October 26th, 2020
5 scary financial mistakes to avoid this Halloween
From carving pumpkins to trick-or-treating, Halloween can be a fun experience for all members of the family and the popularity of the holiday has surged in recent years. The amount that Brits spend on Halloween rises every year and now exceeds an eye-watering £400 million.
If seeing how much money you’ve spent this month on Halloween decorations and fun-sized Mars bars has made you think about your finances, take a look at our list of five scary financial mistakes that you should avoid this Halloween.
1. Making knee-jerk decisions about your finances
One of the biggest mistakes that you can make is to let your emotions get in the way of financial sense.
When there is economic uncertainty, people like to do something to give them a sense of being proactive and in control. While this might give you some peace of mind, making a rash decision based on a knee-jerk impulse can have disastrous effects.
One of the main behavioural biases that affects investors in this way is the ‘loss aversion’ bias. Simply put, this means that people tend to place higher importance on avoiding losses than making gains.
This tendency can lead to bad decision-making, particularly during periods of market instability, as you may feel the urge to act on impulse. For example, seeing headlines that the stock market has fallen might prompt you to sell your equities. However, while this may make you feel more in control, it could do significant damage to your long-term plans.
One of the ways you can stay on track is by speaking to us, as we can act as a sounding board for your decisions to make sure you aren’t acting rashly.
2. Not having adequate insurance in place
Nothing is scarier than the thought of your loved ones facing financial hardship as a result of an unexpected problem. That’s why our second scary financial mistake is not having adequate insurance in place for when disaster strikes.
If you’re the primary or sole earner in your household, then losing your income due to health issues can be devastating for your family.
If you want to ensure your loved ones would be financially secure if you were unable to work due to illness, you should consider getting an insurance policy such as Critical Illness Cover or Income Protection.
These policies can provide a financial safety net if the worst should happen. For example, with Income Protection, if you became too ill to work, then your insurance would pay you a monthly sum after an excess period. This would allow you to continue to pay your bills, such as mortgage payments, while you recovered.
3. Not seeking advice on your mortgage
Your mortgage will probably be the largest financial commitment of your lifetime, which is why it’s important to make sure you take good advice. Seeking the help of an expert can be crucial in managing your mortgage more effectively, which is why not seeking advice on your mortgage is our third scary financial mistake.
One common mistake that many people make when taking out a mortgage is accepting the first offer that they receive – often from their own bank. However, you may find that another lender could be offering a better deal and so comparing offers can save you significant amounts of money.
An independent mortgage broker, such as ourselves, can help you to secure the best mortgage offer available.
You should also be wary of staying on your provider’s Standard Variable Rate (SVR). This is the rate on your mortgage that you’ll be switched to when a fixed, tracker, or discount deal comes to an end. SVR rates tend to be higher than the rates on other types of mortgages, so shopping around for the best deal can save you money here, too.
4. Not having enough savings
Everyone enjoys spending their hard-earned money, but not saving enough may make it more difficult to reach future goals. A 2019 study by Lloyds Bank found that almost one in five Brits (18%) do not have enough savings to last a month if they were to lose their job. Our fourth scary financial mistake is not saving enough for the future.
While keeping your money in investments is a good way to grow your wealth, it’s also important to have some easily accessible cash.
If you don’t already have one, an emergency fund can be an important tool for avoiding financial difficulties. A rainy-day fund can help you cover outgoings if your income is disrupted for any reason, letting you stay on top of any bills or credit card repayments.
Keeping some savings in cash can also be useful for saving up for short-term goals, such as going on holiday.
There are also many long-term goals that can only be achieved with sensible saving. You will need to manage your finances carefully if you plan to become the Bank of Mum and Dad and help your children get onto the property ladder. Having savings can also help to ensure that you have a comfortable lifestyle when you decide to retire.
If you struggle to know where to begin when cutting your expenses and saving money, speak to us for help in reorganising your finances. We can also help you to take advantage of tax-efficient ways to save your money, such as putting it in an ISA.
5. Not regularly reviewing your retirement plan
Your pension is one of the most important saving commitments you’re likely to make. Your pension may need to support you for several decades, which is why it’s important to keep your savings on track. Our fifth and final scary financial mistake is not regularly reviewing your retirement plan.
Since your pension will have to support you for so long, it’s important to review it regularly to see whether it will be able to provide the kind of lifestyle you want in retirement. If you review it and find it won’t be enough, this may be a wake-up call to start contributing more to it.
Reviewing whether your pension will be able to provide for you in retirement is also important if you plan to withdraw any money from your pension fund. FT Adviser reported in April that a record number of savers made withdrawals from their pensions in the first three months of 2020, totalling £2.5 billion.
Currently, anyone over the age of 55 can withdraw from their pension, though this is set to rise to 57 by 2028. However, just because you can make withdrawals doesn’t mean you should. Without careful planning, withdrawing too much from your pension fund may lead to you not having enough money to support the lifestyle you want in retirement.
If you want to make the most of your money, speak to us and we can help you to review your retirement plans to ensure that your pension provides you with the most comfortable lifestyle during retirement.