As we say goodbye to 2022, you might already be thinking about setting your New Year’s Resolutions and goals for 2023.
A financial goal can be anything from getting on the property ladder to retiring early, but, as the saying goes, a goal without a plan is just a dream.
In this article, we explain:
What are financial goals?
Financial goals can be short-term objectives, such as saving money for:
Consolidating your debt using a balance transfer card could help you repay what you owe faster but make sure you understand the small print and have a repayment plan in place.
Longer-term, big financial goals could be to:
Goals are very personal and depend on your stage in life, your ambitions, commitments, as well as your personal finances.
The idea is that if you can identify what your objectives are, you are better able to draw up a strategy to reach those goals. It is equally important that you check in on your financial situation and plans to ensure you are still on track.
If you are wanting some ideas on how to get into the savings habit, here are 20 simple ways to save money.
Why financial goals matter
Let’s say your goal is to have a retirement plan that allows you to live comfortably in your older years, in a nice house and ensure your children have a stable future.
Goal setting crystallises those aims, making it easier to visualise something that could be very far away, giving you focus and motivation.
- A goal sets you off in a certain direction, so you are better able to create financial plans that you can follow, reducing the chance of failure.
- Knowing your aims enables you to work out roughly how much money you might need to save in order to achieve those aims.
- Sharing that goal with others, such as your family and friends, can offer extra support and ease the pressure on spending money when together
- You will also be able to track your progress and measure your success, giving a sense of achievement.
The aim is to be in control of your money, so it doesn’t control you. Your future self will thank you for it.
You might want to read more about these 10 money-saving challenges if you want some extra inspiration to save.
How to set realistic financial goals
Setting realistic financial goals is important. Of course we all want to be a millionaire by the time we’re 25 and retire at 35, but having a more realistic objective means you are more likely to achieve it.
Saying that, while your goals should be affordable and practical, they should also push you a little bit.
Here are some tips:
- You can speak to an independent financial adviser who will help you map out your life from a financial perspective. They will play out “what if?” scenarios to test the resilience of your plan, such as, what if the stock market crashes? What if I have children? What if my income streams are affected?
- If you don’t want to see a financial adviser yet or you don’t have the money, you can take on the role yourself and ask yourself the same questions: what would I like to achieve – and be specific about it.
- Try to think about short term financial goals such as:
- paying off expensive debt
- increasing your credit score
- building up 3-6 months of essential outgoings in cash in an easy-access savings account for emergencies
- Think about a longer-term objective such as overpaying your mortgage by a set amount each month so you can be debt-free sooner. Most long-term financial goals would relate to increasing your retirement accounts.
Look at your current financial situation and draw up a budget. Knowing how much you have coming in and going out, will give you a clearer idea of how much extra money you can set aside to commit to your goals.
Work out ways to cut back but also methods to increase your income such as asking for a pay rise, ensuring you are getting all the benefits you are entitled to and exploring side hustles.
And don’t just think about the now – think about your earnings in the future and your possible financial commitments. For example, if starting a family is on your mind that is something to factor in.
Top 10 financial goals
If you’re wondering what your financial goals for 2022 should be, here are some smart ideas for inspiration.
1. Pay off debts
According to the Money Charity, the average person in the UK has £3,891 in September 2022. When mortgage debt is factored in, the average total debt figure rises to £65,618 per UK household.
Owing money to anyone is stressful but some types of debt needs to be prioritised over others because the consequences of not paying are more serious.
- Identify what debts you have
- Put your debts in order of priority. Head to Citizens Advice‘s website if you aren’t sure.
- Pay off any debt that could cost you your heating, your home, or lead you to end up in court
- Next, focus on your most expensive debt. The average interest rate on a credit card is 22.03%, according to the Bank of England, while overdrafts can now charge 39.9%
- You could move your debt to a 0% balance-transfer credit card to help pay it off faster. Those with the best credit ratings, will get the best deals
- Get free support from Citizens Advice and debt charities like StepChange and turn2us
2. Build up a savings pot
It’s important to have an emergency fund of between three to six months of your earnings.
