7 scary financial mistakes you need to avoid this Halloween

dog in Halloween ghost costume holding a jack o’lantern

Whether you associate Halloween with trick or treating, pumpkin carving, or the slasher movie series, 31 October has become a key holiday in the autumn calendar.

Brits spent an eye-watering £474 million on Halloween in 2019, with chocolate and sweets leading the way. So, with the spooky season just around the corner, here are seven scary financial mistakes to avoid this 31 October…

1. Having insufficient protection

Protection is the cornerstone of good financial planning.

Too often we hear stories of clients who have spoken to an old-school financial adviser who might have helped them invest their money or manage their pension without considering their wider financial needs.

Protection ensures there is an injection of capital when you or your loved ones need it the most. That might be because of an accident, ill health, or death. It ensures that financial support is available so you and your family can continue to achieve their life goals, even if unexpected events get in the way.

2. Not making a will

Research from Canada Life suggests almost three in five adults – around 31 million people – have not made a will.

A will is the only way to make sure your money, property, possessions, and investments go to the right people and causes on your death. Making a will is essential if you want your estate to be distributed in accordance with your wishes.

If you haven’t made a will, now is the perfect time. November is Will Aid Month, where participating solicitors waive their fee for writing a basic will and, instead, invite you to make a voluntary donation to charity.

3. Not knowing how much “enough” is

If you’re looking to live a comfortable lifestyle in retirement, or you’re a business owner looking to realise value from your company, one of your key questions will be: how much is “enough”?

Everyone’s “enough” figure will be different. It’s essentially the amount of money you need to live the life you want to without worrying about running out of money.

Factors that will affect your “enough” figure include your health and your goals for retirement, and external factors such as inflation and investment returns.

We use sophisticated cashflow modelling software to determine whether your savings and assets are likely to be “enough” and, if not, what you need to do to get there.

One of the privileges of being a financial planner is when you can show a client in black and white that they have “enough”. It’s genuinely a life-changing moment.

4. Withdrawing from your pension when you don’t need to

2020 research from PensionBee found that just 3% of people thinking about accessing their pension were planning to retire soon.

A further 26% planned to raid their pension pot to increase their day-to-day income or purchase something special.

Your pension fund is there to support you through your later life. As life expectancy increases, it may have to last you 20, 30, or even 40 years. That’s decades where you could be benefiting from tax relief and investment growth.

So, withdrawing money from it when you don’t have to could well adversely affect your long-term financial health. You may need to compromise when you retire as your savings will be lower.

In addition, if you start to draw flexibly from your pension while you are still working, you’ll also hugely reduce the amount that you can save tax-efficiently into your fund. You could trigger the Money Purchase Annual Allowance, which will reduce the amount you can save into your pension and receive tax relief on to just £4,000.

If you don’t need your pension savings yet, leaving them invested could well be the most appropriate option.

5. Paying a standard variable rate (SVR)

Whether it’s your mortgage or your utility bills, there’s rarely a good reason for remaining on a provider’s standard variable rate (SVR). This normally happens when you’ve benefited from a deal – perhaps a tracker mortgage or a fixed-price gas and electricity tariff – and the deal comes to an end.

Generally speaking, sitting on an SVR means you will pay too much.

This is Money report that, as of early September 2021, the average two-year mortgage rate was 2.52%. The average five-year fixed rate was at 2.75%.

Compare this to the Halifax SVR at 3.59% or the NatWest SVR at 3.85% and you’ll see that there could be considerable savings to be made – especially on a larger mortgage.

It’s also worth shopping around for deals in other situations where you could be on an SVR. For example, if you’re on your supplier’s standard gas or electricity tariff then head online to a price comparison site to see if there are cheaper gas and electricity tariffs.

Similarly, if your credit card purchase or balance transfer deal has ended, there may be other deals out there that save you money when compared to your card provider’s SVR.

6. Not using your annual tax allowances

You recently read about how the Income Tax take in the UK has more than doubled in the last 20 years.

The latest HMRC figures show that Brits paid £5.3 billion in Inheritance Tax in 2020/21, while Which? reports that Brits paid a record amount of Capital Gains Tax – just under £10 billion – in 2019/20.

Not using your tax allowances is one of the scariest financial mistakes you can make.

  • You can gift £3,000 each year and reduce your potential Inheritance Tax bill by this amount
  • Individuals have a £12,300 Capital Gains Tax (CGT) annual exemption (2021/22), meaning you can realise profits up to this amount and pay no CGT
  • Over-18s can save up to £20,000 into an ISA (2021/22) and benefit from returns that are free of both Income and Capital Gains Tax.

Other tax breaks, such as those offered by Venture Capital Trusts and the Enterprise Investment Scheme can also help you to mitigate tax. Speak to us to find out how you can make the most of the tax allowances and exemptions available to you.

7. Going it alone

Financial planning adds value. Of course, we would say that! However, studies have repeatedly shown that one of the scariest financial mistakes you can make is to try and go it alone.

A landmark study by the International Longevity Centre found that receiving professional financial advice between 2001 and 2006 resulted in a total boost to wealth of £47,706 in 2014/16.

Working with a financial planner does not just bring monetary benefits. Read about the benefits of financial planning on your emotional wellbeing, including feeling more confident and in control. Or, see what our clients told us about the benefits of working with BlueSKY.

Get in touch

If you want to ensure a treat rather than a trick this Halloween, get in touch to find out how we can help you to reach your goals. Email info@blueskyifas.co.uk or call us on 01189 876655.

Please note

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.