7 scary financial mistakes to avoid this Halloween

The last 10 years have seen a remarkable rise in the amount of money spent on Halloween in the UK.

Statista figures suggest that by 2023, spending on the event will have tripled in a decade. Who knew fancy dress costumes, pumpkins, and buckets of cheap sweets could be so lucrative!

Halloween is traditionally a celebration of all that is scary. So, sticking to the theme, read about seven of the scariest financial mistakes you can make – and how to avoid them.

1. Not contributing to a pension

Not building a retirement savings fund is one of the scariest financial mistakes you can make.

The maximum State Pension – subject to your National Insurance contribution (NICs) history – is just £185.15 a week, in the 2022/23 tax year.

Although it’s a useful regular income that’s guaranteed and payable for life, it’s unlikely to be enough to live comfortably on. This makes it essential to make your own arrangements to help provide you with an adequate income in retirement.

By building up your own pension fund, you can ensure you’ll be able to live the retirement you’ve worked hard for, without money worries.

2. Delaying paying contributions into your pension fund

This scary mistake is effectively an extension of the previous one.

The power of compounding means that the sooner you start paying money into your pension the sooner it can start working hard for you and accruing investment growth.

By delaying contributions, you’ll likely leave yourself having to pay in more to achieve the same result.

This simple example, based on level contributions over 20 and 30 years, and assuming gross annual investment returns of 5%, demonstrates how costly delay can be.

Source: Calculatorsite.com

By delaying starting regular contributions for 10 years, you might need to pay an extra £257 each month – over a third more in total – to end up with the same size fund.

3. Failing to claim free money from the government

If you’re looking for something genuinely terrifying, how about turning down free money? Add the fact that it’s the government giving you that money and you’ve got a horror story of Nightmare on Elm Street proportions!

Tax relief makes saving into a pension remarkably tax-efficient.

Basic-rate relief is added at source. This means that for every £80 you contribute, the government top this up to £100.

If you’re a higher- or additional-rate taxpayer, you need to claim additional relief through your self- assessment tax return.

It’s a relatively straightforward process, yet last year PensionsAge reported that £2.5 billion of tax relief went unclaimed over a four-year period between 2016 and 2019.

If you are claiming higher rates of tax relief, it makes sense to complete your tax return as soon as you can. After all, the money will work far harder if it’s in your account – or in your pension – than with HMRC!

4. Not having an emergency fund set up

The frightening thought of a major household emergency, such as a broken-down boiler in the middle of winter, is enough to give anyone the shivers.

Paying to get it fixed at short notice could cause a financial headache. Without savings, it’s possible you may have to resort to using a credit card, with the associated issues around subsequent repayments and accumulating interest.

That’s why it’s important to have an emergency fund in place. Ideally, this should be an amount equal to between three and six months’ net household income.

You should keep it in an instant access savings account to ensure it’s accessible without delay.

5. Not prioritising clearing your debt

Excessive debt can ruin even the best designed financial plans.

This is particularly true with unsecured debt, such as credit cards, where the interest rates can be cripplingly high. You’ve read about the positive effect of compounding when building your pension fund, but compounding has an equally big downside when applied to debt.

That’s why clearing unsecured debt should be one of your top financial priorities. You should have a plan in place, targeting the highest interest debt first.

6. Holding too much of your savings in cash

Sudden and dramatic stock market falls can be terrifying.

If you have a lot of money invested, it can be unnerving to see the value of your portfolio decline suddenly. But it’s important to remember that the nature of stock markets means they rise and fall as the value of their component parts fluctuates.

Markets have fallen precipitously before – think of the 2008 crash and, more recently, the Covid pandemic. But they recover and, over the long term, can help you grow your wealth.

Rising inflation, on the other hand, can be far scarier. This is because it reduces the spending power of your money and, unless there’s a period of negative inflation, those increases cannot be reversed.

So, while holding your money in a savings account can appear to be a safer option than investing in shares and investment funds, inflation means your money is likely to be losing value in real terms.

That’s why, if your investment horizon is five years or more, investing your money rather than simply saving it could prove a better financial decision.

7. Not having a will

Making a will is one of the simplest financial processes. But it’s frightening how many people don’t have a valid will in place. In fact, Will Aid estimate that only half of UK adults have one.

A will gives you the opportunity to clearly set out how your assets should be distributed when you die. Without a will in place, the decision is taken by a court-appointed solicitor who follows a set process, rather than adhering to your wishes.

Having a will also helps expedite the probate process and reduces the chance of family conflict after your death.

If you’ve already written your will, it’s always worth reviewing it regularly to ensure you’re still happy with the contents, especially after a major event, such as the birth of a child or divorce.

If you’ve yet to write a will, you may be interested to know that we partner with Gosschalks Solicitors to offer an Online Will Writing Service that can help make the process straightforward and simple to complete.

Get in touch

If you’d like to have a chat and find out more about how we can help you avoid financial mistakes, please email us at info@aspirafp.co.uk or call 0800 048 0150.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

Tax levels and reliefs could change, and the availability of tax reliefs will depend on individual circumstances.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

The value of investments and income from them may go down. You may not get back the original amount invested. Past performance is not indicative of future performance.

A pension is a long term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Pension income could also be affected by interest rates at the time benefits are taken.

Equity investments do not afford the same capital security as deposit accounts.

The Financial Conduct Authority does not regulate estate planning, tax planning, will writing and unsecured loans.