One piece of advice that you are often likely to hear when you start your journey towards financial security, is the importance of goal setting. Being able to set, and stick to, short-term, mid-term and long-term goals will give you a framework to follow. Without something specific to work towards you are more likely to make impulsive decisions and overspend rather than considering your financial future.
While those impulsive decisions and purchases can feel good in the moment, they run the risk of leaving your finances lacking when more important life milestones are reached. The reality of unexpected expenses and appropriate retirement savings become much less abstract when you are consciously accounting for them in your day-to-day spending. It is impossible to prepare for every eventuality, but by thinking ahead you have more of a chance of meeting and overcoming the challenges that life may throw at you. As always, the value of investments can fall as well as rise. You may not get back what you invest.
Comprehensive goal setting considers events that are just around the corner, as well as those decades down the line. It is important to set yourself achievable short-term goals, in order to see the benefits of financial planning in action as you work towards larger, longer-term goals. Short-term goals can generally be reached within twelve months.
Examples of short-term goals:
– Establish a budget
You cannot know where you are going if you do not know where you are coming from! Taking stock of your current average monthly expenditure allows you to see where your money is really going. You might be surprised at how much is being spent on things that you could happily do without, or replace with more affordable alternatives.
– Create an emergency fund
It is good to be prepared for as many of the curveballs that life will throw at you as possible. Set aside a designated amount of your income each month to build a buffer for any emergencies.
Mid-term financial goals
Reaching mid-term goals requires a little more discipline and consistency, but the hard work will be worth it. For mid-term goals you should be looking at what can be achieved within five years.
Examples of mid-term goals:
– Pay off your credit cards
Paying off existing debts should be a high priority for anybody taking their financial security seriously. Your level of debt and any interest you are paying on it will play a role in how long this will take to achieve, but with some financial planning it should be possible.
– Treating yourself
You know what they say about all work and no play. It is certainly true that there is no point in being the richest person in the graveyard. Once you have begun to get a handle on your finances you can start to plan for purchases and experiences that you do not need, but simply want. Do make sure it is reasonable, however, and does not cause you to stray from your long-term financial strategy.
Long-term financial goals
Good things come to those who wait, as long as you do the work in the meantime. Long-term goals will usually take more than five years to achieve, but are often the most important.
Examples of long-term goals:
– Retirement planning
Everybody has different retirement needs, but the earlier you start deciphering exactly what yours are and begin taking steps to achieve them, the better. A pension is a long term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.
– Estate planning
Your financial security does not need to end at you. Planning ahead for how you can help your family, friends, loved ones and causes closest to your heart will help you maximise the funds available and efficiently handle any potential tax implications. Please note, the Financial Conduct Authority does not regulate estate planning, tax advice, wills or trusts.
Be kind to yourself along the journey. Although you may falter on your path towards your goals, the important thing is to remain consistent with your efforts. There will inevitably be times where an unexpected cost pushes you off track, or you are forced to eat into your emergency funds. That is why you have built the fund in the first place. Do not give up.
Taking on your own financial planning is no small feat. With help from a professional who will provide frequent updates and reviews, it is much easier to track your progress and keep it moving in the right direction. Setting and sticking to goals can be difficult without accountability. If you would like a helping hand in securing your financial stability, then please do not hesitate to get in touch.