Pay rise - what to do with it? Save for Mortgage / start pension / pay off debt?

[curlygirl]

This is my first post - any feeback or advice greatly appreciated!

Age: 26
Spouse’s/Partner's age: 27

Annual gross income from employment or profession: €40,000 plus €3,000 (o/t & bonuses & travel)
Annual gross income of partner: €25,000

(We have only recently been on these salaries for 1 month - previously we made € 30,000.00 between us)

Type of employment: Both employed in private sector

In general are you:
(a) spending more than you earn, or
(b) saving? - spending roughly what we earn each month

Rough estimate of value of home- do not own a house
Amount outstanding on your mortgage: n/a
What interest rate are you paying? n/a

Other borrowings – car loans/personal loans: €23,000 of a student loan. I pay €248.00 a month on this. I have a student rate on the loan.
My partner is pretty much debt free!

Do you pay off your full credit card balance each month? Partner has credit card, does not pay it off in full each month
If not, what is the balance on your credit card? Partner's card - €1,300.00

Savings and investments: None

Do you have a pension scheme? No, neither of us.

Do you own any investment or other property? No.

Ages of children: None

Life insurance: None

Additional Info: My boyfriend's salary will stay around the €25k to 30k mark. Mine should increase substanially over the next few years.

Neither of our jobs have paid maternity leave, health care or pensions.

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

- I was recently given a pay rise from €19,000 to €40,000 and my partner got a pay rise in the same month from €16,000.00 to €25,000.00. We have gone from only earning a bare living between us, to actually have disposable income - a first as have been training for years!
- We currently live rent free in a property owned by boyfriend's parents.
- We want to get ourselves into a strong financial situation as soon as possible. We would hope to buy our own home in the next two years, get married, update cars etc. We do not want to get used to having this extra money and wasting it so to speak.
- My boyfriend feels that I am paying a lot of tax and wants me to start a pension. I also agree with starting a pension, but feel that there is no point in starting a pension when we have no house, very old cars, no savings for now or the immediate future.
- What would be the most sensible thing to do with our pay rises? We realise that we are lucky in the current market and want to prepare wisely for the future.
- Should we start to save for a Mortgage? (I am a professional and used to qualify for 100% Mortgage, don't know if this is still the case) Or would it look better in the Mortgage application if we had smaller savings, but more of my loan paid off?
- If we should start saving, what type of account? Would need access to money in 1.5 / 2 years for deposit for house?
- If I started a pension would I be able to stop paying it if I went on Maternity Leave? Or reduce it, if we have children and things get tight? Is it worth starting a pension now tax wise?

I'm sorry for the general nature of this post - but have been on a trainee's salary for the past 5 years. Used to trying to live off €14,000.00 a year - a bit overwhelmed as to what to do with my current wage, but want to make the right financial decisions. Any help or advice would be greatly appreciated!

 

[Cat101]

- We currently live rent free in a property owned by boyfriend's parents.

I don't want this to come across a rude but now that you both have some extra cash would you not consider paying some rent with it?? Your boyfriends parents have been extreemly kind to date..time to pay them back I think.

 

[z109]

Wahey. Well done.

First of all, pay off the partner's credit card.

Second, always live within your means. You now don't need to buy on credit (apart from a house at some stage in the future). So you should be saving up for holidays, cars, Christmas, birthdays and the like. Try not to pay interest (dead money) on anything again!

Third, a pension is a decent way to save tax free. Does your employer provide a matching contribution? This is free money if so. Or are you self-employed? You can always stop paying into it if you want to use the money for something else. You'll need to give some idea of the pension options open to you for some better advice from the experts.

In terms of savings, have a look at the best buys for the fixed amount savings schemes and set an amount aside that you can easily afford (beware of upcoming extra tax come the budget in December). If you have spare cash at the end of the month, stick it in an instant access account.

 

[lionstour]

Firstly and I dont want to sound rude, your income is not huge so I would not be getting ahead of myselfwith spending disposable income.

We currently live rent free in a property owned by boyfriend's parents.

Stay there as long as you can and save the rent you would be paying. This is a huge benifit to you. If I was letting my son stay in a property I would hope he would have the sence to save the money hes not using to pay rent. in three years that a potential saying of 30000E

We want to get ourselves into a strong financial situation as soon as possible. We would hope to buy our own home in the next two years, get married, update cars etc. We do not want to get used to having this extra money and wasting it so to speak.

Buying a home in two yeaars maybe but no sooner, otherwise youy are wasting money.
Getting married is a huge expence do something simple and cheap dont blow your cash on a waste of money over the top wedding.

Why update cars??

My boyfriend feels that I am paying a lot of tax and wants me to start a pension. I also agree with starting a pension, but feel that there is no point in starting a pension when we have no house, very old cars, no savings for now or the immediate future.

Start your pension today something small.

- Should we start to save for a Mortgage?

Yes

(I am a professional and used to qualify for 100% Mortgage, don't know if this is still the case) Or would it look better in the Mortgage application if we had smaller savings, but more of my loan paid off?

Clear your loans and there is absolutly not a chance in hell you or anyone else is going to get a 100% morgage in this climate. Do you realise what 100 morgages have done to the suckers who took them out?

- If we should start saving, what type of account? Would need access to money in 1.5 / 2 years for deposit for house?

Credit union.

- If I started a pension would I be able to stop paying it if I went on Maternity Leave? Or reduce it, if we have children and things get tight? Is it worth starting a pension now tax wise?

