Couple, 30s, small mortgage, what best to do with monthly excess?

Age
Me: 38
Spouse: 37

Employment
Me: employed by spouse
Spouse: self-employed

Gross Income
Me: 25k
Spouse 25k
Rental Property 14k

Property
Family home: worth 300k, 70k variable mortgage with IIB @ 6.16% APR (as of Aug 08), 15 years left on mortgage
Rental Property: worth 400k, no mortgage
Holiday Home: outside Ireland, worth 80k, no mortgage

Other Borrowings: None. 1 credit card paid in full each month

Savings
4k in EBS Optimise savings account @ 3.25% over ECB. We pay 2k per month into this account
13k built up between our two current accounts

Pension: No

Kids: No, IVF may be necessary

Life Insurance: Just Spouse's mortgage protection policy

Spender or Saver: Savers

My Question/s: While life has become very comfortable in the last 2 years, most of my life I have struggled financially and this has left me with a great fear for my future finances. The fact that we don't have pensions worries me greatly.

After mortgage and living expenses and luxuries like hols and shopping sprees, we have 2.5k left each month. I don't know what is the best thing to do with this excess. Currently we're stashing it away in our EBS savings account. This will be used to overpay the mortgage at the end of each year, assuming no emergencies crop up!
Would we be better paying some of this 2.5k into a pension? (We're both on the lower tax rate).
If we use it all to overpay the mortgage, our mortgage will be paid off in under 2 years. What should we then do with the excess 30k a year? Should we put it into a pension fund or should we keep putting it into a savings account considering we're both on the lower tax rate?

I know a lot of people will look at my profile and think I have nothing to worry about, but after a lifetime of struggling to make ends meet, I want to ensure that I never have to go back to that again.

Property
Family home: worth 300k, 70k variable mortgage with IIB @ 6.16% APR (as of Aug 08), 15 years left on mortgage
Rental Property: worth 400k, no mortgage
Holiday Home: outside Ireland, worth 80k, no mortgage







Wow, How did you manage this on 25k each per year.Please share

Worrier said:

Property
Family home: worth 300k, 70k variable mortgage with IIB @ 6.16% APR (as of Aug 08), 15 years left on mortgage

Click to expand...

That's what immediately jumps out at me.

6.16% when you have a LTV of ~25% on your mortgage is robbery.

Take a look at the NIB site and you might be able to shave 1% of that ([broken link removed]).

At your age, starting a pension is definitely a good idea. You can either go the PRSA route (no stock market exposure) or an equity based route. I'm not a expert, but now should be a good time to start an equity based pension. You should be able to get tax relief at the marginal rate (20% income +6% prsi). Do not trust a bank for best advice on selecting a pension. I'm sure that some folks here could probably suggest some low-fee pensions that you could look into.

One thing you appear to be missing is income protection. I have no knowledge of your company or industry so these are fairly basic broad questions:

Ask yourself these questions:

1. If you or your husband get Ill and need time off work how will that affect the business or your income flow?

When you are self employed you have to remember that if you are off work you do not get any social welfare payments (alot of people dont realise this). Income replacement can be a tax efficient way of covering yourself in the event of Illness or injury during work.

2. If you or your spouse died how would that affect your company or your life?

You should consider taking out Keyman insurance or life assurance. In essence they are the same things in your case as your spouse is your employer but the idea is if one of you dies a lump sum is paid out to you (or the business) to counteract any negative side effects to the loss.

3. When do you plan on retiring and what do you plan to use as your replacement income?

You have mentioned it above, A Pension is a good tax efficient way of saving money for your retirement and inevitable drop in wages.

These are three basic questions that people should all be asking themselves when considering their finances. Both 1 & 3 have certain tax relief advantages.

Remember, your Pension is vital to fund for but you need to prioritise the needs of the family which is why the usual format (given your details) would be to make sure you have:

1. Life Assurance or Keymany Assurance
2. PHI or Income replacement
3. Pension

Try thinking of it this way, If something bad happens to your or your spouse tomorrow your Pension wont really protect you against the impact of this loss.

I did a quick search based on your mortgage details and got a rate of 5.11% APR from AIB which comes to €462 per month.

I would advise talking to your accountant (assume you have one) and either do some research yourself for a financial advisor or ask your accountant to recommend one.

Hi Worrier,

You have obviously worked hard to have achieved what you have at your stage in life. Other than refinancing the mortgage on your home and starting a pension which some posters have suggested there isn't really a lot of advice anyone can give you that you may not have yourself, you obviously have financial acumen. Possibly you are at a crossroads in other aspects of your life such as decided whether to start a family and the changes that may bring about or are looking to move in another direction in business or with your life, maybe look into something that you have a lot of interest in and find a business in that field to invest in?

M

Worrier, if you look at your mortgage interest and savings interest, u r inturn losing money on your savings... look around for a better mortgage deal or pay off your mortgage early with your savings rather than paying higher interest rate....

what about rabo direct have you checked them out for your savings and you can defo get a better deal on your mortgage with someone else