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How women can turn these 3 common financial mistakes into wins

We explore some useful tips to help women navigate common financial situations for now and the future.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Everyone will face some tough financial decisions in their lifetime. But some of those are more common for women.

If you’ve ever felt like you’ve made some financial missteps, you’re not alone.

And if you’ve ever felt like you’ve made a big mistake, there might still be a way to bounce back.

We all know about all the potential gaps women typically face in their lifetimes. But it’s important to spot these gaps early and use them as an opportunity to overcome them and come out on top.

In this article, we explore some useful tips to help you navigate common financial situations for now and the future.

This article isn’t personal advice. If you’re not sure if a course of action is right for you, then ask for financial advice.

1. Not saving enough for retirement

There’s no escaping the 40% gender pension gap, especially when it’s linked to the pay gap.

We know that women tend to rely on state pensions more than men. The main reason for this is they’re less likely to have private pensions, or have built up a substantial workplace pension over their lifetime.

But here are some tips for each life stage to help save for your future self:

20s and 30s: Women in the earliest stages of their career can benefit from really taking advantage of saving as much as possible into their workplace or personal pensions. By paying an extra 1% of your salary into your pension over a 39 year-period, you could make a big difference to your retirement savings.

Remember money in a pension can’t normally be taken out until age 55 (57 from 2028), when up to 25% is usually tax free with the rest taxable.

40s and 50s: If you’ve taken a career break and it’s within the last 6 years, you can buy National Insurance Contributions. This will count towards and help boost your State Pension for when you come to retirement. If you don’t think you’ll reach the 35 qualifying years needed to meet the full new State Pension, it could be worth it. But don’t rely on this alone.

60+: Start actively planning your retirement. If you didn’t return to work after a childcare gap or you’ve helped care for elderly parents, you probably haven’t been contributing to your pension. You could think about setting up a personal pension, to top up any retirement savings you have. It’s worth knowing anybody can pay into this for you.

If you’re not earning anything, every tax year you, or someone else, can contribute up to £2,880 into your pension and the government will add 20% tax relief. If you’re still earning, the annual pension allowance is £40,000 for most people and you can get tax relief on contributions as high as you earn. Bear in mind though, tax relief will only apply if you’re 75 or under.

Tax rules can change, and the value of any benefits depend on your circumstances.

2. Staying in cash

If you’re guilty of keeping your savings in cash and not investing them, you’re not alone. On the whole, women tend to favour keeping their money in cash – this is sensible to an extent, but it shouldn’t be where our extra savings stay for the long term.

We always suggest having a cash buffer of at least 3 to 6 months’ worth of essential expenditure in an easy to access cash account. That’s in case you need to access the money for an emergency, like your boiler breaking.

For those nearing and in retirement, this amount should be closer to 1 to 3 years. This amount helps reflect that it can be harder to replenish your cash buffer after you’ve stopped working.

What about the rest? Any planned spending in the next 5 years that can’t be covered by income should also be held as cash. This might be for something like a wedding or a new car, or to start thinking about cash for retirement. For anything longer than 5 years, it could be worth thinking about investing it.

HL Financial Adviser Samantha Gibson says “most people think cash is the safest option, but it has its own risk too. That’s because the future spending power of cash will go down in value every year due to inflation.”

One of the most common reasons why people keep their money in cash is because of the risk of loss that comes with investing. But alongside the risk of loss, is also the potential for your money to grow. When you leave it just in cash, the probability is it will lose value over time in real terms. That’s because its value can get eroded by inflation, so you’ll lose the buying power you once had.

Investing shouldn’t be thought of in the same way as your short-term cash stash. It’s a long-term savings vehicle, designed to be able to weather market storms and help you reach your long-term goals.

Remember though, unlike the security of cash, investments can rise as well as fall in value, so you could get back less than you invest.

Should you save or invest?

Here’s what you can do to help start turning your money pains into potential gains:

20s and 30s: Consider putting small amounts away every month to save for the future into something like a Stocks and Shares ISA. With us, this can be as little as £25 a month. The earlier you start, the more opportunity you give your money to grow. But if you can stretch a bit more, to £100 a month say, in 20 years with a 5% growth rate (and charges of 1.25%) you could be sat on £35,415. If you kept it in cash, at an assumed interest rate of 1.5% compounded monthly, it would only be worth £27,968.48. But keep in mind that this is an example and you’ll find that actual returns depend on the products chosen.

You could also consider opening a Lifetime ISA if you’re between 18 and 39. A Lifetime ISA is a flexible way to save and invest for your first home or later life. You can put in up to £4,000 every tax year and benefit from a 25% bonus from the government until you turn 50.

However, there are some things to consider if you’re thinking about opening a Lifetime ISA. If you want to take money out before you're 60 and it’s not for an eligible property purchase, then this is usually an unlisted withdrawal with a government charge of 25%.

How to build an investment portfolio

40s and 50s: This is the time where you should ideally start planning how you want your retirement to look. For many, paying off a mortgage might be a priority. But it could also be worth thinking about adding more money into a pension, or a Lifetime ISA if you already have one to help shape the retirement you want. For anything left over, you might even want to consider starting to build your easy-access in-retirement cash buffer.

While you might not get a boost from the government (like you would with a pension or Lifetime ISA), you could also think about opening or continuing to pay into a Stocks and Shares ISA. If you invest for the next 10 years and used the same amounts in the worked example above, your ISA could be worth £14,484.

60+: If you’re nearing retirement and you’re still working either full or part time, think about continuing to contribute as much as possible into your pension. It might also be a good idea to think about investing any spare cash above your 1 to 3 year cash buffer into another long-term investment account, like the Stocks and Shares ISA.

3. Not taking financial advice

One of the most common mistakes women can make is thinking they don’t have enough ‘wealth’ to see a benefit from taking financial advice.

You don’t need to be a millionaire, or a hundreds-of-thousands-aire to take advice about your finances.

Here’s why:

In your 20s and 30s: Financial advice might look slightly different at this age. A good first step in your journey to advice is financial coaching and planning. You might want some advice on investments, but the majority of the financial advice you receive early in your career for example, should be how to maximise your finances now, for your future.

Think debt management, cash flow planning, how to save for your first house purchase, how to overcome financial hurdles from any potential career breaks and how to maximise your workplace pension contributions.

In your 40s and 50s: Financial advice starts to rise a level at this life stage. Advice can help you start preparing for the future and how you want it to look. Such as your retirement, or any benefits you could see from early Inheritance Tax Planning. This in particular can help provide the starting blocks for conversations with your parents and also help your plan for your children’s futures too.

You might find that your attitude to risk and investing changes over time, making advice a good option for you. You might also want to take advice on saving for your children and/or grandchildren, for example through Junior ISAs or Junior SIPPs.

In your 60s+: Your focus shifts to retirement. This is where advice can help you map out and make the most of your pension savings. Or help if you find you don’t have as much for retirement as you thought. Advice can also help you to make sure you’re keeping as much of your money for yourself and your loved ones.

There’s ultimately no wrong time to take advice, although we often do see women reaching out to advisers when they’ve experienced a significant life event, like the death of a parent or a spouse. Equally, there’s no upper or lower age limits to advice. And there are no hidden costs either.

It’s entirely personal, and dependent on your own circumstances. If you think advice might be right for you, but you’re not sure about your next steps, you can book a call back with our advisory helpdesk for free. They won’t give you personal advice on the call. But they can help you decide if advice would be right for you, answer any questions you might have, and tell you about the cost of taking advice and put you in touch with one of our advisers.

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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