Pay down your mortgage. You'd need to get 6% return before tax to end up with same result.
Are you on a fixed rate mortgage? Ask how much break fee is to pay off a lump sum early.
Next 1.5-2 yrs, our main car will need to be changed (budget 20-25k). I expect we'll need a fund for university, but what priority to give this, over say paying off our mortgage early?What's the long term goal for your money? When do you want to spend it? Do you need an education fund for your kids for example? Keep some money on deposit for spending if the car breaks down etc. Look at investing the balance so you can use it and the profit at a later date
My company provides a disability benefit plan (approx 55k p/a). Would you recommend anything further?You're probably light on protection cover too. The bank are protected if your wife dies but you are not. No income protection either. If you can't work, you're income will go from €125,000 to €10,000.
So yes, I 100% endorse this approach, and you will also save around 125k in mortgage interest by doing this as well.Thinking about it, an extra 1250 a month would have our mortgage repaid by the time we're 50, which is also around the same time our child would go to university.
This is something you need to keep in mind in terms of cash reserves, and of course the car you decide to go for. Remember as children get older, the requirements for a car change as well- especially if they are sporty kids.Next 1.5-2 yrs, our main car will need to be changed (budget 20-25k).
but to answer the direct question you askedThinking about it, an extra 1250 a month would have our mortgage repaid by the time we're 50, which is also around the same time our child would go to university. I think that's a worthwhile use of the additional cash. For the remaining 1750, I'm open to ideas..
Thanks for your response, and congratulations yourself for being close to mortgage free at 42! Look we're very fortunate, we're acutely aware of this, and I hope this keeps us grounded. I've been reading a lot about paying off your mortgage early, and there's one line of thought which basically says, take your time, inflation will help erode the value of the debt etc etc. However, as you rightly point out, you never know how long the crest will last, and for that very reason we want to make the most of what we have now, so that we have some protection in the good-so-good times.Firstly OP, congrats on being in such a strong position by 35.
Looking at this initially, my gut tells me you would be very advisable to seriously consider paying the extra 1250 against the mortgage while you are in that position and derisk your financial situation while interest rates are low. Having your mortgage paid by the time you are 50 is massive and makes things so much easier going forward for you all. The first piece of advise I would give you is that - focus on the mortgage and give it a good hammering over the next few years. At 42, we are effectively mortgage free (payments are 200 euro a month) and it opens up lots more options to us in general.
So yes, I 100% endorse this approach, and you will also save around 125k in mortgage interest by doing this as well.
The other thing I would say is at 35 you are on the crest of a wave and you seem invincible in terms of salary growth and opportunity. But the higher you go up that ladder, the tighter it becomes and less opportunities exist further up with more competition for them. All it takes is for a company to be taken over or some other major event and things are not as rosey in the garden. I know a fair few people who were 'sorted' in their late 30's and by 50 they were 'struggling' comparatively. Just keep this in mind - which is why reducing debt is always a good thing in this regard.
The other thing that jumped out at me is you appear to be living off 3k a month/36k a year based on your numbers. Net salary = 8k less Mortgage (2k) and saving (3k) = 3k. This seems light for me, especially when you say your kids will be starting college in 15 years time, meaning they are still in creche/pre-school. The childcare bill for 2 children alone would be a massive hole in a 3k monthly budget? Maybe I am missing something here, but the numbers don't align to what I would consider the spending patterns/standard of living of a couple earning 170k a year. I assume things like annual holidays etc are included in this budget which again seem a bit off for me. We everything including personal expenditure is factored in, 3k seems light.
I will accept there was a thread on here a year or so ago from someone in relatively similar earning bracket (175-250k), and I said the opposite that they should reduce expenditure. I am guessing there is a balance between the two
https://www.askaboutmoney.com/threads/review-of-our-financial-status.201532/
I would be interested in seeing your monthly/annual budget breakdown
This is something you need to keep in mind in terms of cash reserves, and of course the car you decide to go for. Remember as children get older, the requirements for a car change as well- especially if they are sporty kids.
