I earn more than I spend, what should I do?
Julien Barber Dip PFS
Independent Financial Adviser - deeply personal Independent Financial Advice and Independent Mortgage Advice.
I’ve been approached by a number of clients, who’s careers have gone well and are in the position where they earn above their means. They have spare money each month and are not sure the best way to handle it. For me, the answer depends on your goals.
At the time of writing this blog (January 2023) we are in a cost of living crisis, so yes these people are very lucky. Their problems are first world problems, but for many, paying too much in tax and how to use the money to prepare for the future are problems they want to address.
Most importantly, what is your long term plan for your money? Do you want to retire early, slow down at a set age? Do you have a goal of what income you want when you retire? Is your goal to become debt free as early as possible?
Often, clients ask if its better to reduce debts or invest. There is no one answer for all on this one and it depends on many factors. For example the interest rate on the debt, or any early repayment charges. Also, might you need access to the money in the future, reducing a mortgage debt means locking way money in your property (as equity), meaning its harder to release it quickly.
If you’d prefer to invest, making the decision of where is also important. You could invest into a pension and get tax relief on the invested money in the pension, but the money is locked away to a set age (55-57 for most). Investing in an ISA means investing money after you’ve paid tax on it.
An adviser can help by being there to help you understand the best way forwards, giving you all the options and working out what’s right for you.
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