Two powerful ways your fear of failure could erode your wealth

A fear of failure is a deeply human trait – all of us possess it on some level.

We have all entered a new situation in which we’ve thought: “what if I fail?” Be it a promotion, a lifestyle change, a relationship, or even parenthood, it is normal to be afraid of a downfall in one way or another.

With regards to your finances, it is understandable that you fear failure. Your lifestyle, your family’s wellbeing, and your future stability mostly rely on the success of your wealth, so there is no shame in being worried about what the future might hold.

In fact, the global events we experienced over the past three years, specifically the pandemic, increased anxiety and depression levels by 25%, the World Health Organisation (WHO) reports. These ailments, if you experience them, could easily affect your financial wellbeing as well as personal matters.

Plus, with global markets being rocked by the pandemic, the war in Ukraine, and other socio-political factors, certain “what if?” questions surrounding your finances may have come to mind from time to time.

While it’s normal to worry about “failing” financially, your fear of failure could be actively eroding your wealth.

Read on to find out two ways your fear of failure could be damaging your finances, and how you can amend this mindset for the better.

1. Fear of investment loss could prompt you to cling to cash wealth

Investing is a fundamental element of wealth management that can help you to grow your money sustainably over the long term. But investing can come with the potential to lose wealth as well as gain it. This may cause some individuals to worry about placing their hard-earned money in risk-associated territory.

Although placing a large portion of your wealth in an investment portfolio can carry some risk, which may lead you to avoid it altogether for fear of losses, there is an “invisible” risk to leaving your wealth in cash, too.

Indeed, inflation is likely to erode the spending power of your money significantly over the coming years. The rate of UK inflation stood at 8.7% as of April 2023, the Office for National Statistics (ONS) reports – and as it continues to rise year-on-year, the real-term value of your cash is likely to deplete.

For example, according to the Bank of England (BoE) inflation calculator, if you spent £50,000 in cash in the year 2000, you’d need £85,318.57 to cover the same cost in March 2023.

While past performance is not a reliable indicator of future performance, according to the Moneyfacts investment calculator, investing £50,000 over 20 years with a 4% average return could leave you with £109,556.16.

Although your cash savings are likely to see interest returns over time, it is unlikely the interest you accrue can consistently outpace the rate of inflation.

So, your fear of failure in the investment arena could hold your wealth back from growing to its full potential over the years, and may have a significant impact on your financial viability moving forward.

2. Worrying about running out of money could leave much of your wealth in the hands of HMRC later on

Although it is important to be prudent about budgeting, saving, and long-term thinking as you approach retirement, over-worrying about running out could have a detrimental effect on your wealth too.

Even if you have accumulated substantial wealth throughout your life and are set to live comfortably for the rest of your days, you could still be afraid of overspending.

While it is essential to be careful with your finances in retirement, sitting on a large amount of appreciating wealth as you get older could cost your beneficiaries a substantial amount in Inheritance Tax (IHT) down the line.

IHT is usually paid at 40% on the taxable portion of your estate when you pass away.

Importantly, the “nil-rate bands”, meaning the amounts under which your beneficiaries pay no IHT, are frozen until 2028 at their current levels, which are:

• £325,000 for all taxable assets
• An additional £175,000 for property passed to direct descendants.

So, the greater the portion of your estate that exceeds these nil-rate bands, the more your wealth is likely to be eroded by IHT when you pass away.

As such, your fear of running out of money could ultimately burn you down the line, which is why working with a Kellands financial planner can be so constructive, especially in the years leading up to, and during, retirement.

We can use cashflow modelling technology to project your potential future financial circumstances, so you can use hard data when budgeting for the coming years.

If you have plenty to live on until you pass away, you can then employ “giving while living” strategies. This kind of planning can both help your loved ones with key milestones now, and reduce the value of your estate for IHT purposes.

At the end of the day, it is entirely normal to worry about failing to provide for yourself and your family. Your family’s wellbeing means a lot to you – and a healthy level of preparation and awareness can only be a good thing.

Nevertheless, if you feel you are weighed down by the fear of failure, particularly if it pertains to the two examples mentioned here, it could be beneficial to discuss this mentality with your Kellands financial planner.

Our expert team can help you make confident financial decisions, unburdened by unnecessary doubts or worries.

Get in touch

Do you need help planning your financial future without the fear of failure weighing you down? Email us at hale@kelland.co.uk, or call 0161 929 8838.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate cashflow planning.

All contents are based on our understanding of HMRC legislation, which is subject to change. The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

The value of your investments (and any income from them) 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. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

< back to News & Views