The final thing I would say to you is you have 2 young kids, which will probably be on the payroll for the next 20 years. There is a large income disparity between yourself and your spouse. If you pass away, your company probably cover 3.5 or 4 times your salary in Death in Service benefit. This is around 500k, but over 20 years it is only 25k a year. How realistic would it be for your family to live on this, even with the mortgage paid. Personally, I have a separate life assurance policy covering me to the age of 65, to ensure the impacts of the income disparity are minimised.
We've been fortunate enough to live abroad and see some of the world, so believe it or not, a holiday at home more than meets our needs, and is pretty handy with all of the baggage a toddler brings!Other than that, enjoy it and go take a holiday this summer with the rewards of your labour !
Finally, I assume you have no interest at the moment in considering a place in the sun or holiday home etc here in Ireland and all of that good stuff that comes with being a high earner !
but to answer the direct question you asked
4 steps
- do the household budget to ensure your numbers are correct
- overpay the mortgage by as much as you can with the target repayment age of 50
- considering increasing pension contributions towards the maximum as it is the most tax efficient means of investing
- save the rest in cash for a while until you buy the new car etc
Wait before using the money to invest in equities/funds etc outside a pension fund, as the tax considerations are very high here. Ireland could really do with an ISA type structure for stuff like this.
You may want to consider engaging a financial planner at some stage before your 40th birthday, as you may find the exercise beneficial and get you thinking about stuff you may not normally consider
Yes this is a school of thought. But this school of thought also assumes that the real value of the debt will drop by inflation being higher than the relative interest rate. We are in a period of low inflation (generally in Europe) and this is keeping interest rates low. Once inflation starts to rise, its likely interest rates will rise too to match it.I've been reading a lot about paying off your mortgage early, and there's one line of thought which basically says, take your time, inflation will help erode the value of the debt etc etc.
I would debate that anyone who is seriously looking at mortgage overpayments of the scale you are need toMortgage wise, we can't do much until year 1 is over, unless we move provider. UB's 4 year fixed rate looks appealing, as they also allow over-payments in the order we would like to make. KBC's rates over 10 years may also be a good bet given ECB policy, but their over-payment terms wouldn't allow us to make the additional contribution we would like to make. We could look at a split mortgage with them, though would need to look into this a little further. If anyone has any experience, I'm all ears.
Completely understand this and as a child of rural Ireland in the 1980's lots of people fall into this bracket. However, I would say to do let yourself live a little and the holiday thing is something I would recommend as it does allow you spend exceptional quality time with the kids. They are relatively young so you guys need a break too !Neither of us comes from particularly wealthy backgrounds, so spending is something we are naturally prudent about.
Remember the younger you buy the policy the cheaper it will be ! The price of the extra policy I bought at 37 when my eldest was born I can only dream of ~5 years later. No health issues - just age !We've just the one so far, but we hope there will be another one in the next couple of years.
I understand that - especially as I have 2 less than 20 months apart. But there are fantastic places abroad that do cater for young kids and they are amazing. The difference between holidays with kids and before kids is massive !!! I spent a decade living abroad so I know where you are coming from. But the days of hiking in Myanmar/Namibia are gone for a short whileWe've been fortunate enough to live abroad and see some of the world, so believe it or not, a holiday at home more than meets our needs, and is pretty handy with all of the baggage a toddler brings!
11% is not bad and better than most. I remember reading somewhere to get a Public Sector type pension you would need to be paying 25% of your salary for your 40 years to get the same benefits. 25% is hard to do, but maybe bridge the gap if you can.Last year I put 11% of gross into my pension (before employer contributions). This year I could up the amount, or use the after-tax earnings for the mortgage. Neither are bad choices, but I need to run the numbers and weigh it against the priorities.
Absolutely and to be honest I think most would say get the basics right before being creative.For the next few years however the mortgage / pension / cash strategy is appealing as it's something I understand. There are probably better ways to get a return, but this needs to be weighed against the risk, and the amount of time needed to invest to understand and make decisions on such things, and manage them thereafter.