The best way to get started is by creating a budget so you can identify where money is coming in and going out. This makes it much easier to see where you can cut back.
Identify:
- What subscriptions you don’t use or don’t need
- Where your spending could be trimmed
- Look to shop around for the best deals on your energy and other bills, including your mortgage (as long as there are no exit fees)
Savings rates have been going up over the last year as the Bank of England has been raising rates, so it’s important to shop around and make sure you are getting a good deal. We have rounded up the top savings accounts.
If you are wondering whether to repay your debts or build up a savings pot first, we explain how to choose, and how you can do both.
3. Start investing
History has shown that, over the long term, investing in the stock market is likely to help your money grow faster than leaving it in a savings account.
Inflation is also riding high at the moment, meaning the value of your cash savings is falling over time.
It can seem scary at first, but Times Money Mentor has a free Investing for Beginners course that can help.
4. Set up your own business
While you don’t have to be a millionaire to start a business, it does help to have some capital behind you to set everything up and to cover your outgoings in the early days.
We have lots of help and tips at Times Money Mentor on how to start up a business.
5. Build a pension pot
How big your pension needs to be depends on what sort of life you want to lead in retirement and how long you will live for. We can’t know the latter but we can certainly think about the former.
People often underestimate how much they will need in retirement. The rule of thumb is that the percentage of your pre-tax salary that you should be paying into your pension each month should be whatever age you are now divided by two.
Let’s say you are 30, you will need to pay in 15%. That may seem huge, but remember that this also includes tax relief from the government and any contribution from an employer.
For tips on growing your retirement fund, check out our tips for 8 simple ways to boost your pension.
6. Save for a wedding or the trip of a lifetime
Once you have your emergency pot of cash, you can start saving for other big events.
While it might be tempting to consider investing, particularly given that interest rates on savings accounts are so paltry at the moment, you might also need this money quite soon.
The received wisdom for playing the stock markets is that you need to be happy tying your money up for five years at the very least.
For tips on how to have a great wedding on a budget, check out our article here.
7. Get on the housing ladder
If saving for your first home is one of your long term financial goals, then identify what your must-haves and like-to-haves are.
For example, is location more important than the size of your home? Do your research into what and where you can afford to buy, what deposit you will need and how you will save for it.
Opening a Lifetime ISA could be a great start, although it needs to be open for at least one year before you buy.
Also, check your credit rating and give yourself a year to improve it. This will make you more enticing to any bank or building society when they come to consider both whether to accept your application and what rate to offer.
Read our guide to buying your first home.
8. Achieve financial security
The ultimate aim is to have enough money so that you and your family are comfortable. But this also includes being able to afford to protect yourself and your family should the worst happen.
Here are some products that you might want to consider:
9. Pay off your mortgage early
Your mortgage is likely to be the biggest financial commitment you have. With careful financial planning you could shave years off it.
The money that you save on interest is also likely to beat the interest you would earn on any savings account. But watch out for any early-repayment charges.
For more tips, check out our guide on paying off your mortgage early.
10. Retire early or go part time
Having a better work-life balance as more people haven’t had to suffer the long commutes each day.
One in four 18 to 34-year-olds have set early retirement as a new financial goal after they reassessed their priorities during lockdown, according to research by the wealth management firm Moneyfarm.
However, this means paying off your debts, including your mortgage, and building up a bigger pension pot than you would accumulate if you retired in your 60s.
Find out more in how to retire early: the FIRE method
Keeping your financial new year’s resolutions
Keep your personal goals in mind and be positive about the steps you are taking to achieve them.
Remember, it’s all about progress – not perfection. Taking some steps towards where you want to be is better than taking none – and you will be surprised at just how much those small steps matter.
If you need help with budgeting, you could try a budgeting app to keep your finances on track. Check out our round-up of the best budgeting apps here.
Thanks to David Braithwaite of Citrus Financial for helping us with this article.
