You’ve probably heard it all before, but when it comes to taking control of your financial future, you might want to look at setting yourself some goals so you can hold yourself accountable and help stay on track to achieving them. After all, saying you’re going to save more money is all well and good — but how are you going to stay motivated if you don’t know what you’re aiming for?
This is why it can be helpful to ask yourself the following questions: what do you want to achieve; how long will it take; and how will you get there?
And once you have these answers, then it should be easy enough, right? Well, kind of.
Because, whilst having goals is essential, it’s not necessarily enough. You need to set goals that are right and actually achievable for you.
With that in mind, here’s a few things to consider when setting goals for your future.
Good financial goals are like any goals you set yourself, in that they need to be SMART: Specific, Measurable, Achievable, Realistic, and Time-bound.
Here’s a breakdown of what that actually means:
The clearer your goals are, the better — otherwise it’ll be far too easy to veer off track. So, instead of saying "I want to retire comfortably in the future", try to break it down and add details.
For example, you could work out how much you might need to live on by referring to sources, such as the Pension and Lifetime Saving Association’s Retirement Living Standards (which considers things like how often you want to go on holiday or replace your car), and our very own pension calculator, too.
After all, what does it mean to retire ‘comfortably’ anyway? Ask multiple people, and you’ll likely get very different answers. So, the key is to know what this means to you and attach a monetary value to it.
Additionally, you might want to look at how much you have saved already (here’s a guide on how to track down a lost pension in case you need it), and how much you could comfortably afford to pay in each month going forward. This will help you to choose a realistic retirement age to aim for.
Once you know this, you could go with a more specific goal like: “I’m going to pay £300 a month in a personal pension so that by the age of 65, I can have the retirement I want.”
By setting specific goals you should be able to measure your progress and check you’re making headway with them. If you’re not, then you can make adjustments so they become more achievable.
Say your goal is to keep back £200 a month to build up your emergency savings fund. After a year – and without taking into account any interest you might gain on your savings – you should have £2,400 in your rainy day fund. And, after two years, this should go up to £4,800.
Now that’s an easy thing to track, because you simply need to check how much you’ve got in your pot — and whether it’s in line with your goal. And, if after 12 months, you’ve only got £2,000 tucked away, then you know you’re £400 short and may want to find other ways to get there.
The aim here is to try to set goals you can act upon and have a good crack at; otherwise, what’s the point of having targets if you can’t achieve them? This will only make you feel bad, and it could discourage you from setting additional goals in the future as you’ll tell yourself it’s pointless doing so in the first place.
One thing you might want to do is have an action for each goal you set.
So, say you want to buy a new car and need to put away £600 a month for it.
You’ll first need to work out if you can realistically afford to put this money aside; if you can live comfortably without that extra £600 and still pay your bills, then you’re good to go. But if your budget is a bit tight, then perhaps your target is too high.
And, although it’s not a nice thing to think about, it isn’t just about whether you can afford this right now. Think about all the potential roadblocks that could undermine your financial journey, such as a life-changing event that meant you had to dip into your savings, or the potential for prices to go up quicker than you can save.
This might sound obvious to many, but your financial goals should be as realistic as possible. By this, we mean that you can’t aim to be a millionaire in 10 years if you take home £2,000 a month. Sure, we all want to reach for the stars, and maybe you will win the lottery or launch your own successful business one day, but this also might not happen.
If your goals are unrealistic, then they’re more like wishes. And, whilst it’s great to have big dreams, it’s better to think smaller and focus on what you can achieve.
Basically, what we’re saying, is to consider your personal circumstances and current financial situation when setting goals. Obviously, these aren’t fixed and may change over time, but you’ll be able to adjust them when they do. They don’t have to be set in stone if they’re not working for you.
When thinking about your financial goals, consider what your deadline might be, as this could have a big impact on how you go about achieving them. Are they short-term goals which can be achieved in less than five years, medium-term goals which could take between 5 and 10 years, and long-term goals, which is for anything above 10 years?
In practice, saving for a car or a wedding would be seen as a short or medium-term goal, depending on your financial situation; whilst saving for your retirement may be seen a long-term goal as it can take decades before you reach your target.
Once you know your timeframe, you’ll be able to decide whether you want to save or invest your money to help you reach these money goals.
Investing vs saving – which is right for me?
For short-term goals , putting your money in an easy-access savings account could make the most sense, as there isn’t the risk of getting back less than you put in like there is with investing (though you might not gain much in the way of interest). However, for medium and long-term goals, you might want to consider it.
Sure, investing does come with a risk: as we said, it is possible to get back less than you put in. But the longer you invest for, the more time you’ll have to ride out dips in the market (which are normal to experience). Plus, unlike putting your money into a savings account, the profit you generate from your investments isn’t tied to fix interest rates set by your bank — meaning your cash could have more potential to grow.
If you’ve never invested before, then don’t worry because, at Wealthify, we have a team of experts who’ll invest your money for you and keep an eye on how your Investment Plan is performing (so they can make changes to help keep everything on track). And, if you take advantage of our Stocks and Shares ISA, you won’t have to pay tax on any returns generated by your investments either.
Ways to achieve your goals
Setting SMART goals might only be the first step in your financial journey, so here are some tips to help you turn them into reality.
Write them down
Writing down your goals might seem a bit silly (seeing as you already know what they are), but studies suggest that it could help you achieve your targets.1
Having your goals written down – whether on paper in a journal, a list on your phone, or on a board on your kitchen wall – will act as a constant reminder. As human beings, we often need visual cues to remember things, and the same can apply to your goals.
What’s more, writing them down could be a great way to organise your thoughts and stop them blurring into one — especially if you have multiple ones you want to achieve.
Make a plan
A good way to reach your goals is to create a plan of action. Say your goal is to put £50 a month in a personal pension – you need to think about the ‘how’ and ‘when’.
For example: will you put the money in at the start or end of the month? Will you automate the process or make top-ups manually? These are the kinds of questions you’ll need to ask yourself when drawing up your plan.
Just get started
If you never start working towards your goals, you’ll never achieve them — it’s as simple as that. So, once you have a plan, put it into action, try to stick with it, and don’t forget to track your progress.
In the case of financial goals, if the savings strategy you’ve chosen to use isn’t quite right, then don’t hesitate to adjust your target until you find the right formula that works for you. The key to success is often to keep up the effort over time; it’s all about consistency and patience at the end of the day.
And remember: when you’re setting goals, think SMART!
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
Wealthify does not provide financial advice. Please seek financial advice if you are unsure about investing.