Making Use of Some Extra Cash - Best Plan

[Sam1990]

Thanks to a recent change of job and going from paying a mortgage of my own to paying half of a joint mortgage on a new house with my girlfriend I have found myself with a chunk of disposable income, or at least compared to when it was just me paying my own mortgage, that I want to put to better use than just drinking.

I'm 28, have a small amount of personal debt (2k) which is more than manageable within monthly payments and will be cleared in full once the next work bonus comes along. I have a couple of grand put away as a slush fund if ever needed for car/house stuff. I currently pay 5% (employer matched) into my pension with a view to increase this to at least 10% when I'm 30. My goal is to purchase another property some time in my mid-30s if at all possible to help towards a retirement fund that I'd really like to start thinking about in my late 50s... Pipe dream eh?

After all bills are paid (including fuel and food) I'm left with around £800 disposable, I do have a fairly active social life so that number is probably more like £600 on the more quiet side of things.

My question is with somewhere in the region of £400-600 per month is it worth me looking to invest into the AIM via a stocks and shares ISA and would you even recommend that to someone without any experience but who is willing to invest time to make the best of it? Are there many other avenues to explore or for the time being would it be advisable to put the money somewhere more accessible and start any investments once a larger sum has been built up?

I've always been quite plain with my saving and just siphoned off money into a savings account that never really sees any returns so I quite like the idea of seeing a pot with potential to grow but if it's ill advised I'm not against the old fashioned saving method.

I'm open to hear how you guys have made good use of spare cash in the present or past.

[NickCQ]

Sam1990 said:

I have found myself with a chunk of disposable income

Congrats!

Sam1990 said:

I'm 28, have a small amount of personal debt (2k) which is more than manageable within monthly payments and will be cleared in full once the next work bonus comes along.

If it is costing you interest, pay it off asap

Sam1990 said:

I have a couple of grand put away as a slush fund if ever needed for car/house stuff.

Try and build this up to 6 months net earnings

Sam1990 said:

My goal is to purchase another property some time in my mid-30s if at all possible to help towards a retirement fund that I'd really like to start thinking about in my late 50s.

Retiring at that age is perfectly possible but the likelihood is that BTL won't be the gravy train for our generation that it was for our parents.

Sam1990 said:

My question is with somewhere in the region of £400-600 per month is it worth me looking to invest into the AIM via a stocks and shares ISA and would you even recommend that to someone without any experience but who is willing to invest time to make the best of it?

You get £20k a year tax free and it would be a shame not to use it. If you don't have particular investing experience you would be best avoiding buying individual stocks and instead buying index funds. AIM is high risk high reward, it has a place in your portfolio but should not be 100%. Minimising fees is the best way to get rich slowly. No point holding more cash than you need to cover living expenses, almost all cash savings accounts do worse than inflation or are limited to small amounts of money (e.g. Santander 123).

[Shnozz]

As has been said, there are a handful of smaller accounts that pay marginally better interest rates but its negligible. The Santander one pays 1.5% up to £20k. Nationwide FlexPlus (I think) that pays 2.5% up to £2.5k.

Hardly life changing sums but in this environment better than most.

I was emailed recently about the new Hargreaves Lansdown Active Savings account that you might want to look at. Didn't have a chance to look at it in depth yet but appears its just a centralised platform where you can allocate your money among accounts such as the above to be able to maximise use of the higher yielding standard accounts without having to scour the net and open accounts all over the place yourself.

Other than that, ISA's are fine albeit my own view is that we face a less than bright forecast in the next 12 - 18 months so you could very well see some turbulence in those markets - so long as you are prepared for that. Personally I think AIM investment is fraught with danger even in smoother times economically and one to avoid, particularly as a novice. You could always look at more defensive stocks (or managed portfolios in defensive stock) during that period if you are less than rosy about the economy.

The other consideration you might wish to include is premium bonds. Your capital is then safe and you might just get lucky...I think I am right in saying the prize pot is set to around 1.4% so if you win prizes to that amount you are spot on average. Of course you may see no prizes at all or you might win the jackpot. Part of it is the fun involved but the security of the capital is of course a big draw as, inflation aside, its a free "gamble".

[IanA2]

If you (and your gf) open a joint FD account, you can each save £300 annually at 5%. Pus you get £200 for opening the account (maybe £400 for joint, not sure).

[Cw4578]

Depending on your mortgage circumstances/ arrangement with your girlfriend is it worth overpaying that with some of the cash while interest rates are so low. Generally mortgage lenders allow you to overpay a portion of the overall amount per year without penalty charges.

[red_slr]

General advice is build at least 3 months EF first. Then if you are planning to retire over 55 consider pension esp if you have a good employer match.

If you plan to retire <55 then S&S ISA may be better vehicle.

Once you are maxing out the ISA you may then look at a SIPP in addition to your WPPS which once that's maxed out you are into normal taxable accounts or NS&I.

Watch out for fees in all of the above.

BTL.... do your research. I am just in the process of selling mine, I think the property market might have a rough ride for the next few years. Also do not under estimate how much of your time it will take, or if you use an agent the cost. Also be aware that your basically holding someone elses hand in "owning" their own home and this often (IME) results in tenants who should not be trusted with a wendy house let alone a real life bricks and mortar house.

[Derek Chevalier]

NickCQ said:

AIM is high risk high reward, it has a place in your portfolio

NickCQ said:

Minimising fees is the best way to get rich slowly.

I'd say that's way down the list for the typical private investor after (in no particular order)

1. Taking on the right amount of risk
2. Proper diversification
3. Not chasing hot funds
4. Not buying high and selling low

[Sam1990]

Thanks for the replies everyone, is good to get an insight for how others handle things.

I think going forward the plan will be to build up a standard savings pot to cover at least 6 months earnings. After that I'd definitely like to explore investing via an index fund into an ISA over 2-3 years to spread risk and also see how the housing market copes with the inevitable economic uncertainty before deciding whether to go down that route.

My employer also offer a company share scheme with shares discounted at 20% of the cost at buy-in which at worst acts as a no-risk savings account to get the amount invested back over 3-5 years so a portion of the money will go that way also.