October 26th, 2021
5 scary financial mistakes you’ll want to avoid this Halloween
Halloween can be a great experience for all the family, whether you’re carving pumpkins or taking your children trick-or-treating.
According to figures from Statista, Brits now spend more than £450 million on the holiday each year. This is an impressive figure, and one that has grown significantly in recent years.
If your own spending on Halloween decorations has made you reflect on your finances, read on to find out five scary mistakes that you should avoid making with your money.
1. Not having an emergency fund in place
While everyone enjoys spending their hard-earned cash, it can be easy to spend too much and not keep any in reserve for when you need it. That’s why our first scary financial mistake is not having an emergency fund to fall back on.
As we discussed in a previous article, holding too much of your wealth in cash can be a bad idea, as its true value is eroded by inflation. Despite this, having some cash in an emergency fund can be useful in case you ever experience a financial disruption.
According to a study published in This is Money, almost half of Brits don’t have a rainy day fund in place. This can make them dangerously exposed to financial shocks, as they may be unable to pay their bills if they lose their source of income.
Most experts typically recommend that your emergency fund should contain enough wealth to cover three to six months’ worth of expenses. However, if you are self-employed or work in a field that is particularly at risk, you may want to keep a larger fund.
2. Not making the most of your ISA allowances
If you want to grow your wealth to meet your financial goals, an Individual Savings Account (ISA) can be a great way to do this. That’s why our second scary mistake is not making the most of your annual allowances.
The main benefit of saving with one of these accounts is that any returns are paid free of Income Tax and Capital Gains Tax, making them a tax-efficient way to build your wealth.
In the 2021/22 tax year, which is 6 April to 5 April, you can save up to £20,000 into your ISAs. However, this allowance doesn’t roll over, so once it’s gone, it’s gone for good. This is why it’s important to maximise your ISA contributions, if you’re able to.
3. Staying on your standard variable rate
Whether it’s for your mortgage or your utilities, staying on your provider’s standard variable rate (SVR) is rarely a good idea. In many cases, remaining on an SVR means that you’re paying more than you need to.
Typically, your provider will move you to this after a low-cost initial deal comes to an end, so it’s important to be aware. This could be a fixed-rate mortgage, a fixed-tariff energy deal, or a credit card interest rate.
Staying on an SVR can be very expensive, particularly if it’s for your mortgage repayments. According to market data published in Unbiased, staying on the average mortgage SVR in 2020 could have cost you as much as £4,080 in additional interest payments.
4. Not seeking proper financial protection
Our fourth scary mistake is not having adequate financial protection in place, as this leaves you unnecessarily exposed to financial shocks. If you were unable to work due to an unexpected accident or illness, your loved ones may face financial hardship and there are few things scarier than that.
If you’re the main earner in your household, losing your income could have a significant impact on your family. That’s why, if you want to avoid this prospect, you may want to consider protecting yourself.
There are a variety of different types of protection, such as income protection or critical illness cover. If you’re unsure about which type you need then you may want to speak to a financial planner, who can help to find one that suits your requirements.
5. Not seeking professional advice with your money
It can sometimes be tempting to take a DIY approach to managing your finances, but if you’ve ever tried DIY and had it gone wrong, you’ll know how expensive it can be when you make a mistake. That’s why our final scary mistake is to not seek professional advice when building your wealth.
For example, a financial planner can help you to better understand complicated financial issues, helping you to make a properly informed decision with your money. They can also help you to avoid any unnecessary tax charges, which can help your wealth to grow more effectively.
Working with a professional can help to give you a greater sense of confidence that you can reach your financial goals.
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The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.