The One Financial Mistake You Could Be Making During Economic Crisis
As the world braces itself for rising costs and a period of financial uncertainty, many will be looking at ways to cut back on monthly costs in order to maintain lifestyles or simply keep their heads above water. The first thing to cut back on is undoubtedly the unnecessary luxuries in life, perhaps you will cut back on eating out or take away coffees, some may look to monthly subscriptions such as TV streaming services or other supplemented costs.
It could also be tempting to refrain from adding to savings and simply retain any disposable income to put towards the rising cost of living. However you approach any difficult financial period, there is one vital mistake people make which could significantly affect their long term life goals.
Many individuals are still feeling the after effects of the Covid19 pandemic and the subsequent loss of earnings suffered by so many. Is it any wonder that as we hear news of a recession it has brought about a new wave of anxiety and intense worry over finances and realistically seeing through the storm. Therefore the current financial situation is demonstrating to us all the importance of having cash put aside to see us through turbulent financial periods.
Preparation is Key
As a general rule it is advised that you should have around 3-6 months worth of expenses put aside in cash to help support you should you lose your job unexpectedly, have to care for a sick loved one or any other unexpected obstacles that life throws at us, like a global pandemic for example.
As we revise our outgoings and look to streamline costs it can be tempting to cut back on pension contributions. Yes, for many the need for a pension can seem a long way off and something that could be rectified once things are ’back to normal’, however, with so much uncertainty this could be an incredible risk.
Don’t make this mistake
Cutting or reducing pension payments could set you back upon retirement and it is important that you continue to provide and support your future self. Standard Life put out some research to demonstrate how consumers may be suffering from rising prices, and they predicted that around three quarters of consumers were expected to cut back on their spending or savings in response to the rising cost of living. The research gave the calculation that a 35-year-old stopping pension contributions for one year could result in a pension pot £12,764 smaller. Stopping contributions for two years could create a massive £25,335 loss overall.
Review Your Pension Contributions
There are several ways in which we can pay into a pension plan, and during this time of financial turbulence it could be wise to review the payments you are making. Instead of reviewing your payments in order to reduce them it is wise to investigate how much is being paid into your pension to feel confident about the future, especially during times like this. Here are some different kinds of pension set ups:
If you are employed, you need to look at your workplace pension contributions. When you pay into your pension through your paycheck, your employer also makes a contribution as does the government. It is a sensible idea not to adjust these payments and instead make the most you can out of the additional contributions. You can certainly review these payments and see at which point your own contributions garner greater benefit.
You may have a private pension if you are self-employed or even to supplement your workplace pension. If this is the type of pension you have then you alone are responsible for ensuring payments are made. It is therefore important to make sure you are maintaining payments or start making them to feel confident about your financial future.
Pension payments should be treated as a non negotiable outgoing, much like you would pay your car tax or insurance to continue using your car, you should be paying into your pension without question to enable you to live without worry upon retirement. If you are to make cuts in order to better ride out these uncertain times, then it is much better to cut from spending than saving.
If you would like help in this area or have questions on the subject of pensions then please do not hesitate to contact us at firstname.lastname@example.org and we will be happy to assist you.
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