Yes, Yes, Yes.

 

[lionstour]

I don't want this to come across a rude but now that you both have some extra cash would you not consider paying some rent with it?? Your boyfriends parents have been extreemly kind to date..time to pay them back I think.

They are a young couple who are trying to start out in life, the guys dad is giving him a dig out. Kids, dont feel at all bad about availing of the dads generousity, just be very very thankful to him.

 

[paddyodoors]

Hi Curly

Congrats on a well deserved pay hike, whatever the vocation well done for managing through the low paid stage and completing your courses.

I like the way you are thinking to put the money somewhere straight away so you dont acclimatise to the higher income and just spend more.

Yogan gave good advice, re where the money should go, definately clear the CC and as they said use built up cash for spending not debt.

I recommend u both set up a direct debit into a high interest savings account for half your net income increase, do this for the day or the day after you get paid so you won't miss it. Then use the other half as discretionary spending, you need to be able to benefit from your increased earnings aswell. You can always add lump sums to a savings plan if you find you are not using it.

The credit union is definately not a choice I would consider for most of your savings - maybe a token amount per month to build up a history with them - but check the best buys. First active online used to be one of the best, I havent looked in a while tho.

Pension is good to do as early as possible - but 30 is the latest recommended age, if as you say you expect substantial increases in salary, you could wait until then and concentrate on building up a big cash reserve for house deposit.

Paddy

 

[curlygirl]

Thanks Cat101 - to be honest I would love to be giving them something for the rent and we have tried. It's not something that they'll hear about though.. but we completely appreciate how good they are being to us.

We're painting their house this summer as a thank you and we hope that we'll be able to be as good to them when their older as they've been to us.

 

[curlygirl]

"Third, a pension is a decent way to save tax free. Does your employer provide a matching contribution? This is free money if so. Or are you self-employed? You can always stop paying into it if you want to use the money for something else. You'll need to give some idea of the pension options open to you for some better advice from the experts."

Thanks Yoganmahew - for all your advice! In relation to the pension we're both employed in the private sector. Neither of our employer's provide a matching contribution.

But think it might be worth starting a small pension and saving for a rainy day so to speak - so that there's no more loans!

 

[curlygirl]

"Lionstour - Firstly and I dont want to sound rude, your income is not huge so I would not be getting ahead of myselfwith spending disposable income. "

Thank Lionstour - God, we know full well that our income is not huge!! But we've gotten used to spending so little and managing on so much less that it seems like a big difference to us. Just want to do something with it, while we have the opportunity of living rent free .. don't want to waste it.

In relation to updating the cars - we have a two 1998's. Mine's getting to the stage where it's starting to cost me money.. a lot more trips to the mechanic / a lot needing to be repaired everytime I go.. but I live v close to work (need car sometimes for work) - so will hold onto it for as long as I can..

Thanks everyone for all your help and advice!! Will look into the high interest savings account Paddyodoors and get that set up - good idea putting half in and then more if and when it's around...

 

[gar123]

curlygirl
well done on the pay rises, for some people that salary is huge

i would say get stuck into the student loan and fire that down, every month your partner does not clear a mortgage is costing you money so fire into that

i started a pension last month and i dont notice the relatively small amount going into it,

i always saved at the credit union, might sound strange but i liked the feeling of walking in with the book and getting it stamped or stickered felt i was really saving,

good luck with things nice positive story for the day

 

[cerebral]

Hi curlygirl,

Congratulations on your new financial situation! So nice to hear of someone doing well in the current climate!!!

Agree with other posts;
Definitely clear all debts as soon as possible, can you pay more off your student loan now?
Save for any future expenses so that you do not have to buy on credit.
Living rent free is a huge bonus, so try to continue living on your previous salaries and split all new income between paying off your debts and putting it straight into savings.
It can be useful to split savings between different accounts eg: a fixed amount each month and one you can deposit lump sums and withdraw more easily.

Best of luck!

 

[curlygirl]

Thanks cerebral... I've already starting paying off a bit more on the student loan. Have the repayments set low enough at €248.00 but this month I put an additional €200.00 into the loan.

Want to get that down as quickly as possible - otherwise looking at it going nowhere gets so disheartening! The interest payment every third month, literally wipes out a month and half of a repayment... so hoping to put an extra €200.00 in every month - bringing the repayment to €448.00.

Myself and himself have on-line separate savings accounts - but just tend to use these for short term savings.. I normally put some money in there for presents or big things - it's essentially both our own savings for the things we want.. would hope to have around €750 / €1,000 in each for things like dentists / car repairs etc and then set up a joint high interest one for a rainy day!

Thanks again for all the help and advice... have a much better idea of what to do with ourselves now.. now I just have to try and sort out what pension to go for. Have such a mental block over them - it's ridiculous, but just very daunted by them!

 

[niceoneted]

Congratulations on the pay rises.
I am sure after all this time scrimping and saving there are items that you need to buy that you have put of as not necessary - oh I don't know perhaps a good winter coat or some stuff for the house, perhaps you need to add some good items to your wardrobe.
I would do this first as a reward for doing so well.
Then I would allow myself perhaps an extra 100/150 a month into my disposable income and save the rest. Have independent savings for yourself and then perhaps you and your boyfriend can open a joint account and pay into it what you would pay in rent -1000 perhaps. This could be house deposit account/wedding account so to speak.
Budget for your bills in another easier access account.