Ideas on life financial direction?

[Bernoulli]

Hi PH
I've talked to friends and family about this and frankly I haven't really come across any answers that sit 100% right with me.
In the last few years I've started to do pretty well for myself and now I feel the need to think about what to do with myself long-term. Here's some background on my current situation so everyone knows where things stand:

Under 30, no kids, single, no desire to settle down any time soon
Take home pay £4.5k per month (contractor - that's after tax)
Live & work West Mids.
Currently rent, don't own any property.
Credit rating was 996/999 until recently, it's dipped down to high 800s when I started a new car PCP.
Based on my income I've been advised I would be offered a mortgage of £206k at present, or £245k if I eliminated the loan & car PCP.

I have a 15k loan outstanding @ 5.75% APR, payment £288 a month.
10k invested in a stocks & shares ISA spread over about 7 funds, just using it as a savings account with a likelihood of actual interest, happy to pull it all out to use for something worthwhile. Currently doing about 3% but at times does up to 8%.

Monthly outgoings-
£520/month rent, all bills inc
£600/month on a nice car which is on PCP @ 5.9% (I absolutely love it so I'm not getting rid unless I choose to change!)
£288/month the aforementioned loan payment
£400/month food fuel entertainment etc
£200/month sundries, conservative rounded up figure.
--- Total £2.5k spare per month

For the time being I'll keep chucking the excess into ISAs until I work out what I'm doing.

The obvious points:
- Pay off the loan? I could do, but the payments don't bother me and for the moment I think that having the cash available is more useful than being debt-free
- Buy a house to live in? Well, maybe, but... Renting doesn't bother me - my current place is cheap because it's a shared property and I really like the social element, I'd think of take on housemates even if I owned a property myself. I'm not someone who feels any particular desire to own the property I live in, and I seem to find myself wanting to move every 6-12 months anyway, so the very un-liquid nature of owning property fills me with dread. Horror stories from colleagues taking 9 months to sell their house, or making a bad call on an overpriced property and losing money, or moving too soon and wiping out the increased value with your moving costs. Plus I can't find any properties that excite me for my budget. I could afford a nice enough 2-bed flat, or a 3-bed house in a crap area, but frankly none of the options look attractive enough to make me actually desire them.
- Buy to let? Again same concerns in my eyes with owning property, plus I wouldn't want any hassle of running the property/properties; perhaps a portfolio of small agent-managed BTLs run completely hands-off and just enjoying the increased value when I want to cash out, the portfolio meaning my eggs aren't all in one basket at least.

I've done the sums on property endlessly and they do add up, even taking into account risk factors and the fact I'm not 100% at ease with the cash being so tied up, but still it doesn't feel right.
The cash wasted on renting currently doesn't bother me, although I am aware that if/when I get fed up with sharing, the monthly cost of renting and running a place I am happy with will be about double.
The one idea I did have was building a house - did a LOT of research on the subject over the last few months and I love the idea in terms of the project (keep me occupied), but also the completed house I would get to live in I think would have me content for a year or two at least, AND the potential returns on the eventual sale are sizeable - but to build the house I want will cost 250-300k inc land and the best I can find in self-build mortgages will only offer me about 150-175k, so, that's shelved for now.

What else? Any suggestions? Just keep stacking away cash until I have enough to leverage a mortgage for a property I am excited about? Forget about property altogether as not for me, and do something else? It seems to me that if you're not going to keep your cash 100% liquid, it's wise to invest in something that you can directly enjoy and get use out of - most people their house, but that doesn't seem sensible for me particularly knowing how I feel about staying in one place for long. In another thread someone was talking about a collection of watches for example, which I could perhaps get into, though I don't love them as yet - I was thinking maybe classic cars, just buying and running for a little while not restoring or anything; not as a huge moneyspinner but as a pastime that occupies my mind and wallet, hopefully doesn't lose money, maybe makes money, and is more liquid than property... but I don't know. Another flight of fancy perhaps.


Fortunate position to be in, I know, but I feel a little rudderless at the moment which isn't good for me; I function best when I have a plan. Ideas welcomed.

[Bernoulli]

NickCQ said:

The first thing I would do is speak to another mortgage broker - the total borrowing you have indicated (£200 - 250k) sounds very low for your income level.

Contractor without enough years of accounts to go off those/SA302's yet - the figures I quoted above are based off the hours I actually do, and have invoices for the past 12 months plus to prove, but when mortgages assess me based off contract alone they tend to have to cap the hours at about 35/week when in reality I do much more.

Contract is a rolling 12 month and is rock solid, it's expected to renew continually barring something drastic like another global financial crisis.

[Bernoulli]

BoRED S2upid said:

Hammer the savings for a bit I know it's boring but if it went tits up in 6 months time you currently don't have enough to cover your debts never mind live for a few months while looking for another job.

Got no problem stacking away into savings for a while, but the debts thing is a little misleading; if everything went tits up the car has enough equity in it that it would clear its PCP even trading it in to a dealer; after that I've still got a few month's worth of income from my ltd company even if I didn't have a contract, and the 10k ISA - together more than enough to live off for however long it takes to get back up to speed I reckon. Loan's got 4.5 years left on it so no point paying it off until I've enough savings to still have some change after, is my current thinking.

