One thing about my job is that I see everything.
I’ve met a massive range of people during the last 15 years as an FCA Regulated Financial Adviser.
People show me their finances; the contents of their bank accounts; their spending habits. The stuff they may not have even shared with their partner, and that they definitely would NOT be happy to share with the outside world.
I’ve seen people in a massive range of situations too.
There are people who’ve always worked and are on a modest salary of £20,000 – £40,000 a year, who’ve got savings and investments and pension pots. They’ve got everything tidied up, no debt, and everything works just great.
I’ve seen people earning £150,000 a year who have nothing to show for it. They spend more than they earn. They don’t put money away for the future and buying all that expensive stuff has left them with a heavy credit card bill, plus a brand new car on finance.
It’s fair to say I see people doing it well, but I also see people who’ve made mistakes.
So in today’s blog, I just want to share with you the 3 biggest mistakes I’ve seen over the years, so that you can avoid making them too!
Mistake #1: Leaving your investments sitting in cash when you thought you had invested them
This is most common if you set up your own pension or ISA online or without the support of a financial adviser.
When you pay the money into the pension or ISA account, it does just that. It sits there as money – as cash in the account – and it’s up to you to decide how to allocate it into the right type of investments, whether that’s individual shares or investment funds.
Which is easier said than done! You’ll need to work out what level of risk to take; what strategy of investment you want; whether you want to pick something that is ethically focused or not; and whereabouts in the world you want to be investing.
And when you’ve made all those decisions and pulled it all together, you then need to move the money from cash into your chosen fund and make sure it’s set up so that all future money you pay in goes straight into the funds that you’ve set up.
Lots of people don’t get this far.
They think they have “set up a pension” and indeed, they have.
BUT if you haven’t invested the money in the pension, it’s not going to be growing. I mean you might get paid a little bit of interest but if that’s all you were going to do, you might as well have left it in the bank!
Mistake #2: Putting all their money into a single investment type, or single investment wrapper
I spoke in another blog about not having all your money in a pension and why (read it here if you missed it!).
But it’s important to also look at whereabouts in the world you are invested and if you are invested in particular industries, in a way that means your portfolio is not adequately diversified.
When I say investment or investment wrapper, this could also mean investment property.
About 20 years ago, there was a big rush for people to buy investment property. Books like Rich Dad, Poor Dad came out. They said that owning assets like property and then using the cashflow from them to pay for your lifestyle was the way forward – the only way forward – so loads of people bought property and ran very successful property portfolios.
But things have changed over the years.
That’s what the world is like, especially in the world of finance and when it comes to things like buy to let property. House prices have gone up a lot more than the equivalent rent has gone up in the same period of time.
The way mortgages are assessed for buy to let properties has changed too. No longer can you pull all the money out straight away when you refurbish a property, because now you can only borrow an amount based on the rent the property generates, which is not necessarily based on the overall value of the property.
This means for properties in London and the South East, you often can’t get a mortgage for more than 60% of the property value. Which leaves a good chunk of your money tied up in bricks and mortar.
The other thing that’s changed is the tax treatment of buy to lets. At one point it was possible to create quite a generous amount of profit. But with the change in the way that mortgage interest is assessed against tax, and the way the changes in the capital gains tax allowances have happened, it’s nowhere near as profitable as it was – either to run, or when you sell up.
Now I’m NOT saying that investment property is a bad idea or that it can’t make up part of your investment portfolio.
But one of the mistakes people make is having ALL their investment in property without having money elsewhere as well. Property is not a liquid asset – you need to sell it to get your money out – and we all know how long that can take!
Some people don’t even have rental property. They say things like “well, my house is my pension. When I get to retirement, I’m going to sell my house and downsize and use that money to live off”. Or they plan to sell their house, move in with their kids and live off the money that way.
The problem is that things don’t always work out as we plan.
By the time you get to retirement age – whatever that is – maybe you won’t want to have to leave the house you love. Moving to a smaller or cheaper property might mean moving out of the area to somewhere that, quite frankly, isn’t as nice as the one that you’ve left.
Will you really want the stress of moving at that point in your life? To move away from the community where your friends and family are? Will you really want a smaller house, with less room for your kids or grandkids to come and stay?
And do you really want to live with your kids?!
I mean really… no matter how much you love them, it’s going to be a massive upheaval when you’re all used to your own freedom. Unless there’s a medical reason you need that care and level of support, you might not be ready to give up that amount of independence and autonomy, just because you’ve hit 67 years old!
Mistake #3: Not keeping track of what investments you’ve got where (and not monitoring their progress)
The last mistake we’ll cover today is really common, especially if you’ve changed jobs every few years and have various pension pots dotted around.
It’s hard to keep track of how each one is performing or what fees are being deducted.
Lots of people end up having savings in different bank accounts too, where you’ve moved money about to try and get a better rate. You end up with £100 here and a couple of thousand there, bits and pieces all over the place that are hard to keep track of.
Some of it might not be growing very well or you might even lose track of it completely, not realising you’ve got more money out there than you thought.
This is where simplifying your finances is REALLY important.
By having your pension investments in one place – not necessarily in one account, but in maybe one platform or at least simplifying it to a couple of places – you can see all everything that’s going on a lot more easily.
You don’t need to do that if you really don’t want to. You could keep a spreadsheet of all the accounts you’ve got, or record them all in an exercise book.
But ultimately, it’s important that you keep track of where things are. Not just for you but for further in the future, if you were to end up losing capacity or getting dementia and your family needs to be able to manage your money on your behalf. It’s no good if they don’t know where your bank accounts are.
The same goes for when you come to pass away. Will your executors know where all your financial things are? Is there a list somewhere?
Once you’ve got a good idea of the assets that you hold now – whether that’s property, cash or investments – the other thing you need to do is to work out whether there’s enough money growing at a suitable rate, so you’ll end up with what you need when you need it.
Maybe you’re saving for a house deposit. Maybe you want to give a lump of money to your kids when they leave university. Maybe you’re saving for an around the world trip or to spend 3 months travelling around New Zealand. Maybe you’re saving for retirement.
Whatever you want, you’re going to need a chunk of money. You need to know how much that is and then work out whether you’re on track to get there.
Otherwise one day, you’re going to have a nasty shock when you go to the bank account or pension pot and realise there’s not enough money there, and it’s too late to do anything about it.
If you want to chat about how to organise your finances in a way that means you really understand what’s going on, the importance of diversifying and how to do it…
… this is exactly what we do inside The Expansive Wealth Collective!
It’s a hybrid 1-2-1 / group experience where over a period of 12 months, we’ll deal with ALL of the financial things that you need to sort out.
We’ll create your unique Strategic Wealth Plan, so you know how big a pot of assets to aim for to be financially secure. We’ll work out the right type of investments to use to fill the gap – ensuring that they’re all in the right name, ownership and tax wrapper – so that you maximise growth, minimise tax and your pot grows FASTER.
We’ll find more money to invest (without needing to earn more) and protect your wealth, putting everything in place to ensure it passes to those you choose with the minimum of fuss and with the minimum (or no) inheritance tax.
We’re also going to put in place things so that life doesn’t knock your plan off track and that your standard of living is fabulous… even in a month where you make fewer sales!
There’s so much included, from bitesize trainings to live mentoring sessions and in-person Strategy Mapping Days.
It’s literally got everything you need, to figure out all your money stuff once and for all.
Get all the details about The Expansive Wealth collective here now.
Or if you want to chat it through, click here to send me a message now!
Until next time,
Claire