Money Street News


Financial adviser Malcolm Steel is the busiest he ever has been. He’s advising more clients than ever before on their finances amid economic uncertainty.

He’s seen many desperate people change jobs, move home or leave the UK in an attempt to improve their financial positions. Since the pandemic and cost of living crisis, he has noticed spending patterns and behaviour changing radically, especially when it comes to non-essential spending.

Swindon-based adviser Dave Southby agrees, and says everyone has had to review their finances and cut back, especially those with higher mortgage rates, no matter their income.

Here, Steel and Southby tell i the biggest mistakes people are making with their money, and give their best tips to improve them.

Not having an emergency buffer

An emergency fund is “an amount held, on deposit, which can be quickly accessed should the need arise”, says Steel. “Without this people are vulnerable to the shock of job loss, illness or unexpected large bills.”

Last month, the Resolution Foundation found that more than 11 million working-age people in Britain do not have basic “rainy day” savings of at least £1,000. They said people are facing a “triple savings challenge” of insufficient savings, an inability to cope financially with major life events and inadequate retirement incomes.

This is a problem, says Southby, 30. “It’s easier said than done, but do have an emergency fund before looking to lock money away into investments which may attract exit charges. Having an emergency fund will help avoid dipping into those investments at the wrong time and help you feel less financially restricted.”

Paying off the wrong debts first

“If you see debt piling up, I would initially review any income against outgoings. Has something changed to tip the balance all of a sudden?” asks Southby. People usually accommodate their monthly bills but forget about the extras such as birthdays, Christmas and holidays which forces many of them to borrow.

Southby advises those in debt to make a list of what is owed and to prioritise high-cost lending and any with early repayment charges. Then seek debt advice. Together with an adviser, make a plan to pay off the high-cost borrowing first, followed by the zero per cent credit. “There is no need to pay off the zero percent credit when you have debt that is charging you interest,” he says.

Steel says always prioritise the unsecured debt first as it has a much higher interest rate. “Shop around and transfer credit card debt over to lower interest bearing cards, or better still interest-free options,” he says. “Deals change all the time so comparison websites (like Money Supermarket and Saving Expert) are helpful.”

Lastly, overpay the monthly minimum on a credit card to clear the debt quicker. If it can be helped, never just pay the minimum amount.

For free debt advice, people can call the National Debtline, Citizens Advice or PayPlan.

Trusting crypto

According to Finder, 11 per cent of Brits have invested in cryptocurrency. Of the 5.6 million people who have, two-thirds are male.

Steel warns: “Be careful with crypto. Although this asset class is currently performing well it is highly speculative and, in the past, has been very volatile. Only allocate to crypto what you could afford to lose completely should things not go to plan.

“Bitcoin is in focus now because the momentum is strong and the value is hitting an all-time high, however the risk here is high and this is an asset that isn’t really backed up by anything tangible.”

Cancelling insurance policies

When it comes to cutting back on monthly payments, the last thing to cancel should be an insurance policy, says Southby. “It’s difficult when the cost of living increases to justify the cost of an insurance policy you may not need but don’t cancel protection if there are other things you can cancel first. Protection should be the foundation of any financial plan.”

Life insurance is a type of policy that protects somebody’s loved ones if they die. It can pay out a lump sum or regular payments to dependents of a person after they’ve gone. Although it’s a safety buffer Southby recommends, almost half of adults between 18 and 40 revealed last year that they did not have life insurance, and with the cost of living crisis squeezing many, the numbers could be higher.

Ignoring Isa accounts

Isa allowances for savings and investments allow £20,000 per person per tax year, explains Steel, and they should be used. Southby says to maximise the ISA allowance wherever possible.

“With saving, shop around. The best instant-access savings accounts are paying 5 per cent interest. At the same time, many current accounts don’t pay any,” he says. Southby adds: “[A big mistake is] leaving your money in low-interest accounts when there are other options. It can be a pain but shopping around can be beneficial to your savings.”

NS&I premium bonds are an interesting option. They have an effective interest rate of 4.4 per cent and all prizes are tax-free.” In these £50,000 can be held per person.

Relying on the state pension

State pension alone isn’t enough to support a good quality of life in retirement and we don’t know what future changes might be made to that,” says Steel. As a rule of thumb, he says people should be saving half their age as a percentage of their income.

So, a 20-year-old should be saving 10 percent of their income which will even out to “a great level throughout their career”. But if somebody waits until they’re 50, they should be saving 25 percent of their salary. “For employed people, the addition of employer contributions is a big boost too.”

Investing in only one sector

Investing is a risk. Investing in only one thing can be an even bigger risk because it can be a bigger loss. “Don’t have all your eggs in one basket,” says Steel. “By investing across a diversified portfolio you minimise the risk of getting a big loss. Invest across a range of sectors, asset types and geographies.”

“The hot investment of today can be the dog of tomorrow,” explains Steel, who mentions the dangers of following the herd and getting caught up in hype. Southby agrees: “There are many unregulated investments which are good but there are many which are not. You need to do your due diligence. If it sounds too good to be true, it probably is.”

Steel urges those looking to invest to take advice despite the extra fee as the benefits will pay off. “Also use an investment platform to help consolidate, make administration easy and secure investment charges,” he says.



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