Even if I save for a while, I'm happy enough doing that if I'm saving for something. Right now I don't have a medium or long term goal.

Still that's a sound point, thank you.

Edited by Bernoulli on Monday 6th March 11:50

[Bernoulli]

NickCQ said:

As long as you are happy burning 800 quid a year on interest.

It's about £450 a year in interest, and in the short term that seems worth it to retain access to a £10k pot, which is enough of a sum to open doors. Once I know what I'm doing and don't need to keep it in the back pocket anymore I'll get it paid off ASAP anyway - paid off my last loan 3 years early too.

edit: Or to put another way it's less than 1% of my income to keep hold of a pot worth an extra 4 month's savings, that's a fine tradeoff to me for now.

Edited by Bernoulli on Monday 6th March 12:15

[Bernoulli]

NickCQ said:

Bernoulli said:

NickCQ said:

As long as you are happy burning 800 quid a year on interest.

It's about £450 a year in interest, and in the short term that seems worth it to retain access to a £10k pot, which is enough of a sum to open doors. Once I know what I'm doing and don't need to keep it in the back pocket anymore I'll get it paid off ASAP anyway - paid off my last loan 3 years early too.

edit: Or to put another way it's less than 1% of my income to keep hold of a pot worth an extra 4 month's savings, that's a fine tradeoff to me for now.

Edited by Bernoulli on Monday 6th March 12:15

£15,000 * 5.75% = £862.5...

You're not compounding, the capital is paid down monthly too! It's only 15k * 5.75% in month 1.
edit: did have some maths here but it was misleading. Anyway, I'm comfortable with the loan for now & my personal calculations for interest etc are backed up by the finance docs.

Edited by Bernoulli on Monday 6th March 12:31

[Bernoulli]

NickCQ said:

Fair point, but if it's amortising all it means is that you are getting less liquidity - the price per £ is the same.
If I run the numbers (£15k current principal, 4.5 year term, constant payment amortisation, monthly compounding) through my little excel model you will pay £784 in the next twelve months for an average loan balance outstanding of £13.6k.

Also a fair point - anyway we're getting distracted, I'm happy servicing the cost of the debt for the time being & it's a useful chunk to have in my arsenal, I will pay it off in full once it doesn't require me totally wiping out my savings to do so.
I could as you suggest pay it off ASAP & then source credit elsewhere if I happen to need it but in my eyes a bird in the hand is worth two in the bush, I don't mind credit but hate applying for it - hangover from days where my rating was terrible.

[Bernoulli]

rockin said:

Yes, I certainly don't understand why OP is taking loans when there's spare cash kicking around. Bonkers.

Originally took it out to buy a car because I was too impatient to save for it , since sold the car hence the cash is now sat idle.

[Bernoulli]

Peperami said:

You have a 10k ISA that earns 3%, yet you're paying a loan of a similar amount at 5.7% interest... theres your first answer. Your financial situation is earning you minus 2.7% interest.

What was the £15k loan for? The deposit on your PCP?

Let's say tomorrow I set my heart on mortgaging a house. £10,000.00 extra sat in my bank account available for use as a deposit makes far more impact than saving the £557.50 it costs me in interest this year (using your figures).

Obviously it'd be better to be loan free. But for now, it gives me options, at a net cost that doesn't bother me in the slightest.

What I was hoping to discuss is a broader life direction, the loan situation if I so wish could be paid off in about 2 months and then I'm still sat with no direction just less options to exploit.



edit: I think I quoted you prematurely, sorry if the above sounds a little miffed, you toned yours down too.

Peperami said:

Unless you plan to buy a house soon switch these around and get to saving, in 2 months your loan is paid off and your money is yours. Do you want to buy a house? I get the impression if you did you'd be doing it and not asking about it. Is it because you dont feel settled yet, or dont want the commitment... or that you want to save for longer?

You have plenty to get a deposit at the moment, and even if you pay your loan off and save you could have enough within a year.

That's the thing, personally I'm not that interested in buying a house, I can't afford anywhere that excites me particularly and unless it's somewhere I love then I know I'll want to move soon anyway, maybe too soon to even see any financial gain from the whole charade. But if someone was to have some brainwave involving property that captures my interest, I might suddenly feel the urge.

Edited by Bernoulli on Monday 6th March 15:04

Edited by Bernoulli on Monday 6th March 15:04

[Bernoulli]

Sargeant Orange said:

You've had £2.5k a month spare for the last 12 months minimum, but only have £10k in savings (if i'm reading the OP right).

You need to hammer the savings a bit more imo before you consider anything else, get yourself a £50k buffer before deciding on any investments

I've been spunking it on a few (in retrospect) stupid enterprises that backfired, but it meant I wasn't really paying attention to how much I was wasting as I went along until very recently when I did the maths and saw what I was pissing away was enough to actually do worthwhile things with instead!

[Bernoulli]

I don't want to discuss further personal details ie industry/car as it makes me quite identifiable and I don't want everybody I know knowing my finances.

