It’s natural to feel lost or overwhelmed as you begin to think about setting and balancing financial goals. Start by answering this question: how do you define success?
For some, success is a luxurious lifestyle complete with a big house and fancy car. For others, it’s having enough financial security to avoid stressing about money. Visualise where you want to be in the future and set aspirations that align with your definition of success. Make sure to leave room for immediate goals as you form a plan.
Here’s how to set new money goals.
1. Find your inspiration
Think not just about what you want to do, but why you want to do it. Attaching reasons to your goals can put them in perspective and fuel motivation. For example:
- Build up an emergency fund so you can afford to pay rent if you lose your job.
- Get rid of credit card debt so you can put your income toward a wedding instead of interest payments.
- Prepare for your outgoings to increase as your family situation changes, such as being ready to take on childcare costs if you have a baby.
2. Examine your situation
After giving it some thought, you may have multiple goals in mind and don’t know what to do next. Or maybe you don’t have specific goals. That’s OK. Looking at where you stand right now can help set you on the right trajectory, whether your ambitions are short term, long term or have yet to be identified.
Start by looking at your income, tax situation, budget and what you already have in savings. Building an understanding of your finances in this way can help you define and prioritise your goals.
We’ve listed some example financial goals below, which you could tackle in the listed order. For example, creating a budget first can help you build an emergency fund and pay off debt.
Create a budget
If you don’t have a budget, make one. This can keep all your other goals on track by preventing overspending and under-saving. One route is the 50/30/20 budgeting approach. That means allocating 50% of your income toward needs, 30% toward wants and 20% toward savings and debt repayment.
» MORE: How to budget money
Build an emergency fund
A healthy emergency fund acts as a safety net during financial shocks such as an unexpected bill or job loss. You can start by aiming to have £1,000 on hand, which can cover unexpected expenses. Over the long haul, it’s ideal to save up enough to cover three to six months of your essential expenses – the ‘needs’ portion of the 50/30/20 budget mentioned previously.
Save for retirement
Retirement may be decades away, but it’s important to start saving as early as possible so that you have enough money when the time comes.
If you’re eligible, your employer should automatically enrol you into its workplace pension scheme. A minimum contribution of 8% of your earnings will be split between you, your employer and tax relief from the government. Your employer must contribute at least 3%.
Some employers match pension contributions up to a certain percentage. If your employer does, it’s worth looking at your budget to see if you can afford to increase your contributions.
If you’re self-employed, saving for retirement can be trickier, because there’s no equivalent scheme that encourages you to contribute to a pension. That’s why it’s even more important to look at your budget to see how much you can save into a personal pension.
Pay off debt
Focus on clearing high-interest toxic debt first, like credit card debt or payday loans. Then, clear lower-rate debt like personal loans or a mortgage.
If you’re feeling overwhelmed by debt, you could get in touch with a free, independent debt advice service or debt charity. Organisations like StepChange and Citizens Advice can help you create a budget to tackle your debt, as well as give you advice about contacting your creditors.
3. Think ‘SMART’
Consider all the necessary pieces of a plan – not just the goal, but the steps you’ll take to reach it. You could choose to use the SMART method when setting financial goals, which suggests that they are:
- Specific
- Measurable
- Achievable
- Realistic
- Time-bound
For example, if you want to save for a holiday, you can make it specific, realistic and time-bound by picking a destination, deciding when you want to go and estimating the cost. Determine whether it is achievable and practical given your income, savings and expenses. Keep measuring along the way and if the goal seems out of reach, try to make adjustments before scrapping the idea entirely.
Maybe you’re not on track to save enough for a trip in six months. Push your deadline back to a year, automate your savings, or open a new savings account with a higher interest rate and a sign-up bonus to speed up your progress.
4. Write them down
After you’ve identified and vetted your goals, mark them down. This can keep objectives clear, organised and tangible. Keep a digital document or spreadsheet, or use a notepad. Check in periodically and track your progress. Once you’ve crossed off one goal, move on to the next.
5. Treat yourself
Setting goals doesn’t have to feel like a chore. Reward yourself for making progress and completing objectives. Once you’ve tackled high-priority goals like building an emergency fund, putting money aside regularly for retirement and shrinking debt, you can focus on more exciting goals. These might include making more money, investing, working from home, starting a business or saving for a major purchase like a car or house.
» MORE: ISA or savings account: which is best for me?
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