Right now you may be throwing caution to the wind when it comes to your finances and be set on enjoying your Christmas. But you still can’t afford not to make sensible decisions when it comes to your saving and investing – and your money management in general. Forget the seven swans a-swimming and the three French hens – here are our 12 don’ts of Christmas.
Don’t drain your ‘rainy day’ fund to pay for Christmas
Finances may be stretched right now, but you need to resist the temptation to dip into your emergency fund. As a guide, you should aim to have between three and six months’ worth of expenses squirreled away as a financial cushion in an easy-access account. Equally, if you have no choice but to dip into these savings, be sure to rebuild them as soon as you can.
Sarah Pennells, consumer financial specialist from Royal London, said: “Rainy day money is there to tide you over in difficult times. It is your financial security blanket, not a Christmas spending pot.”
Don’t leave credit card debt to fester
If you’re paying interest on an existing credit card or store card, check now whether you can cut the cost with a balance transfer deal. Don’t leave this until the New Year, as if you do, your debt will go on compounding.
Remember you’ll only get accepted for the best deals if you have a good credit history. Be sure to use an eligibility tool to see which cards you’re more likely to be accepted for, as you don’t want to end up with ‘hard’ searches on your credit file. These marks could affect your credit score.
Don’t leave savings languishing in an account paying a measly rate
More than a third of savers keep their money with their current account provider and don’t bother comparing rates, according to the Building Societies Association. But this could mean you’re getting a paltry return on your hard-earned cash. If, for example, you have £30,000 earning 1.66% with a high street giant, you could make £502 in a year. If you moved to an account paying 5%, you could make £1,535 – leaving you £1,033 better off.
Don’t underestimate the ‘magic’ of compound interest
Compound interest helps your money grow faster over time. This is why it’s so important not to delay saving: the earlier you begin, the better. For example, if you save £1,000 at 5% interest, you’ll earn £50 in the first year. By year two, you’re earning interest on £1,050, bringing the balance to £1,102.50. This article explains how to take advantage of the best trick available to savers and investors.
Don’t put all your eggs in one basket when investing
By spreading your money across a range of different investments, you can reduce your risk and increase your chances of long-term growth. This is harder to do if you only invest in stocks and shares, unless you have the time and knowledge to build your own portfolio.
When you invest in funds you get instant diversification, and you can increase this by investing in a range of different funds. Remember, you can have funds as well as stocks and shares in the same portfolio – you don’t have to choose between them.
Don’t try timing the market
When your emotions are running high there’s more risk you will make the wrong investment decisions, as our brains are hard-wired to run from danger. But resist the temptation to ‘time the market’, as you may end up selling when markets are low and buying when they are high. Being out of the market for just a few days can have a devastating effect on returns.
Saving small amounts on a regular basis can help to combat this. One way to do this is by setting up a monthly savings plan, investing from, say, just £25 or £50 a month. Read more on time in market or timing the market.
Don’t opt out of auto-enrolment
With many of us feeling the pinch right now, there may be a temptation to cease pension contributions – or opt out of auto-enrolment. But this could be a false economy. Saving into a pension has long been considered the best way to build a retirement fund thanks to the valuable tax reliefs applied to contributions, tax-free growth and income.
Before making the decision to stop contributions, do all you can to see if there are other ways you can cut back and save money. If you do pause for a while, be sure to start again just as soon as you can.
Don’t lose track of your pension pots
The Pensions Policy Institute (PPI) estimates that as many as 3.29 million pots worth £31.1bn remain unclaimed in the UK, containing an average sum of £9,470. If you think you’ve lost track of some of your savings, a good starting point is the Government’s free-to-use Pension Tracing Service.
Other services to consider include Penny, an app which traces old pensions on behalf of savers – and helps them to consolidate their pots. AJ Bell also has a service to track down missing old pensions, with the option to combine them into one pot. Elsewhere, Moneyfarm offers a free ‘Find, check & transfer’ service, and Standard Life has a free tracing tool, powered by pension-finding platform, Raindrop.
Before consolidating your pensions, first check if there are any exit fees, or whether you would be foregoing any benefits by consolidating, such as guaranteed annuity rates. If you do go ahead there are lots of upsides. You will, for example, only pay one set of fees and have one set of paperwork to deal with. It can also be easier to see how your pension is performing.
Don’t put off writing a will
An alarming 40 million Brits are without a Will, according to the Co-op, with almost a fifth believing they ‘simply didn’t need one.’ But you can’t bury your head in the sand as a will is a crucial legal document. It offers people invaluable peace of mind that their wishes will be legally recognised and that vital assets such as property and savings can be protected for their loved ones after they’ve gone.
Don’t pay more than you need to
If you’re putting your hard-earned money to work by investing it, you don’t want to undo that effort by seeing your growth eroded by high fees and charges. This includes not paying too much for your platform, especially if it doesn’t meet your specific needs. Check out our tips for getting the best out of your platform, and use our platform comparison tool to find the right one for you.
Don’t leave family financial security to chance
Similarly, don’t make the mistake of thinking income protection isn’t necessary for the young and healthy. Remember that accidents and health issues can occur very unexpectedly, and it’s often after the fact that we wish we had been better prepared. Here’s more on how to safeguard your family finances.
Don’t leave your tax return until the last minute
With just a few weeks until the online self-assessment deadline on 31 January, the countdown has well and truly begun. Leaving things to the very last minute isn’t just stressful, it also increases the risk of you making an expensive mistake. Moreover, it’s more likely you’ll miss key opportunities to save tax. You can access online help and support to help you file. To find out more, search ‘help with Self Assessment’ on Gov.uk.
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