- Financial planning
- 5 minute read
The start of a new year can be a good time to think about your goals and objectives for the year ahead, but you don’t need to wait for this specific time. If you’ve missed the New Year, you can set yourself some goals and objectives at any time during the year. This includes deciding your financial goals. When it comes to financial planning, setting goals is the first step. Yet surprisingly, this step is often overlooked.
Here, we are going to look at the importance of setting financial goals. We’ll also discuss some key goals to consider.
What are financial goals?
Your financial goals should describe where you would like to be financially in the short term, medium term, and long term. They can be related to saving, investing, income, debt reduction, and other areas of financial planning and wealth management. These goals are very personal and will depend on your stage of life, your ambitions, and your commitments.
Why are financial goals important?
Financial goals are crucial because they dramatically increase your chances of achieving financial success. If you aren’t working towards anything specific, it’s impossible to create a coherent financial strategy. Your finances can end up disjointed and be more time-consuming. It’s also hard to measure your progress.
However, if you set clear, achievable targets and objectives, you have the ability to draw up a plan to achieve your aspirations. This can change how you look at your money – you'll start to see how every decision you make impacts your greater financial health. And with goals in place, you’ll be better placed to monitor your progress, as goals act as a quantitative yardstick to measure success.
How to set financial goals
The first step in creating financial goals is to look at your current situation. You need to understand the value of your assets, liabilities, income, and expenses. Then, you can think about what you would like to achieve in the future.
Financial goals, like any other goals, should be ‘SMART.’ SMART is an acronym that stands for specific, measurable, attainable, realistic, and timely. So, for example, instead of saying ‘I want to save more for the future’, which is quite vague, you could say ‘I want to contribute £20,000 to my pension by the end of the year.’
Goals should also be written down. Research shows that you are far more likely to achieve your goals if you have written them down. One reason for this is that the process of writing them down forces you to clarify exactly what you want to achieve.
Once you have set your goals, you need to continually work on them and also review them regularly. Personal financial planning is not a one-time task. Goals should be reviewed at least annually so that you can make adjustments as necessary.
If you are unsure about your financial goals, it could be a good idea to speak to a financial adviser. An adviser will be able to review your financial situation and help you set goals that are both realistic and achievable.
Financial goals to consider
- Paying off debt: Paying off debt is generally a smart strategy. This is particularly true when it comes to high-interest debt such as credit card debt. With credit card debt, the interest is so costly that it can make achieving any other financial goals difficult. You may also want to consider paying off mortgage debt. This can free up a substantial amount of cash flow that can be redirected into a pension or ISA. One recent study found that paying off your mortgage at age 50, and redirecting the average monthly mortgage payment into a pension could potentially provide an extra £220,000 in retirement.
- Achieving a savings target: Saving money is a common goal, whether the savings are for retirement, children’s school fees, or simply for an emergency. One tip here is to break down savings targets into smaller goals. For example, if your goal is to save £25,000 this year, that equates to savings of £2,083 per month. Another tip is to pay yourself first. This means putting money away at the same time as taking care of your expenses and making saving a priority.
- Contributing to your pension: Contributing to a pension is often a sound financial move. The more money you put into your pension now, the more funds you’re likely to have when it comes time to retire. It’s worth pointing out that pension contributions come with tax relief. Basic-rate taxpayers receive 20% tax relief while higher and additional rate taxpayers receive 40% and 45% respectively. This tax relief makes pension contributions one of the most tax-efficient ways of saving for retirement.
- Growing your income: Increasing one’s income is another common financial goal, particularly among those who are self-employed or business owners. Increased income can provide more financial flexibility and make it easier to save and invest for retirement.
- Meeting with a financial adviser: Speaking to an adviser is typically a good idea because you can discuss your financial situation in detail. An adviser can help you plan for the future more strategically.
Setting goals: the first step in financial planning
In conclusion, goals play a key role in financial planning. Once you have a goal, and you know the direction that you are heading in, you are better able to set about creating a robust financial plan. Being clear on your goals is essential to making the most of your money.
Our financial advisers are experts at helping to set realistic goals that make sense. We are here to help you quantify your current position and then formulate an appropriate plan to get you where you want to be financially.
To find out more about goal setting, or any other elements of financial planning, don’t hesitate to request a call back by clicking the button below.
Capital at risk. Any tax benefits will depend on your personal tax position and rules are subject to change.