[Bernoulli]

Gareth79 said:

Potentially the repayments will reduce your affordability though, and result in the lower mortgage offer.

On the wider question - why do you keep moving, or wanting to move? Presumably you move between shared houses and get a new set of housemates each time? That is the opposite of what people usually want really, most people hate moving all their stuff and want to stay put.

You can't really change that, so I'd say max out your ISA limits and put the rest into other savings, so that you will be able to look at higher priced places when you want, and if you never end up buying somewhere you can blow it all on a supercar

A fair point, although the brokers I've spoken to advise me that my offers are capped by only being able to use say 35 hours a week multiplied by my rate, compared to my 50+ hours that I actually do. Big chunk of income that I do make but we can't use.

Regardless I'm only within range of circa 200-250kk property at the moment but my tastes are for 350k+ to find somewhere I'd actually be really interested by, as you've said I'm not someone that grows particularly deep roots so the property would have to be really special to grab me.

I seem to move frequently because either I change my life direction or I otherwise get unhappy with the location or property. Once I wanted peace out in the countryside and a garage for a project, another time I wanted to live in town for a bit and didn't care about the garage anymore, this time I wanted to cohabit again, etc etc...
I live pretty light as a result so moving isn't a huge stress for me

[Bernoulli]

Thanks for those excellent replies, exactly what I was after.

ramblo93 said:

As others have said given your lack of conviction re buying a house I can't understand why you don't pay down all your existing debt ASAP. You're pi$$ing money down the drain each month on interest for no good reason. Without the debts that money could be invested, compounding away to make your future self richer.

Once you're debt free I'd concentrate on filling up your ISA each year (20k limit per year from Arpil), S&S and/or cash depending on your risk appetite.

There's nowt wrong with not buying a house, especially if you're renting cheap places. Think of it like this:

...an ISA with £90k in it returning 7% (rough average total return of the stock market over the long term) would pay for your £520 rent & bills each month. Ignoring the ISA limits, if you're saving £2.5k per month it would only take you 3 years to amass that and you'd theoretically never have to worry about your rent again.

Great food for thought especially "lack of conviction re buying a house" - that's definitely an apt description. Particularly though your point on the returns on a 90k investment cancelling out my rent costs. That's an attractive, attainable goal that doesn't involve making any commitments I'm unhappy with...
Plus in addition to effectively then living for free, I still have 90k completely liquid available to be used should anything take my fancy. In reality of course the rent-cancelling investment income is just sitting in the account compounding for the better, since I don't miss the cost of the rent month to month anyway.

rpm1969 said:

You are in an enviable position, but you want a plan.
Well a plan leads to an objective. Perhaps you should start with the objective?

For example, what financial situation would you like to be in in 5 years time?

My own objective has recently come into focus very clearly - it's to achieve financial independence, ie no longer needing to work, when I reach 55, which is 8 years away for me. Having realised it's within reach and worked out how much more wealth I need, I'm finding its making financial decisions much easier to make because I can see how each one moves me closer to my goal. I also look back and am thankful for starting a pension from day one in employment, for getting onto the property ladder in my 20s and for being relatively frugal with my spending. I think my unconscious objective back then was simply to build wealth.

It may be that all you can say is that you want to be in the strongest financial position you can be in 5 years time. In which case, take the earlier advice about the loan, Set aside some cash for hobbies or whatever interests you and choose how to invest your spare cash - property, stocks and shares, or any other asset class. That keeps your options open for now.

Hope that helps

Okay, interesting ideas. If it's no too vague, my main objective I can see at the moment is that I don't want to look back and think I made poor financial choices. Recently in my life I've had a few low-risk (but still a risk) financial decisions which I was hesitant towards for a long time, but when I finally made the leap, everything was fine and the risk was essentially minuscule compared to the rewards- and I look back and think, I wish I did it sooner. I fear that getting on the property ladder could turn out to be one of those things and an opportunity I regret not taking.
On the other hand I've taken a few risks lately, perhaps less well thought-out ones, and wasted money on things that didn't even give me much personal benefit - and I resent those poor choices.
At the moment for example I know I'm wasting money on an expensive car, but, it genuinely brings me happiness on a daily basis & I would be paying for a car anyway, so I'm at peace with that cost.
Perhaps it would make sense to only take risks on things that will give me direct personal benefit as well as potential financial reward; then if it goes well that's great, and if it goes badly I'm not too upset since I've enjoyed it in other ways.

The "fear of missing out" element I'm concerned is basically just greed, though, which I don't like to think of myself as.

Edited by Bernoulli on Tuesday 7th March 07:02

[Bernoulli]

Ginge R said:

I use mindmap software for long term planning - don't look at things bottom up, look top down. Try and think of how the 'you' of 2027 and 2037 might look at things too. Suggested 'bubbles'? Wealth, health, death, happiness, contentment, excitement, family, people, career, materialism, life, tax, morality, altruism, charity, hedonism, DNA, spending, saving etc etc.

I'll take a look into that, thanks. I'm conscious that being still young I'm not good at predicting my future self; I know I've changed a great deal in the last few years let alone the last decade.