Thinking about financial goals for the future can be daunting. There are often so many things to consider that it can put you off making a plan at all. This is what’s known as ‘decision paralysis’ – when the number of choices, and the impact these choices have on our lives, become so overwhelming that we just freeze. This is often the case when it comes to sitting down and sorting out your personal finances.
Are you someone who wants to start making changes with their money but doesn’t know where to start? If the answer’s yes, then keep reading. We’ll be providing some steps to kickstart setting your own financial goals.
Where can you start?
We’ll cover 3 key areas:
- Defining your goals and setting timelines
- The importance of starting early
- How to stay accountable
To understand what your financial future could look like, it’s helpful to set some goals. What’s really important to remember is that everyone has their own journey. What you might consider a goal might be irrelevant to others. Just focus on what you want in life.
How to define your financial goals
One of the easiest ways to set out a goal is by using a framework.
A very simple method is:
- What do you want? Your first home, a new kitchen, a holiday, an early retirement? This is the time to be selfish and think about what you truly want.
- When do you want it? When do you want to achieve this goal? You don’t need an exact date, but the more specific, the better.
- How much do you need? How much do you think you’ll need to achieve this goal? You can start with a rough estimate but, as above, the more detailed, the better!
- How important is this goal relative to your other goals? Once you have more than one goal, try to order them into high, medium and low priority.
Once you have your goals, start to finesse them by adding details. A common way of creating great goals is the SMART method. SMART goals are:
- S – Specific – The more specific a goal is, the more effective it is to plan for
- M – Measurable – How will you know if you are making progress towards this goal?
- A – Achievable – Can you achieve this goal within the timeframe set?
- R – Relevance – Does the goal align with your values and longer-term objectives?
- T – Time-based – Set a realistic end date
How to define your timeline
It’s a good idea to have a mixture of long and short-term goals so that your money can start working now for what you want in the future. Here are some example timelines to help you measure how to categorise your goals:
- Short-term goals: Less than 3 years
- Medium-term goals: 3-10 years
- Long-term goals: 10+ years
It is important to note that timelines are dependent on each individual, so shorter or longer goals might be more relevant to your situation.
Here are some example financial goals
Let’s put this into perspective for you. We’ll take a look at four goals and define their importance and priority.
Now, this is by no means a guide to what you should do. If you have similar goals, what would be the priority level for you?
The size of the goals does not matter. They can be things such as buying an electronic device, a 2-week vacation, to bigger goals of buying a house or getting married. But what’s important is defining goals that are specific to you, your wants and your needs. There are so many things that can happen in your life, so it’s really important to pick out key goals. There is no set path in life for anyone and as you know things can take a different turn when you least expect it.
How do you keep yourself accountable?
Reviewing your progress on a weekly basis can help ensure you are on track. Carve out 15 minutes in your week, for example on a Sunday morning with a cup of tea.
What’s also effective is having an accountability partner. This is someone there to make sure you are on track. People are less likely to stray from a path if they are being held accountable by someone else. Pick someone you trust and know will be looking out for you. After all, you want someone to motivate you to keep going. Is there someone going through a similar journey that you can go on together?
The benefits of saving early towards financial goals
The sooner you start thinking about your finances, the better positioned you will be in the future. Putting money away earlier means you will need to save less as you get older to achieve the same results.
But don’t take our word for it. Let’s do a comparison of saving the same amount but starting at different points in your life to show you what we mean. We’ll take a look at two people, Ben and Alice.
Ben is 25 years old working at an agency. He wants to put some money aside each month without breaking the bank.
Alice is 45 years old with 2 children and not a lot of spare cash.
Ben and Alice both save a total amount of £48,000 before retirement. They both will retire at the age of 65 years old. We set a yearly interest rate on an investment account to 7% (excluding inflation). Now let’s look at how much they have made.
- If Ben puts away £100 per month for 40 years he could save £264,012.48 at retirement.
- If Alice puts away £200 per month for 20 years she could save £104,793.08 at retirement.
By starting earlier, Ben has saved £159,219.40 more than Alice. This is because Ben has benefited from the effects of compounding over the years.
Check out the graph below to see what we mean:
- Make your goals as specific as possible. Think about what’s most important to YOU
- The earlier you put your money aside, the more you could save for the future
- Hold yourself accountable for your goals and targets