We all have goals in life — whether they’re career, health or money-driven. Financial goals are the plans you have for your money, now and in the future. Normally, “good” financial goals will align with your values, objectives and quite often your age.
In this guide, you’ll learn how to set the right personal finance goals for you and stick to them. Let’s get into it!
The importance of setting financial goals
It changes your view of money
Setting a financial goal, whatever it may be, can help reframe the way you deal with money. You’ll begin to see how every decision you make can impact your short and long-term financial health.
For example, if you set yourself a goal of saving £15,000 for a house deposit, you might think twice about some unnecessary expenses and switch up your budget to get you closer to your target.
It keeps you motivated
Tracking your financial goals can also be a great motivator. Just like crossing something off your to-do list, knowing you're moving towards your goals can give you a sense of achievement and keep you disciplined.
It improves your well-being
Your financial health and general well-being are closely linked, as money-related stress can cause anxiety and depression if not quickly managed. Analysing your finances and putting goals in place can help you feel more in control and reduce the financial pressure you’re under.
Note: If you’re struggling with anxiety or depression, please remember that there is help available. Consider reaching out to Citizens Advice or your GP. Even just talking to a friend or family can help you feel less alone. For a full list of support services, check out the Mind website.
What’s a good financial goal?
When it comes to setting “good” financial goals, using the SMART method can help you choose appropriate targets while keeping you on track to meet them.
SMART goals are:
Here are a few examples of ambiguous goals and how they can be improved by the SMART method:
- Start investing → Open a Stocks & Shares ISA and invest £20 every month for 12 months. Capital at risk when you invest.
- Buy a car → Add £200 into my “Car” interest pocket every month until I earn £2000.
- Increase my credit score → Improve my credit score by 20 points over the next 6 months.
By setting SMART goals, it’s easier to track your progress, which goes a long way to ensure you stay motivated and committed to hitting your target.
Three types of financial goals to set
Short-term financial goals
Short-term money goals are usually thought about on a regular basis, and they’re something you should aim to achieve within the next year. Examples of short-term goals include:
- making a monthly budget,
- getting a better deal on your car insurance,
- reducing your discretionary spending,
- paying off credit card debt or student loans.
Planning for the short term can form the foundation for long-term success. You get the thrill of a quick win which spurs you on to achieve bigger goals.
Medium-term financial goals
Medium-term goals require us to take a wider look at our financial health. They impact your future but aren’t so far off that they feel impossible. In other words, it’s your 5-year plan.
Examples of medium-term goals include:
- Buying a house or saving for a deposit,
- Getting a higher-paying job,
- Investing £X every month in a Stocks and Shares ISA (capital at risk, when you invest),
- Building an emergency fund worth 4 months’ wages.
Long-term financial goals
Finally, we have long-term money goals, which are supported by your short- and medium-term goals. In fact, it may help to work backwards and start by setting your long-term goals. Then, you can come up with more immediate plans to help you achieve them.
Examples of long-term money goals include:
- Saving £X for retirement,
- Financing your children’s education,
- Becoming debt-free,
- Becoming financially independent.
Please note, all of these are examples of generic goals. You need to tailor them to your specific needs and narrow them down using the SMART goal method.
How to set financial goals in five steps
- Figure out what matters most to you. At this point, you want to weigh up both the practical and the desirable goals, like planning for retirement but also planning for that dream holiday.
- Organise them into short, medium and long-term goals. This will be the foundation of your financial plan and can help keep you on track.
- Apply the SMART goal method. If you miss this step, you might end up setting unrealistic goals, which can be disheartening in the long run.
- Create your budget. Now’s the time to get practical. Figure out your income and expenses to see how much you can allocate to each goal. Alternatively, use a smart app like Plum, which can crunch the numbers for you.
- Check your progress and review. Assessing your progress can help you determine whether your goals are working or if you need to reprioritise.
Reach your money goals with automation
Consistency is key when it comes to reaching your financial goals. But building good habits doesn’t always come easy, which is why Plum puts the power of automation at your fingertips.
With automated tools that set aside money for you, split deposits between investments, and analyse your spending patterns, you can build healthier money habits to achieve your goals.
If you choose to use automatic solutions, you should be satisfied that it is suitable for you in the light of your circumstances, your financial position and the risks you are prepared to take. You should always monitor your investment performance too.
Otherwise, we also provide the option of taking care of your finances the manual way!
Want to give Plum a go today? Download the app below to get started.
Please remember that, as with all investing, your capital is at risk. You shouldn’t invest in or deal in any financial product unless you fully understand it and the inherent risks. When you automate and invest, you should be satisfied your choices are suitable in light of your circumstances and position.Download Plum
The information contained in this article is for general guidance only and is not intended to constitute investment advice or any other advice or recommendation.