Short term goals

If you have already:

โœ… Made a budget ๐Ÿงฎ
โœ… Paid off any short-term debts ๐Ÿ’ณ
โœ… Sorted an emergency fund โ˜”

The next step is to think about your saving goals, starting with short term goals – meaning any goals you would like to achieve within the next five years.

Set your goals ๐ŸŽฏ

First, write down your financial goals for the next few years, along with how much you expect them to cost and when you want them by. For example:

๐Ÿ Holiday ยฃ9006 Months
๐Ÿ“ฑ New Phoneยฃ4001 Year
๐Ÿš— Car ยฃ5,0002 Years
๐Ÿก House Deposit ยฃ40,0004 Years

Your goals can range from little amount to a greater amount.

If one of your goals is a deposit to buy a house, see our guide to mortgages, which will help you calculate how much you can expect to borrow and how large a deposit you require.

Add up the monthly savings required ๐Ÿงฎ

It’s very simple to calculate how much you need to save each month to reach your goals in time. Just divide your target amount by the number of months until your chosen date.

In the above example that would be:

  • Holiday: ยฃ900 รท 6 Months = ยฃ150 needed to save per month
  • Phone: ยฃ400 รท 12 months = ยฃ33 needed per month
  • Car: ยฃ5,000 รท 24 Months = ยฃ210 per month
  • House: ยฃ40,000 รท 48 Months = ยฃ833 per month

If your total monthly saving requirement is larger than you can afford, you will need to adjust your goals’ costs or timeframes, or cut back on other expenses in order to meet your goals (check that budget again).

Where should I save? ๐Ÿฆ

Having chosen affordable amounts to put away, next, choose where you’d like to hold your savings.

  • Your bank account may offer savings ‘pots’, which are useful for organising your savings into goals.
  • Check out the Top Savings Accounts on Money Saving Expert, which are kept comprehensive and up to date. Interest rates are low across the board but something is better than nothing!
  • 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.
  • If you’re saving for your first home, check if you’re eligible to use a LISA to boost your savings by up to ยฃ1,000 per year.

Should I invest my savings for a better return? ๐Ÿ“‰

New savers are often surprised at how little growth they can receive on their savings using bank accounts or premium bonds. A savings account of ยฃ10,000 could return as little as ยฃ50 over the course of a year. This means your savings won’t really grow on their own – only by you saving more money out of your income. In this situation it can be tempting to search for higher returns elsewhere.

The important thing to understand is that savings held in the bank (or NS&I) are risk-free. There’s no scenario in which you save ยฃ1,000, then your account goes down to ยฃ900 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 match 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.

Long term goals (5 years or more) ๐Ÿ“†

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.

More resources ๐ŸŽฌ

Check out the video below by Meaningful Money for more information on setting your financial goals.