How much for rainy days ?

H

hakouna

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Hi

Thinking of my 50K saving , how to best use/invest them . I am 45 , married with 2 young kids . Just bought a family home ( 25 yrs mortgage) while having an investment property that has 4 years to be fully paid . Both Professional and partner is working part time .

With little or no experience in share trading , I would like to invest part of my savings in stock market , my company is offering employees share with 15% discount .

My question is , how much of the 50K I should leave for rainy days and would it be a good idea to start using the company option of discounted share ?

Any advise is greatly appreciated .

Thanks in advance
hak
 
Hak, I'm pretty sure that when the experts here respond, they will ask what the interest rate is on the property borrowings - why invest in an unguaranteed return when you could save a guaranteed x.x% p.a. by repaying existing borrowings?
As for rainy day funds, there is no fixed rule but sufficient funds to meeting six months of outgoings would be a starter... probably higher for people with more long-term borrowings.
 
hakouna said:
my company is offering employees share with 15% discount .
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Many multi-national companies offer share purchase schemes that allow you to buy shares out of pre-tax salary, once you hold the shares for 3 years. This provides a discount of much more than 15%, and is often a no-brainer, if your companies shares are reasonably stable.
 
As you have just bought a family home, it means that you are paying a high mortgage rate - probably around 4% depending on the loan to value.

Your priority should be to reduce your mortgage debt as you are getting the equivalent of a guaranteed after tax return of 4% on your money.

Lenders such as KBC and AIB have much lower rates for lower Loan to Values, so you could get a much lower rate on your entire mortgage by paying it off your mortgage.

What rate are you paying on the investment property? Given that you are getting tax relief on 75% of the investment property interest and no tax relief on the home mortgage, it's likely that paying down the home loan is better. But you need to check.

By paying off your mortgage, you are going to have lower repayments. You appear to have a good income. You don't really need much in the way of a rainy day fund. Maybe €5k.
 
hakouna said:
With little or no experience in share trading , I would like to invest part of my savings in stock market , my company is offering employees share with 15% discount .
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Can you buy them today at 85 and sell them tomorrow for 100? If so, that is what you should do.

Check out Rainyday's suggestion of a tax based share scheme. If that exists you should take maximum advantage of it. This would be better than paying off your mortgage.

However, from an investment point of view buying shares in your employer is not a good idea, as if the company fails and you lose your job, your investment is gone too. This might seem like a remote risk, but many people have been caught by this in the past.
 
Really appreciate your feedback here .

Yes Brenden you can save 15% of you net income for 6 months and buy at 85% at the end of the period then sell next day for 100% after deducting tax and broker commission.

Current mortgage interest rate is 3.79% with KBC , investment property will be fully aid in 3 years so not fancy touching it despite I paid 5K last year income tax on the rental income .

I though of buying another small property to rent out or paying part of my current mortgage but I though , from the diversity point of view , to explore the stock exchange sector with moderate approach .

Thanks again
hak
 
hakoun said:
Current mortgage interest rate is 3.79% with KBC , investment property will be fully aid in 3 years so not fancy touching it despite I paid 5K last year income tax on the rental income .
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Tax relief reduces the effective rate by 30% to 2.6%, so pay off your home home loan before this.

The shares look like a good investment. Invest 85. Sell for 100 less commissions = 99. Return = 99/85 = around 16% before tax. But you should sell as soon as you can.

You should not buy another property as you already have two properties and so are overexposed to one asset class.
 
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