Research suggests that humans make, on average, three to six mistakes every hour.
Most of these mistakes will be minor and have no long-lasting effects. However, erring where your money is concerned can be costly and lead to longer-term problems.
So, here are five of the most common financial mistakes – and how to fix them.
1. Not holding an adequate emergency fund
Unexpected expenses can occur at any time. Car repairs, a leaking roof, or a period out of work can all present short-term challenges.
Having an emergency fund ensures you have savings easily accessible if you need them quickly. Most experts recommend saving three to six months of expenses in an easy access account.
Without an emergency fund, you may have to rely on expensive debt to pay for unplanned costs, or dip into savings or investments earmarked for another purpose.
If you don’t have an adequate emergency fund, now’s the time to start saving. Setting up an automatic transfer for a regular sum when your earnings reach your bank account can be an effective way to save.
2. Having insufficient protection in place
The right protection underpins a robust financial plan. Consider questions like:
- Would your family be able to maintain their standard of living if you passed away?
- Could you maintain your regular commitments if you had to take an extended period off work?
- How disruptive would an accident or illness be to your financial plan?
If you don’t have enough protection, you could leave yourself and your family in financial difficulty should the worst happen. Without an income, you and your loved ones may be unable to meet your regular commitments.
The right protection can be cheaper than you think and provide genuine peace of mind. We can explain your options and find the most appropriate cover for you.
3. Contributing only the minimum amount to your pension savings
Under the “auto-enrolment” rules, the minimum contribution to an employee’s pension savings is 8% of your qualifying earnings – 3% from your employer and 5% from you (including tax relief).
It’s easy to assume that this will be enough to provide the income you’ll need in later life. However, This is Money[1] reports that the average auto-enrolment scheme would provide just 53% of what you will need to lead a “comfortable” retirement.
So, think carefully about the level of pension contributions you make – and don’t assume that the minimum will be enough.
4. Holding too much wealth in cash
Holding wealth in cash can offer a low-risk way to grow your savings. However, holding too much cash can see the real value of your money eroded by inflation.
If you’re looking at a time horizon of five years or more, investing surplus cash could give you the potential for superior returns.
Using almost 100 years of data on the US stock market, Schroders[2] found that, if you held your wealth in cash for 20 years, you’d have about a 65% chance of beating inflation.
However, had you invested your money (in this case, in large-cap US stocks), you’d have beaten inflation 100% of the time over a 20-year period.
Source: Schroders[3]
5. Failing to draw up an estate plan
If you want to leave assets to loved ones when you pass away, you’ll need a robust estate plan. Even if you’re likely to live for decades longer, planning now can help you to pass on wealth tax-efficiently.
Without a will, your assets may not pass to the people you wish. Similarly, if you don’t have a Lasting Power of Attorney in place (or similar in Scotland or Northern Ireland), your loved ones may find it difficult to take control of your finances, leaving the courts to appoint a deputy you may not have chosen yourself.
If don’t yet have an estate plan, the Titan Will Writing Service may be a good place to start.
Get in touch
One further mistake that many clients make is believing that they can “go it alone” and successfully manage their own finances.
Our experienced planners can help you avoid these mistakes and create a bespoke financial plan, aligned with your life goals and ambitions.
Email info.wp@titanwh.com or call us on 0800 048 0150.
Please note
The information contained in this article is based on the opinion of Titan Wealth Planning and does not constitute financial advice or a recommendation for any investment or retirement strategy.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The value of your investments (and any income from them) 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.
The Financial Conduct Authority does not regulate estate planning, tax planning, Lasting Powers of Attorney, or will writing.
Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.
[1] https://www.schroders.com/en/global/individual/insights/the-data-which-can-help-you-keep-a-cool-investing-head-in-a-crisis/
[2] https://www.thisismoney.co.uk/money/pensions/article-13276045/Auto-enrolment-leave-workers-just-half-need-comfortable-retirement.html
[3] https://www.schroders.com/en/global/individual/insights/the-data-which-can-help-you-keep-a-cool-investing-head-in-a-crisis/
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