11% is not bad and better than most. I remember reading somewhere to get a Public Sector type pension you would need to be paying 25% of your salary for your 40 years to get the same benefits. 25% is hard to do, but maybe bridge the gap if you can.
The difference between holidays with kids and before kids is massive !!! I spent a decade living abroad so I know where you are coming from. But the days of hiking in Myanmar/Namibia are gone for a short while
No, it was 25% in total, but it was for 40 years to give you a lump sum payment of 1.5 times your salary and a pension worth 50% of your final salary.25%, excluding employer contributions? That's something else!
Yes there is no point in going about your tax amounts, but you also have to consider your partners pension also and should divide this out as best you can, especially given the income difference between the two of youThere's no tax advantage after €23k's worth of contributions (20% of €115k).
This is the good basis of looking at what to do over the next few years. Obviously look at spending as well and the "live a little" scenario. Also consider the extra life cover etc.I think I've got the basis for a plan here, taking €2250 as the working assumption for spare funds:
- €1250 for the mortgage = Goal: pay it off by 50
- €500 for the pension = Goal: maximise contribution (until I'm 40)
- €500 for a savings a/c = Goal: key expenditure (cars, home maintenance, university fund etc)
We went to France last year for a friend's wedding and holiday with our then 1 year old, and that memory is still fresh enough that we'll stay put this year
Age: 35
Spouse’s/Partner's age: 35
Annual gross income from employment or profession: 125k (incl bonus)
Annual gross income of spouse: 44k
Monthly take-home pay: 8k
Type of employment: Private (both)
In general are you: saving approx 3k p/m
Rough estimate of value of home: 730k
Amount outstanding on your mortgage: 450k
What interest rate are you paying?: 3% (30 yrs remaining) overpaying by 10% (provider limit)
Other borrowings – car loans/personal loans etc: None
Do you pay off your full credit card balance each month?: Yes
Savings and investments: 75k
Do you have a pension scheme? Yes, me a company DC scheme (approx 175k) / Her, a company sponsored PRSA (unsure balance but it's small, charges are high but kept as her company contributes)
Do you own any investment or other property?: No
Ages of children: 2
Life insurance: I have, through work
----
Recent house move consumed most of our savings, but now that all the bills have been settled, would like to start putting spare cash to the best possible use.
Simple question, given our circumstance, how should we maximise the return for what we have left over each month?
Thought I'd post an update for those who might be interested.
I did intend making this an annual event, and then promptly forgot... so here's a 13 month catch up.
Highlights from 2018
Updates below:
- Pension: Maxed out contributions (23k)
- Mortgage: maintained 10% overpayment until fixed term completed, moved to avail of UB's lower rate & better overpayment facility
- Income: Mrs got a promotion (+13% increase)
- Income: Increased personal income (+8%, largely bonus driven, company & personal performance, and so no guarantees...)
- Expenditure: Bought new(ish) car for cash (30k)
- Expenditure: Home improvements (5k)
Spouse’s/Partner's age: 36
Annual gross income from employment or profession: 130-135k (incl bonus)
Annual gross income of spouse: 50k
Monthly take-home pay: 8.2k
Type of employment: Private (both)
In general are you: saving 2.25k p/m
Rough estimate of value of home: 800k
Amount outstanding on your mortgage: 440k
What interest rate are you paying?: 2.6% (29 yrs remaining)
Other borrowings – car loans/personal loans etc: None
Do you pay off your full credit card balance each month?: Yes
Savings and investments: 80k
Restricted Stock Units: 35k (vested)
Do you have a pension scheme? Yes, me a company DC scheme (approx 210k) / Her, a company sponsored PRSA (minimal amount, kept due to employer match)
Do you own any investment or other property?: No
Ages of children: 3, and a new one soon...
Insurance: DIB x4 base salary, Income protection (€55k pa)
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?