Sound financial decisions are the bedrock of our lives, allowing us to keep a roof over our heads and fund everything else we want, whether it’s cars, education or holidays. They’re among the most important decisions we make but they’re fraught with difficulty and have become ever more complex and challenging.
The ongoing high cost of living, changing interest rates and market volatility all play a part in the financial choices we make. But amid this unsettling economic landscape, experts say many households struggle with financial planning and protecting their assets, including their money.
Selecting the right loan or pension plan, for instance, has turned from something relatively easy and routine into a high-risk strategy that could prove financially crippling if you get it wrong. And with an overload of financial information and advice, often it’s hard to know what to do.
Smarter money choices do not, however, require specialist financial knowledge, consultants say, when consumers are armed with the right information about products and associated risks — when they ask the right questions at the outset and are thinking long term.
Costly Financial Missteps
Over the last two decades Ali Zane has seen families fall into financial disaster due to mistakes they made that he says they could easily have steered clear of. As head of a company that specialises in “repairing credit”, iMax Credit in Los Angeles, California, Zane works with families whose loans have overwhelmed them to get them back to financial health.
Many of those families, he says, have “[ruined] their financial future because of mistakes that could have been avoided. I frame this based on thousands of real-world cases, not just theory.”
The biggest mistake he keeps seeing is people who put little thought into their pension because they think they are too young and can deal with it later.
“The largest and costliest mistake I see time and again is people ignoring the impact on their pension because they are in their late 30s and 40s, and thinking they can just catch up later.
“I remember working with a client I will call Teddi, who stopped contributing to her workplace pension at age 34 due to cash-flow issues. She lost 18 years of employer-matching contributions and 18 years of compounded growth. When she finally started to make contributions again at age 52, she had £67,000 less in her retirement than she would have had with contributions.
“That decision cost her £3,700 in retirement income. That would be a £92,500 loss over a retirement span of 25 years.”
The most significant aspect in this case was the loss of the employer’s matching contributions. “Her employer matched 3 percent of her contributions, and over 18 years of contributions, she left £34,000 in free money that her employer would have matched. That money would have grown to roughly £58,000 by the time she was retirement age.”
Zane says it’s vital that people know everything about their pension, including on the company side.
“I encourage everyone I meet to figure out their employer’s matching percentage and contribute enough to maximize it,” he says. “If your employer matches 3 percent, contribute 3 percent. If they match 5 percent, contribute 5 percent. That’s a given; you’re giving away free money.
“Go ahead and set your contributions to be automatic so you never have to think about whether you can ‘afford’ it. You can’t afford to lose out on matching contributions.”
Des Cooney of Axis Financial Consultants, which deals with pension transfers and investments, agrees with this approach.
“People make their most expensive financial mistakes in pension contributions,” he says. “They often underfund plans early in their careers, assuming time remains to catch up later.
“Interest compounds against them over decades, leaving retirement funds far short of needs and forcing reliance on state support. Contributions dwindle further if life events like job changes intervene.”
Cooney advises people to review their pensions without delay and to increase contributions by as little as 1 percent if they are able. “Direct it towards diversified, low-cost index funds suited to your timeline,” he suggests. “This small shift harnesses compound growth effectively.”
As a result, says Cooney, “[r]etirement security strengthens noticeably over 20 years”.
Choosing the Right Mortgage
Pensions aside, one of the other major financial decisions people have to make is about their mortgage, and financial experts say many people get them wrong, to their cost.
“An expensive mistake I see, over and over, is people judging affordability only by ‘Can we handle the monthly payment right now?’” says Shaun Bettman, CEO and chief mortgage broker at Eden Emerald Mortgages in Sydney, Australia.
The better question people should be asking, he says, is “Does this total debt load still work if life shifts a bit?”
Bettman says that among his clients, it “typically takes the form of a couple stretching their mortgage, plus financing one or more cars, plus credit cards, all at the same time, because the lender’s calculator says yes.
