10 Top Tips for Setting Effective Financial Goals
Updated: Sep 30, 2020
If you have certain financial aspirations you wish to achieve for you and your family, then you’ll need to set some firm and realistic goals.
By creating a clear plan of how you would like your future to look, you will be able to take the necessary steps towards achieving your goals. But, when it comes to financial planning, most people find it hard to know where to start.
“Our goals can only be reached through a vehicle of a plan, in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.” Pablo Picasso
To get started, we have provided a useful checklist to help you create a set of financial goals:
1. What matters to you and your family? The first step towards goal setting is figuring out what really matters to you and your family. Consider what motivates you in life, what type of lifestyle do you want to lead, both now and in the future? Where do you see yourself living in the future? How do you envisage your children’s future? Make a detailed list of everything you wish to achieve in your life - even if some of your ideas seem far-fetched, jot them down.
2. Where are you now financially? The next step is to reflect on your current financial situation. Do you have enough money to live your current lifestyle? How much would it cost to live your desired lifestyle? What can you do to achieve your ideal lifestyle? If you’re living within your means, you should be able to create a suitable financial strategy to help you achieve your goals. If not, you may need to review your outgoings to increase your savings.
3. Do you have a monthly budget? Most people have some sort of household budget in mind that relates to their earnings. For many, this may simply be a rough idea of monthly expenditure. However, it’s important to create a budget; especially if you’re spending everything you earn each month, so you can then track your costs. A good tip is to monitor your outgoings and adjust your spending, as this will enable you to plan in any savings.
4. Do you have any debts? If you’re racking up debts on credit cards and being charged interest, you may struggle to achieve your financial goals. Over time, added interest can result in seemingly small debts spiralling out of control. Ideally, you should look at ways of paying off your credit cards each month to avoid paying any extra interest. There are also ways to consolidate multiple debts, something a Qualified Financial Adviser can help you with.
5. How will you set your goals? There are lots of frameworks available to help you establish an achievable set of goals. One popular goal strategy is called SMART - Specific, Measurable, Achievable, Relevant, and Timely. For example, you would identify a specific goal, decide how to measure this, consider whether it’s important to your overall intended outcome, and then assess whether it can be achieved in a realistic time-frame.
6. Do you have a ‘rainy day’ fund? Life is unpredictable. But, we can prepare for the worst by always having an emergency pot of money available. A ‘rainy day’ fund will ensure you are prepared for unexpected outgoings, which could hinder your goal strategy.
For increased peace of mind, it’s important to ensure that you have the right level of protection in place, whether this is life assurance, critical illness and/or income cover.
7. Are you saving towards your children’s future? There are lots of different ways you can save for your child’s future. Ideally, money should be set aside from the time they are born, but it’s never too late to start saving. As well as a Junior ISA, did you know that you can also set up a Junior Pension too? Always speak to a Financial Adviser before transferring any savings, as they will be able to explain your options and any relating terms and conditions. You can also read our blog post on Saving for Children.
8. Do you plan to retire early? Since the ‘pension freedoms’ enabled those aged 55 years to drawdown on their pension income, many people are retiring earlier than ever before. Some become part-retirees, either reducing their working hours or starting up a small business venture. If you’re planning to retire earlier than the state pension age, you’ll need to carry out a thorough review of your pensions to determine your level of future income. We can help you go through the options and choose the right approach for you.
9. What do you plan to do in your retirement?
Planning for your retirement sooner in life is likely to lead to a more comfortable future. You may wish to travel, move abroad or buy a second home. Or, you might decide to take up a new, expensive hobby.
However, it’s also important to consider future care costs or financial support for children; will your pensions and savings last you through your golden years, especially if you’re planning an early retirement?
Our Guide to Retirement Planning may be able to help get you started.
10. Are you able to live below your means?
If you wish to achieve your financial goals, then the earlier you start saving the better. There are different ways to save and invest, but one simple equation stands: if you spend more than you earn, then you’re in debt. If you spend less than you earn, you will have savings.
By creating a practical savings strategy, you are far more likely to achieve your financial goals.
Effective financial planning plays a large part when it comes to achieving the future you desire. So if you’re unsure how to begin, start by discussing your financial goals with an Independent Financial Adviser. They will help you assess your finances, paint a picture of your desired future and create an achievable list of goals.
If you would you like any help with financial goal setting, or you would like advice on any aspect of this article, please get in touch today and speak to our team.