Defining your goals

What are your goals? ✏️

While you may already have a detailed life plan, it’s also totally normal not to have an answer prepared for this question!

Start by simply listing everything you think you might be interested in. Don’t worry at this stage about how to achieve or prioritise them – this is an exploratory step and you can refine your list as you go over it.

Examples of goals could be:

• Large purchases such as electronics, equipment for hobbies, furniture or appliances, etc
• Leisure activities such as holidays
• Training, lessons, courses, post-graduate study, etc
• Vehicles
• A wedding
• Buying a home
• A year off from work
• Parental leave
• Refurbishing your home
• Paying off your mortgage
• Planning for your retirement
• Retiring early
• A future investment such as a buy to let property or starting a business
• Saving for your children

How much will it cost? 🎯

For some goals, you may be able to put a cost and date on them with relative confidence. For example:

• 🏖️ Summer holiday: £900, this summer
• 📱 New phone: £400, next year
• 🚗 Car: £5,000, likely needed within the next 2 years

For other goals, the time and cost may be uncertain, or open-ended. For example, you may want to save up a house deposit, but not yet know exactly when you’ll end up buying or what it’s likely to cost.

For these goals, record any other markers you have for your goals’ success. For example, ‘deposit for a 2-bed house in my area‘, or ‘a total retirement income of £20,000‘.

You can then begin to calculate how much money you are likely to need to fulfil this goal. Don’t worry if it’s really approximate. We have some guides to help you:

• For savings to buy a home, see our page on mortgages, which will help you calculate how much you can expect to borrow, and thus how large a deposit you require.
• For retirement savings, see our pensions page for an explanation of how pensions work and how much income you are predicted to receive in retirement based on your contribution levels.

How much do you need to start putting aside? 🧮

Your next step is to turn each goal into a monthly payment. Then you can see what they all add up to, and if necessary, adjust them to fit your budget.

For goals that are short term and well defined, simply divide your target amount by the number of months left until you need the money. In the above example that would be:

• 🏖️ Holiday: £900 ÷ 6 Months = £150 needed to save per month
• 📱 Phone: £400 ÷ 12 months = £33 needed per month
• 🚗 Car: £5,000 ÷ 24 Months = £210 per month

If you don’t have an exact date or amount, use an estimate.

If your goal is more than 5 years away, you are likely to want to invest your savings to benefit from some growth. You can use a compound interest calculator to see what monthly payments of £50, £100, etc will add up to in your expected timeframe.

If you have a specific minimum amount that you need, you can use this calculator to work out how much you will need to put aside each month to meet it.

If your goal has a hard deadline (for example, you intend to retire by age 60) then the calculator will give you some idea of how much you can expect to have built up by the end of your time period based on the amount you plan to save.

Review and adjust ⚖️

Looking at all your goals and their monthly payments together, you are likely to realise that you can’t afford to save for everything you want all at once. If so, you may have to make some adjustments to your plans, especially to costs or timeframes.

Prioritising how to use your financial resources is a tricky exercise, so take your time. There is no ‘right’ answer for how much you should save for retirement, or for ‘fun’ short term goals. It’s up to you how you use your time and money.

⚠️ Note it may be tempting to assume that once your current short term goals are over, you will then be able to attend to your long term goals, with £££ per month freed up to do so. This can make sense with large goals like saving for a deposit for a home, but for smaller goals, our experience is there’s always something. It’s safer to assume that you will continue to spend as much on electronics, vehicles, holidays etc in the future as you do now.

Set up savings accounts 🏦

In terms of your savings strategy, the most important factor is when you will need the money by.

If your goal is more than five years away, you should consider investing the money to achieve greater growth than is possible using savings accounts. The further away your goal is, the more valuable investment returns will be as their growth will compound over time.

However if your goal is within 5 years, investments are not generally recommended. This is because the value of your investments can fluctuate up and down, risking your ability to pay for your goal at the time you need it.

Short term savings (under 5 years) 🕒

• For keeping track of smaller goals, your bank account may offer savings ‘pots’ to help you assign money to specific purposes.
• To find the savings accounts with the highest interest rates, check the Top Savings Accounts list on Money Saving Expert, which is kept reliably up to date.
  • That MSE page includes easy-access accounts (you can withdraw any time), notice accounts (you need to give 1-6 months’ notice to withdraw) and fixed accounts (your money is inaccessible for until the end of the fix)
• Another option is Premium Bonds from NS&I, the government’s bank. These accounts don’t pay a set interest rate, but for larger savings amounts the ‘prizes’ are competitive with bank savings accounts, and they offer a small chance of a big lottery win. Premium Bond winnings are also tax-free, which is particularly useful for higher earners with a reduced Personal Savings Allowance.
• Another tax-free option is a cash ISA. Again, MSE have an up to date list. The rates are usually not as good as savings accounts, but if you would otherwise pay tax on interest then these may still come out on top for you.
• If you’re saving for your first home, check if you’re eligible to use a LISA to boost your savings by up to £1,000 per year.

Long term savings (5 years or more) 📆

Start with Investing 101, and from there ISA, LISA or Pension to choose the most appropriate and cost effective account type for your situation.

Interest rates are so poor! Are you sure I shouldn’t invest? 📉

People are often surprised at how little growth they can receive on their savings using bank accounts or premium bonds. It can sometimes be tempting to search for better returns elsewhere, especially if you worry that your goal will get more expensive while you’re saving up.

The important thing to understand is that savings held with a bank (or NS&I) are risk-free. There’s no scenario in which you save £1,000, then your account goes down to £900 on its own.

In contrast, investments can be very volatile in the short term. Market fluctuations happen regularly and the value of your investments can rise or fall daily.

The shorter the time period you invest for, the higher the chances that the final value of your investments could end up below the amount you put in. Meanwhile, the longer you invest for, the more confident you can be that your investment returns will achieve expected averages, as the good and bad years even out. This Monevator post has some useful statistics.

Five years is around the minimum length of time where investing starts to make sense, i.e. the chances of ending up with less than you put in become low enough to assume you will be able to proceed as planned.