“It seems fine for the first year. Then, as interest rates rise by a couple of percentage points and expenses such as food and utilities go up, the relatively minor monthly strain experienced becomes a constant burden.
“Five years later, they sit in my office with no savings, climbing card balances and nowhere near the room to fix the problem that they had at the beginning.”
Bettman recommends that those considering mortgage products first do a “stress test” of their budget. He says he asks “clients to list out each and every fixed expense they have and then calculate what if interest rates increase by 2 percent for an extended period of time, not months or weeks.
“Anyone who is slightly stretched today usually takes a jolt upon seeing that number printed in black and white because it’s a reminder of how thin the margin really is.”
Doing this, he says, will give people an accurate picture of their finances and show what they can afford, instead of what a lender might tell them.
After that, it’s a matter of looking at various loans people might have and possibly restructuring them and putting any surplus into a different account. “Clients who do this early remain in control of their finances, rather than having to scramble to fill a gap or enter into expensive forms of credit to cover shortfalls,” says Bettman.
Rushed Borrowing Decisions
Hasty decisions on loans can also spell financial trouble down the line. Taking out a loan in the thousands for a foreign holiday, for example, without considering the interest rate and small print could land you in difficulty with your monthly finances and eat into your spending power, financial experts say.
One of them is Kevin Marshall, who offers an Amortization Calculator that lets people see their monthly repayments at a glance. He says everyday household budgeting is the key to financial wellbeing, and getting it wrong can often be more expensive than high-interest loans.
“People borrow impulsively for non-essentials, layering debt that balloons with fees,” says Marshall. “Monthly payments drain resources for years, blocking wealth building and emergency funds entirely.”
He recommends that people note all these expenses for one particular month, tracking them in a spreadsheet for ease of reference.
“Categorise spending and cut one discretionary area by 20 percent,” he suggests. “Redirect savings to pay down highest-interest debt first.”
Doing this, he says, gives people financial breathing room, and quickly. “Long-term risk drops as debt frees up future cash flow.”
At the same time, says financial consultant Ashley Akin, people should be properly planning for their tax returns, so they don’t run into difficulty. Akin, who runs the Prop Firm App that compares proprietary firms (companies that use their own funds for trading, not their clients’ capital) and offers trading tools, says there is no room for mistakes when preparing returns.
“Tax planning reveals the costliest errors for most individuals. People overlook deductions and credits available to them each year. Returns filed hastily miss opportunities, resulting in thousands paid unnecessarily over a working lifetime. Penalties compound if audits follow inconsistent records.”
The right way to do it, advises Akin, is to collect every document related to income and then list every relevant deduction, such as home office expenses and charitable donations.
“Use free government software to run scenarios before filing,” he suggests. “Submit accurate returns on time every year. Savings accumulate steadily and reduce lifetime tax burdens significantly.”
Looking Ahead
If you’re thinking about changing location, or your working days are coming to an end and you’re perhaps planning to move overseas, to a warmer climate like in Spain, to live your golden years in comfort, think again. Because swapping countries could end up with a heap of financial burdens.
So says Mark Damsgaard, founder Global Residence Index, a visa and immigration service specialising in so-called “golden visas”, which provide residency based on investment.
“One of the most expensive mistakes I see is people making long-term financial decisions without first considering how their location and tax exposure could affect the outcome,” says Damsgaard.
“People often focus on investment returns or pension growth while overlooking where they will actually live, be taxed and draw income later.”
He gives an example of a person building a pension pot and then moving to another country or spending a lot of time there. Then they “discover unexpected tax liabilities, reduced access to benefits or inefficient withdrawal structures.
“Over the long term, those oversights can wash away returns just as much as poor investing does.”
To help mitigate that, Damsgaard suggests that people also stress test their finances, to see how they hold up in different countries.
“Having a clear grasp/understanding of how taxes, residency rules and pension access change across borders helps reduce risk and prevents decisions that look smart on paper but fail in practice,” he says.
