4 truly frightening saving and investing mistakes to avoid this Halloween

Halloween is full of spooky fun, but these 4 saving and investing mistakes could be truly frightening. Find out how to avoid them and keep your plans on track

Halloween is one of the most popular holidays throughout the world. Children and adults alike relish the prospect of dressing up, watching scary films, and venturing into the local neighbourhood for a spot of trick-or-treating.

However, while you might enjoy feeling spooked on Halloween, you’re probably less likely to want any unexpected financial scares.

Yet without careful planning and professional financial advice, it could be relatively easy to make a financial mistake that sends an unwelcome shiver down your spine.

Read on to discover four truly frightening saving and investing mistakes. Then, find out how you could avoid them this Halloween and beyond.

1. Holding too much in cash savings

Just like the characters in your favourite scary movie, you might seek out safety and comfort when the world feels unstable and scary.

Keeping all your savings in cash may feel like a “safe” and reassuring option.

What’s more, cash savings could seem particularly attractive currently, as interest rates have risen considerably in recent years. According to Moneyfacts, the best easy access savings account interest rate was 5.2% on 7 October 2024.

Of course, cash is crucial – having some cash to hand to cover short-term or unexpected costs is an important part of most financial plans.

However, holding too much in cash could hamper your progress towards your long-term financial goals.

This is because the real-term value of your savings could be eroded by inflation over time.

Indeed, in the last few years, inflation rates have reached record levels in the UK, peaking at 11.1% in October 2022. As a result of these higher rates of inflation, MoneyAge (25 October 2023), has revealed that UK savers lost £37 billion in real terms on their cash pots in 2023.

While inflation has fallen to just over 2% as of August 2024, even a modest inflation rate could diminish your cash savings over time.

As you can see from the table below, an inflation rate of just 2% (the government’s target rate) could reduce the purchasing power of £10,000 to just £6,095 over 25 years.

Click here to view

Source: Schroders (14 March 2024). Assumes no cash interest is earned on the original deposit.

So, holding a large portion of your wealth in cash may not be the most effective way to achieve your long-term financial goals, such as retiring at the age you want.

In contrast, by investing some of your wealth you could potentially achieve higher long-term returns that keep pace with, or even beat, inflation.

Indeed, Schroders measured the performance of equities against inflation using historic stock market data and discovered that they outpaced inflation 100% of the time over 20 years. In contrast, cash only outstripped inflation 60% of the time.

If you’re apprehensive about investing, I can help you build a diversified portfolio that aligns with your appetite for risk and long-term goals.

Read more: 2 powerful ways to boost your investing confidence as a divorced woman

2. Saving and investing as an after thought

Another common and truly frightening financial mistake to avoid is waiting until the end of the month to see what’s left of your income, before thinking about topping up your savings and investments.

Putting your short-term spending needs first could lead to inconsistent saving and investing, which makes it harder for you to accumulate wealth for the future.

One of the simplest and most effective ways to make saving and investing a habit is by “paying yourself first”. This means committing to saving and investing a percentage of your earnings each month as soon as you receive them.

So, contributing to your pension, savings, and investments becomes a non-negotiable routine that you factor into your budget – rather than an optional extra that can be easily abandoned if you find something more fun to spend your money on.

Automating your savings and investments so that a specified amount is transferred to the relevant accounts each month, is a useful way to build this habit.

3. Not making the most of your ISA allowance

If you’re a fan of scary films, you’ve probably experienced the frustration of watching someone flee upstairs to evade an intruder when they could have escaped through an open door.

Why miss such an easy opportunity to get where you need to go?

Similarly, failing to make use of your annual ISA allowance could be a regrettable mistake.

In 2024/25, you can invest up to £20,000 across most adult ISAs, with some additional restrictions applied to certain accounts. You could use your allowance on a single ISA or spread it across different accounts. For example, you might save £15,000 in a Stocks and Shares ISA and £5,000 in a Cash ISA.

The key benefit of saving in an ISA is that any interest or returns you make are free of Income Tax, Dividend Tax, and Capital Gains Tax. So, using your full annual ISA allowance could allow you to grow your wealth substantially without increasing your tax bill too.

What’s more, if you’ve used up your allowance, you could top up your spouse or civil partner’s account to maximise your tax-efficient savings as a household.

4. Pausing pension contributions during periods of financial pressure

If you’re under financial pressure, pausing your pension contributions might feel like an easy way to reduce your outgoings. Indeed, Money Marketing (18 September 2023), has reported that one-third of UK workers considered reducing or pausing their pension contributions between 2021 and 2023 due to the cost of living crisis.

However, this might be another frightening financial mistake as it could significantly reduce your pension income when you retire.

Figures from Money Marketing (18 September 2023), have revealed that an individual earning £70,000 with 8% matched pension contributions would take home an extra £3,360 a year by pausing their contributions. However, they could also lose £12,192 each year from their pension pot due to the nature of compound returns.

So, pausing contributions to your pension could make it harder for you to fund the retirement lifestyle you hope for. In contrast, maintaining your pension contributions offers several benefits.

You’ll normally receive basic-rate government tax relief on any contributions either you or your employer make to your pension. If you’re a higher- or additional-rate taxpayer, you can claim your marginal rate of tax relief through self-assessment. What’s more, any wealth you invest in your pension could benefit from compound growth over time.

Also, anyone can pay into your pension. So, your partner, for example, could make contributions to your pension during any period when you’re unable to do so, such as if you’ve taken time off work to raise children.

So, if you’re under financial pressure, you might want to stop and consider your options before pausing your pension contributions.

While it may feel like a stretch to continue making contributions to your pension when times are hard, doing so could help you build the savings pot you need to achieve your desired retirement lifestyle. Now that doesn’t sound frightening at all, does it?

Get in touch

I can help you review your financial plan to ensure you’re not making any frightening mistakes that could hamper your progress towards your goals.

If you’d like to chat, please email lottie@truefinancialdesign.co.uk or call 07824 554288.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients 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.

Taxation is not regulated by the Financial Conduct Authority.

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 tax implications of pension withdrawals will be based on your individual circumstances.

Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.  

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. 

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.