3 quick fixes for the money mistakes too many of us make

WHEN it comes to investing there are many money mistakes we can make that prevent us from reaching the secure financial future we all hope for. Here are three of the most common ones with simple fixes to help keep your savings on track.

1. Ignoring the fact that one day we will be old - and we will need a pension

While it’s common for us all to put off saving for our retirement - after all a 20-something has more pressing demands on their money than a far-off event 40-plus years down the line - but for women in particular, swift action as soon as you start working can make a huge difference to your future financial prosperity.

Odds are that there will be breaks in your career path, if you have a baby for instance, or if you need to take time off or reduce your hours to care for an elderly parent, say. Because the truth is, I’m afraid, that women still tend to be the ones who bear the brunt of these caring responsibilities.

The so-called “motherhood penalty” and “good daughter penalty” are real. The motherhood penalty is one of the significant causes behind the gender pension gap, with many women missing out on potential contributions. So it’s very important to think about any career gaps you might encounter and how you might continue to build your pension pot around these. 

The quick fix

Fidelity research shows that putting aside an extra 1% of your salary every month, as soon as you start working, is enough to bridge that gap though. Which means that you won’t risk automatically ending up financially out of pocket compared to your male counterparts when you reach retirement age, all because you’ve chosen to start a family and/or spent time caring for your ageing parents along the way.

2. Thinking we’re not old enough, rich enough or experienced enough to make ‘proper’ financial decisions

Apathy, allowing small problems to snowball into bigger issues, burying your head in the sand - we’re all guilty of some of these behaviours from time-to-time, and they’re often the root cause behind the financial challenges we encounter. The other is simply thinking it’s “not for the likes of you”.

The starting point is to take responsibility for your own financial position. Knowledge is power and making sure you have a clear understanding of all aspects of your financial position - from your income to outgoings - will ensure you’re able to prioritise and make informed decisions that support your goals.

When it comes to priorities, it’s very easy to focus on the here and now. However, retaining a long-term view will help you to consider the impact of financial decisions you make today on the goals you have for the future. Many of the most common financial mistakes - chasing quick wins, attempting to ‘time the market’, and taking a knee-jerk reaction to market volatility - can all be avoided by taking a longer-term perspective.

The quick fix

Acknowledging that misconceptions lie at the heart of so many money mistakes is a game-changer. For example, if you’re assuming that investing requires you to invest huge sums of money or that you need to be an expert stock picker before you start are both not true. These things can certainly help, but everyone has to start somewhere, and the mistake is taking an ‘all or nothing’ approach and missing the opportunity to increase your wealth. Starting small with regular contributions that you drip-feed across a balanced range of assets can have huge power over time. 

Missed opportunities are another cause behind some common money mistakes. Whether it’s maximising your annual allowances each year to invest as tax-efficiently as possible or exploring whether your employer offers the opportunity to increase the workplace pension contributions both you and they make - there are many ways to boost your financial position which many could be losing out on. 

3. Setting ourselves vague, woolly or frankly unachievable goals

The people who tend to be the most successful investors are the ones with clearly established goals. 

Whether your focus is on buying a car, getting on or moving up the property ladder or planning your retirement, clear goal setting is crucial to your success. If your goal isn’t specific it’s less likely you’ll achieve it. Rather than saying “I want to have more money”, set yourself a definite target and an achievable deadline and then work towards it.

The quick fix

Once you have a specific goal, you can figure out what sort of investment you might need to achieve it. It also enables you to check-in from time to time to make sure you’re still on track.

Ask yourself: What am I hoping to achieve with this goal? Why is this important to me? How will I know when I have achieved it? 

The simplest way to stay on track is to automate your savings and investments. Set up a regular savings plan and when you can, don’t forget to top it up with any extra cash you’re fortunate enough to get along the way. That way you’ll achieve your goals even quicker.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.