Setting Financial Goals
As we begin the New Year, many of us start thinking about the year ahead and setting goals for the future.
Regardless of what age you are, you are likely to have some short and long term personal financial goals. Setting tangible and realistic goals, following them, and tracking your progress is the key to being successful and achieving those goals.
Determining what your short-term, medium-term, and long-term personal financial goals is the first step. Some common financial goals are a dream holiday, a new home, saving for children’s education or building up retirement savings for your future.
Once you have established your goals, the next step is to determine a good estimate for how much money you’ll need for each of them. Figuring out an accurate amount involves discussion about the financial goals—for example, if you are saving for University for your children, what percentage do you want to pay? Also, do you want to pay for a state school or a private school? Retirement savings needs depend greatly on the lifestyle you plan to lead once you are retired, as well as when you plan to retire. How long do you want to continue working for?
Prioritise each of your personal goals in order of importance, and then determine how long you have to save for each of them. Retirement could be many years away, but your short-term goals could be in a year or two. Next, estimate how much interest or capital gains you’ll expect to see in the accounts where you are saving your money. While capital gains are never guaranteed, you can use an estimated average to help build your plan.
Finally, figure out how much you’ll need to save per month to achieve your financial goals. There are some useful tools online that can help you do this. Don’t be discouraged if the amount is overwhelming. The important thing is to have a set of tangible financial goals to work towards. On a half yearly or annual basis, you should review your progress, and continue to refine your plan.
If you aren’t meeting your goals, revisit the budget you set yourself to see if there are any areas where you can cut expenses in order to free up money for savings. Savings can often be made on household expenses such as weekly food shop, gas, electricity and insurance but many of us can also look at reducing some items of discretionary expenditure. Alternatively there may be ways of increasing your income or generating additional income.
Financial planning is about enabling you to look back and say “I’m glad I did . . .” rather than “I wish I had . . .” Understanding your short, medium and long term goals is essential to that process.