“I am in the very fortunate position of being one small payment away from clearing my Plan 1 student loan at 38.”
One Vault listener has spent the last few months throwing everything she can at her student loan to get it gone. When that final payment leaves her account, she’ll be £380 a month better off.
She’s never had that money before, so she’s thinking she won’t miss it. She’d rather have it buy her an earlier retirement than disappear into the weekly shop. The last two years were all about saving for the forever home, which she and her partner bought earlier this year – and now the big goal is done, she doesn’t know what the next one is.
“Are there any other options or ideas you have of what I can do with this ‘bonus’ cash? Grow is a strange place to be.”
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Grow is a strange place to be
She’s right, and we don’t talk about it enough. The Playbook has three stages – Survive, Build and Grow – and most dilemmas that land in our inbox come from Survive, because that’s the stage where money can be the most stressful. But Grow has its own dilemmas. As Holly said on the episode, her and Laura are both in Grow, and it can be just as confusing as the earlier stages.
This listener is a year into the Playbook, debt-free apart from the mortgage, with six months of emergency fund banked, full sinking funds and a net worth up 11%. She’s done the hard bit – now there’s excess money and no obvious place to put it.
£380 is a lot and not a lot at the same time. That’s what makes smaller amounts harder to allocate – it won’t clear the mortgage on its own, so it’s easy to do nothing with it at all.
This is the one stage where you don’t have to pick one thing
Everywhere else in the Playbook we’d tell you to focus on one goal at a time, because trying to do five things at once usually means you don’t do any of them properly. Grow is the exception. Pick one main goal, then automate everything else around it.
For us, the main goal is investing, so pension comes first. Then there’s the odd mortgage overpayment, the kids’ Junior ISAs (which don’t increase our net worth, by the way – we have to come first, because if we’re financially well, they are), and sometimes a Lifetime ISA or a stocks and shares ISA on top. It sounds a bit messy written down. It works because the priority is clear and the rest just ticks along.
Spend some of it
Take £100 or £200 of that £380 and enhance the present – date night, a better weekly shop, the gym you’d actually use. It won’t derail you. Once the big emergency fund is done and the house is sorted, you’re allowed to relax the budget a little.
If you want to retire early, you need pre-retirement money
She’s already maxing out her employer’s pension match, so there’s no extra free money on the table there. Salary sacrificing the £380 is still tax-efficient, and as a higher rate taxpayer that net amount becomes a much bigger number going in. But you can’t touch a pension until your late 50s. If the goal is retiring earlier than that, you need money you can actually reach before then, which is where a stocks and shares ISA comes in.
Mortgage overpayments count as pre-retirement money too. Getting rid of your biggest monthly outgoing (your mortgage) will change how much money you need for retirement. Plus, overpayments come straight off the capital, which is satisfying to watch.
Watch the 10% cap before you overpay your mortgage
The listener and her partner are already overpaying to halve a 30-year term, so the first thing to check is the lender’s annual limit. Most let you overpay 10% of the balance a year before charging you, and if you’re close to that, the question answers itself – the £380 needs a different home.
It could be worth asking a mortgage advisor about an offset mortgage. Your savings sit with the same lender and offset your mortgage balance, so you only pay interest on the difference, and you can pull the cash back out when you need it. There’s no overpayment penalty and nothing is locked away. The trade-off is the return you’d have got investing that money instead. Not every lender offers one, and this is a mortgage advisor conversation, not a ChatGPT one!
So what would we do?
Probably a bit of everything. Enjoy some of it now, split the rest between the mortgage and a stocks and shares ISA, with the pension already doing its job in the background. There’s no wrong answer here, and that’s the odd freedom of Grow – use your excess well and put it towards your goals (follow the Playbook!).
If £380 landed in your budget next month, where would yours go?
This content is for general information only and does not constitute financial advice. If you need advice tailored to your personal circumstances, please speak to an authorised financial adviser.