happen

Initial thoughts are to keep about €20k in a rainy day bank account (KBC Extra looks good) and invest approximately €3k in a managed fund each month to spread the stockmarket risk but would really welcome some advice as I've never ventured into this area. Originally I would have chosen to invest in a rental property but I do not feel the value is there at the moment and could do without the hassle!


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## Easel (19 Aug 2019)

Fair play on being in such a great financial state at 35

If I was in your position I would just clear the mortgage now and be done with it. With no mortgage debt you could easily support your family if one of you lost your jobs on either of your very good salaries.

I agree about the rental property. You have a young family and presumably busy jobs, not worth the hassle.

Is your current property your "forever home"? Will it need any major renovations/refurb in the short-medium term?


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## Laughahalla (19 Aug 2019)

Congratulations - You are well on the way to becoming multi-millionaire household.

*Sound like you are doing everything right already.* Staying away from debt is key.

Unless you really like the idea of owning a rental property i'd avoid it. There is easier way's to make your money work. Nothing wrong with owning rental property but it's not liquid and you run the risk of tenants not paying rent or destroying your asset.

Assuming everything stays the same with regards to income ; If I was in your position ...

I would pay off the house *this week* and be done with it.
Put away three months expenses away for a rainy day fund.
Put minimum of 15% of gross household income into pensions -
Put something away towards children's college expenses each month
Invest in mutual funds that have a track record of at least matching the S&P 500

Your wealth will grow massively due to compounding.
You will need the help of a financial planner at some stage in the future.

You can afford to take the foot off the pedal a bit so don't be afraid to enjoy yourself.


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## Bronte (19 Aug 2019)

2blacklines said:


> Other borrowings – car loans/personal loans etc: None, trust fund for child @ €250/month each to capitalise on tax free gift allowance to provide for third level education/future house deposit.



How does that trust fund work? Was it easy to set up and how did you do it.  

I think an investment property would be an excellent idea for you.  

Not sure if paying off the mortgage now is a good idea.  

Investing in your pensions is a good way to go.


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## Sarenco (19 Aug 2019)

I think you should keep doing what you are currently doing for the time being.

Once your mortgage is paid off in full, you could start buying 5-Year State Savings Certificates on a monthly basis with any surplus cash, while maintaining a 100% allocation to global equity funds within your respective pensions.

I think you should probably keep around €30k on deposit for emergencies.


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## Easel (19 Aug 2019)

Bronte said:


> How does that trust fund work? Was it easy to set up and how did you do it.
> 
> I think an investment property would be an excellent idea for you.
> 
> ...



They are maxed out with pensions and hold a considerable amount of their net worth in property already so I can't see how further investment in property is a good idea.


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## Zenith63 (19 Aug 2019)

Personally I would build up that €20k rainy-day fund a bit further, then put anything left over into the stock market.

Depends on how risk averse you are, but you could consider keeping that €20k in cash, build up a further €20k in State Savings (5 or 10 year products) where you'll get better returns than the bank, it's completely safe and accessible within a few days if required.

Then open an account with one of the online stock brokers (DeGiro would be quite reasonable for you buying ETFs on a monthly schedule) and buy broad ETFs with your savings each month, for example I buy the "iShares S&P 500 EUR Hedged UCITS ETF ACC" each month as it is in Euro and accumulates so no messing with dividends.  Yes you'll have to deal with the deemed disposal rule that everybody hates so much, but 8 years is a long time away and you can always pay an accountant to do the figures for you at the time if you're not comfortable - I would not let it hold you back from entering the market.


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## noproblem (19 Aug 2019)

2blacklines,
You have me completely bamboozled. How in the name of Adam, or whoever, did you get the mortgage down to 28k at 35 years of age? What age were you when you bought the house or has it just increased hugely in value to the €600,000.00 figure. Hard to believe one could pay off a huge mortgage like that in a few years unless something else was going on. Now don't take what i'm saying as critisism or anything, it's not, i'm just curious as to how it happened and I suppose curiosity comes into it as well.


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## 2blacklines (19 Aug 2019)

Thank you all for your replies!


Easel said:


> Is your current property your "forever home"? Will it need any major renovations/refurb in the short-medium term?


Definitely considering clearing the mortgage completely but want to have a little more in the rainy day fund first! Current home could be our forever home but we understand that a lot can change. We feel no compulsion to change any time soon but would consider if the market dropped in the future. House thankfully needs no work however we may consider an extension in a few years.


Laughahalla said:


> I would pay off the house *this week* and be done with it.
> Put away three months expenses away for a rainy day fund.
> Put minimum of 15% of gross household income into pensions -
> Put something away towards children's college expenses each month
> Invest in mutual funds that have a track record of at least matching the S&P 500


Thanks for the suggestions, similar thoughts to myself! Any suggestions for particular mutual funds to consider?


Bronte said:


> How does that trust fund work? Was it easy to set up and how did you do it.


I used a financial advisor for it - I didn't want to put money on deposit due to the poor returns.


Sarenco said:


> Once your mortgage is paid off in full, you could start buying 5-Year State Savings Certificates on a monthly basis with any surplus cash, while maintaining a 100% allocation to global equity funds within your respective pensions.


These are interesting, I didn't know about them, thanks I will look into them as a nice balance risk wise. 


