7 terrifying financial mistakes to avoid this Halloween

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Over recent years, Halloween has become one of the big events in the British calendar. Whether you’re celebrating by carving a pumpkin or accompanying the younger members of your family trick or treating, the end of October has become synonymous with ghosts, ghouls, and witches.

So, in the spirit of the season, here are seven frightening financial mistakes that you should avoid this 31 October.

1. Not having an emergency fund

According to the latest ‘Deadline to Breadline’ report by Legal & General, the average UK working household has £2,400 in savings – the equivalent of less than a month’s worth of basic expenses.

Households estimate they need £12,100, or nearly five months’ worth of basic household expenses, set aside to feel secure. However, only 3 in 10 working households have this set aside, and pressure to dip into savings will likely see this number fall.

If you don’t have an emergency find set aside, now is the time to start building one.

Having an easily accessible “emergency fund” is a cornerstone of a good financial plan. It means you have money you can access in a pinch to cover real emergencies – a broken boiler, a leaky roof, or an unexpected period out of work.

Without it, you might have to use money set aside for other purposes, or you may have to turn to short-term borrowing. This brings us to…

2. Maintaining high interest debt

If you had a £3,000 balance on a credit card, at an interest rate of 21.9% APR, and you made the minimum payment every month (1% plus interest or £5, whichever is higher), how long would it take you to clear the balance?

Three years? Five years? 10 years?

According to Money Saving Expert, it would actually take you a staggering 28 years to clear the debt. You’d also pay more than £4,750 in interest – more than 50% more than you initially borrowed!

Failing to clear any high interest debt as quickly as you can is one of the scariest financial mistakes you can make. Interest can quickly accrue, meaning you can end up paying a significant amount over a long time to clear what you owe.

3. Falling victim to a scam

The latest official scam figures make for sobering reading. According to MoneyAge, criminals stole more than £609 million through fraud in the first half of 2022.

As fraudsters become more sophisticated, it’s increasingly difficult to spot a scam. Common scams include:

  • Receiving an official-looking text or email asking you to “claim” your help towards energy bills
  • Investment offers from influencers on social media
  • Texts from scammers suggesting they are HMRC, your bank, or another official organisation asking you to click and link and provide personal details.

Many of these scams are incredibly believable, so it is important to remain vigilant. If you are in any way unsure, do nothing and check the message is genuine before acting.

4. Not claiming back your higher- and additional-rate pension tax relief

If you’re paying into a pension, it’s likely that your basic-rate tax relief is applied at source. It means that every £100 that goes into your pension essentially only “costs” £80, as the rest is made up through tax relief.

If you are a higher- or additional-rate taxpayer you can claim an extra 20% or 25% tax relief on your pension contributions, up to the Annual Allowance (£40,000 or 100% of your earnings in 2022/23).

However, you must claim this additional relief yourself. This is generally done through your self-assessment tax return.

2021 research by the Telegraph revealed that 8 in 10 higher-rate taxpayers who are eligible to claim relief through their tax return failed to do so, “needlessly missing out on £810 million in unclaimed relief”.

Failing to claim your additional relief could cost you thousands, so don’t make this scary mistake.

5. Failing to update your will and other documents

There are three key documents you should have in place to make it easy for your family to deal with your financial affairs if you can’t:

  • A will
  • A Lasting Power of Attorney
  • Expression of wish/nomination forms for any pensions.

You recently read some excellent advice about writing a will and the benefits of doing so. However, writing a will is just one part of the process.

If you fail to update these documents when your circumstances change, they can easily become out of date. For example, failing to update your will could mean newer children or grandchildren are left out – potentially leading to family disputes and upset.

And, if you don’t update your pension expression of wish forms, valuable pension assets could pass to the wrong people on your death.

Make sure you regularly review all your estate planning documents to ensure they continue to align with your wishes.

6. Keeping too much money in cash

In recent months, interest rates have begun to rise. After more than a decade of rock-bottom rates this has been welcome news for savers.

Indeed, as of 25 October 2022, Moneyfacts reports that a saver can benefit from a rate of 4.5% in a one-year fixed bond.

As rates rise, many are pulling money out of equities and placing it in cash. Data reported by iNews shows investors pulled £115 million out of UK equities between 23 and 28 September, while also withdrawing £453 million from US stocks.

While rising savings rates can be positive, it’s worth remembering that inflation in the UK is still more than 10%. So, placing money into cash savings will likely mean that you will still see the spending power of your cash reduce in real terms.

Remaining invested and taking advantage of any market bounce as and when that occurs, could still offer potential for long-term growth, and help to inflation-proof your wealth.

7. Going it alone

Recent research published in MoneyAge has revealed that the number of people fully withdrawing pension pots that could trigger large tax bills is on the rise. Many of these people accessed their pension without seeking financial advice first.

This is just one example of how trying to go it alone can lead to costly and potentially irreversible mistakes.

So, this Halloween, don’t be scared to speak to a financial planner to get the professional advice and support you need to live the life you want.

Get in touch

If you don’t want to make scary mistakes with your money this Halloween, speak to us.

Please contact our email at enquiries@blackswanfp.co.uk or call 020 3828 8100.

Please note

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

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. The information is aimed at retail clients only.

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.

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