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DIY money management could cost you in the long run

Whilst it can be tempting to save and manage money by taking a DIY approach to finances, it could end up costing you money. Research suggests that eight in ten people overestimate their own financial capability and could be making decisions that aren’t right for them as a result.

Failing to seek financial advice when it could prove valuable may not be an issue for you. But it could be a mistake that your children and grandchildren are making. Knowing when financial advice could be beneficial can be difficult to understand, especially if you haven’t received advice in the past. Understanding how financial advice works and when it’s useful is important.

According to Aegon, taking a DIY approach to money matters costs savers in the long run. The research found that the most common reason for people not asking for expert help is self-belief in their own ability. However, whilst many were confident when dealing with savings and general insurance products, just one in ten were sure of their ability to make more complex decisions about pensions and investments. When you consider that both these areas are long term and can have a significant impact on future lifestyle, it’s crucial that savers feel confident in the decisions they’re making.

For example, just 29% of those that haven’t sought financial advice are confident in making a decision about when they will retire. This compares to 54% of advised individuals.

Steve Cameron, Pensions Director at Aegon, commented: “Managing your own finances can be rewarding, but there’s a lot to consider and it’s worth remembering that the financial decisions you make can have lasting implications for the rest of your life. That’s why working with a financial adviser often makes huge sense.

“Financial planning isn’t a one-size-fits-all approach. It’s designed around the individual to meet their personal needs and circumstances and can be invaluable in providing peace of mind, helping individuals make the right choices for their future wealth. There’s a real danger that poor decisions can mean plans unravel, putting people’s financial future in jeopardy. Having a professional by your side helps make sense of your options, many of which you might not know you even had.”

The financial benefit of advice

Whilst the above focuses on how confident people are about their financial decisions, past research has highlighted the monetary impact of not seeking advice too.

The International Longevity Centre has tracked how asset values have changed for individuals receiving advice and those opting for a DIY approach. The findings highlight how financial advice can help wealth grow:

  • Whilst not having enough wealth is often a common reason for not seeking financial advice, the research indicates it can have an even greater impact. The individuals defined as ‘just getting by’ saw a 24% boost to their pension wealth compared to the 11% experienced by ‘affluent’ individuals
  • Building an ongoing relationship with a financial adviser was also found to be beneficial; those that received advice at both points in the analysis had nearly 50% higher average pension wealth than those only advised at the start

When can financial advice help you?

So, when should you seek financial advice? The International Longevity Centre report indicates that there is a benefit for working with a financial adviser on an ongoing basis. However, there are points in your life when one-off financial advice can be invaluable. This will, of course, depend on your personal circumstance, but could include:

  • At retirement, you may have many financial decisions to make that will affect the rest of your life. Working with a financial adviser can help you understand what your options are and the income you can expect throughout retirement.
  • Estate planning can be complex. Part of this will include understanding your current wealth, how it will change, and how this can be distributed among loved ones. It may also include taking steps to reduce Inheritance Tax if this is a concern.
  • Following children, you may want to take steps to ensure you can provide financial support in the future. This may include supporting them through university or a deposit to get on the property ladder. Laying out plans and choosing the right products soon rather than later can help.
  • After a divorce, your priorities and goals may have shifted significantly. Taking financial advice at this point gives you a chance to reassess your current situation and whether you’re on track to achieve the future you want.

If you’d like to understand how financial advice could help you or your loved ones, whether on an ongoing basis or as a one-off, please contact us. We’d be happy to discuss your circumstances and where we can add value to your life.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.