Zenith63 said:


> Personally I would build up that €20k rainy-day fund a bit further, then put anything left over into the stock market.
> 
> Depends on how risk averse you are, but you could consider keeping that €20k in cash, build up a further €20k in State Savings (5 or 10 year products) where you'll get better returns than the bank, it's completely safe and accessible within a few days if required.
> 
> Then open an account with one of the online stock brokers (DeGiro would be quite reasonable for you buying ETFs on a monthly schedule) and buy broad ETFs with your savings each month, for example I buy the "iShares S&P 500 EUR Hedged UCITS ETF ACC" each month as it is in Euro and accumulates so no messing with dividends.  Yes you'll have to deal with the deemed disposal rule that everybody hates so much, but 8 years is a long time away and you can always pay an accountant to do the figures for you at the time if you're not comfortable - I would not let it hold you back from entering the market.


This advice looks in line with the general suggestions above and is really appreciated, thanks. 
I have a broad view on risk. I'm never going to be a day-trader, I'm happy to take a long term view on solid companies but considering that my pension is set to high-risk, I feel a low-to-moderate risk for my private investments is the way to go, especially to try an avoid having to pull my cash at a major loss point. An accumulating fund sounds exactly like what I need as I would only end up re-investing dividends anyway. 



noproblem said:


> 2blacklines,
> You have me completely bamboozled. How in the name of Adam, or whoever, did you get the mortgage down to 28k at 35 years of age? What age were you when you bought the house or has it just increased hugely in value to the €600,000.00 figure. Hard to believe one could pay off a huge mortgage like that in a few years unless something else was going on. Now don't take what i'm saying as critisism or anything, it's not, i'm just curious as to how it happened and I suppose curiosity comes into it as well.


Happy to provide a bit of context. There is about €120k of asset appreciation within the €600k figure over the last 5 years. I've saved since I hit the workforce, sacrificed my pension investments to this end but meant we didn't need a big mortgage - everything that's gone into the house etc has been our money. I've always valued money, so plenty of shopping around over the years for the best deal and never spending above my means. We've become a lot more casual with money in recent years which is nice now!


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## noproblem (19 Aug 2019)

All I can say is well done to have saved aprox €500,000.00 at your your age. I'm presuming you weren't earning big money earlier in your job and maybe no partner so didn't have the 2nd salary. That makes it even more spectacular.  It's still a WOW to me.


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## Laughahalla (19 Aug 2019)

"Any suggestions for particular mutual funds to consider?"

There is 1000's to choose from. Google best performing ETF's . If you are planning on investing alot then I suggest you take some advice from a financial planner (not advisor) . A good financial planner will pay for themselves.

No offence to financial advisors but alot are trained to sell specific products (on commission) and if you are really unlucky they will try sell you an insurance product like a whole life policy or something terrible like that.


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## Zenith63 (23 Aug 2019)

I wonder if it’s really any of our business how this person came to have the money they do? There are umpteen ways it could have happened, none of which concern us surely.


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## gnf_ireland (23 Aug 2019)

But @2blacklines to answer your question, and as I said kudos for being in the exceptionally strong position at such a young age

1. I would not pay off your mortgage straight away. I would wait and pay it down over the next 9 month or whatever the period is, and allow you formulate a plan in the meantime
2. I would stay away from property investment at this time. Its too regulated and unlikely you will have the time, or want the hassle of dealing with tenants
3. I would start by building up the 'rainy day fund' a bit more - maybe to 50k or so. 3-6 months living expenses is a good recommendation
4. I would then go on a massive blow-out holiday of a lifetime to reward yourself for all the hard work. Your child is young enough to make it still very possible, and will get a little tricky in a few years when the holidays all become about them
5. Are you planning any more children? Would you plan taking extended maternity/paternity leave in that case? Have you or your partner any plans to reduce to a 4 day week or part time? This is very important and worth considering in your financial planning
6. You say its a semi-forever home - ok, but remember its likely you will need to do something to it as you child/children get older as family needs change over time. Obviously depends on the house and a lot more factors !
7. What about upgrading cars etc - is that a consideration in the short term?
8. Once all that is catered for, I think you should consider how much risk you are willing to take and for how long? You have saved considerably with the goal of being debt free - and that is fantastic. What is next - do you want a holiday home in the sun, do you want to retire early, do you want to start your own business, do you want to sail around the world in a yacht? Or is it simply about wealth accumulation for the sake of it ?
9. If it was me (and I have been in a similar scenario a few years ago), we seriously looked at our lifestyle and my wife took the opportunity to go part time at work and spend more time with the family. Being (effectively) debt free allowed for big lifestyle changes to be made

Outside of that, I would suggest using 2020 to clear the mortgage, build up the cash reserves and go on a big holiday. Towards the end of 2020, go see a financial planner and discuss your plans for the future and proposed cash flow projections etc, and then make a decision on how to invest them (or not). How you do this really depends on what you want to do with the money, and if its just 'long term wealth accumulation' you should just how balanced your overall portfolio is including pension and property and make decisions from there.

Just remember, if both of you passed away in the morning, your child would inherit 170*4 + 30k + 600k =~1.3m and then hand over about 300k to the government in CAT as it stands. The more you grow, the larger this figure becomes.


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