5. Goal Setting – 12 Tips Of Christmas

The 12 Tips Of Christmas – All 12 Tips Of Christmas Posts

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Goal Setting

Merry Christmas and welcome to the fifth post of my 12 Tips Of Christmas series. 

These are a series of posts that will be going out on the lead up to Christmas and the New Year to help guide you towards a better money mindset with an aim to give you a base knowledge of personal finance.

It’s all well and good getting into the habit of saving and investing, but if you don’t have some sort of goal to work towards, it’ll be a lot more difficult to tuck this money away rather than spend it on immediate (but temporary) extravagances.

These goals don’t have to be massive or fully fleshed out to the greatest detail, but just having an idea of what these different pots are going towards will help to contextualise your financial journey and help motivate you to visualise an end goal.

Saving goals can be as convoluted as you want to make them, but to make it easy, let’s put them into 4 distinct categories:

  • Short term
  • Emergencies
  • Medium term
  • Long term

Short term

This is for things you’ll want money for in the immediate future. They may be recurring or one offs, but what you do know is you need X amount by X date.

Car insurance, birthday presents, holidays, bills etc.

These will be small regular amounts you take from your monthly cheque and tuck away into a side pot.

Banking apps are increasingly starting to make this easier to visualise with little savings pots which you can annotate to your heart’s content.

The goal here is to cover yourself in the short term so you’re not supporting these financial events with credit.

Emergencies

This is your safety net. This is different to the above in that, where short term goals are expected financial events, this emergency savings pot is for unexpected events that may crop up.

This could be an issue with your car, maintenance on the house, or losing your primary income for a period of time.

It’s typically suggested to save at leas 3-6 months worth of expenses to cover these unforeseen events, but depending on your need for a safety net, you may want to have a little more in reserve.

This money is not intended to grow your wealth. This should be kept somewhere that is easily accessible. Some people fall over themselves trying to get that extra bit 0.0000004% interest rate on their emergency fund, but the idea is to have it easily accessible so a basic savings account attached to your debit account will suffice.

Again the goal here is to pay for these events without having to use credit.

Medium term

Once we have the above two savings pots/ goals in place, it’s time to look a little more long-term.

What do you want in your medium term future that you can’t currently afford/ will need money for?

Probably the most common of these is saving for a house deposit. This will require a larger pot than your short term goals, but there are a number of ways you can get assistance saving for this goal. The Lifetime ISA is one of those. Save up to £4,000 a year and the government will top this up with an extra 25% of whatever you contribute up to the £4K limit.

You may also have a medium term goal that doesn’t mean saving for something tangible. You may just want an even larger financial buffer that brings even greater financial freedom than just simply having an emergency fund. By this point you’re starting to create wealth rather than just saving for specific things/ events.

This is where you may decide to start investing. Investing into funds or the top companies of the world will hopefully see your money grow and compound over 10+ years, to the point where you may be able to pay off a large chunk of your mortgage, undertake some bigger house renovations or live off a portion of the interest/ dividends your investments are now beginning to create.

Long term

These sort of investments can also be used for your long term goals. They might be used to supplement a pension or be used as a source of income in order to be less dependent on a full-time income, effectively semi-retiring before the traditional retirement age.

And probably the most obvious long-term financial goal, your pension. Think about the lifestyle you want to lead in retirement and work your back from there to determine how much you should be contributing now, while taking advantage of any company matched contributions.

It’s never too early to think about your pension. This is a collection of funds that’ll hopefully last you a good 20 odd years of your life, so don’t think of this goal as being too long-term, so much so that you put off thinking about it. You want as long-term as possible to build up a pot that’ll you’ll eventually be able to live off of.

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