Articulating your savings goals is a crucial first step in the savings process, because by clearly identifying what you want, you are one step closer to achieving it.
What is a savings goal?
Savings goals vary between individuals. Simply put, savings goals can be either long-term or short-term financial goals that you wish to meet.
A long-term savings goal is something you are planning for more than five years in the future, such as retirement or buying a house.
A short-term goal is anything you are saving for within the next one to five years. Common examples of short-term savings goals are weddings, holidays, or buying a car.
Each goal will require its own strategy for saving and success.
What savings goals should I have?
Obviously this depends on who you are and what your ambitions are. Take a pen and paper and take some time to write down what your long and short term goals are.
Ideally, you should have at least one short-term and one long-term goal running concurrently. This means you will need to identify how to divide your savings appropriately in order to meet both goals within your planned time frame.
How to reach my savings goals
Over time you will gain a better understanding of how to spend and save your money in order to achieve your goals. However, initially you should use the 50/30/20 rule as a rule of thumb.
This means that 20% of your income should be spent on your savings or investments.
1. How to achieve short-term goal in 1 year: Holiday
In 2017 the average cost of a 9-night holiday for one person was £815. This means you’d need to save £68 a month in order to hit your target within the year.
The best way to do this is to make small, consistent savings on a weekly or monthly basis. Setting up automated savings steps is one easy way to achieve this. Incorporating your savings into your daily routines makes them easier to accomplish.
For example, you can set up the new Fitness Step in Oval money, which allows you to accumulate savings depending on your weekly physical activity. You can set an amount of money to save for each Km you cover or number of steps you take.
If you save £68 a month due to your successful physical exertion not only will you be physically fitter, (as you will have quite literally earned it from the “sweat of your brow”) but you will be mentally fitter too. Feeling pride in your accomplishments increases serotonin levels in your blood, which in turn leads to more confidence, sharper focus, and increased determination; all things that lead you to yet more success.
2. How to achieve short-term goal in 2 years: Wedding
Again, because this is a short-term goal, cash savings are a good idea. However, if you are planning for something more than one or two years in the future and you already have a lump sum put by, then you can look into investing that money into a fixed rate savings bond. This type of bond guarantees you a set rate of interest over a fixed period of time.
A benefit of this course of action is that you know going in exactly how much money you will receive when the bond matures, and the interest rate is often higher than savings accounts. However, it is worth noting that many bonds require you to put your money away for a set period of time and there can be hefty penalties if you withdraw it early. So, if you decide to take this course of action make sure you know the exact time frame of your short-term goal.
3. How to achieve long-term goal in 30+ years: Retirement
If you have no other long-term savings goals, then you should at least always have one set for your retirement. Whilst there is no hard and fast rule about when you should retire, planning for the future is nothing if not good common sense.
In the UK it is now law that all employees should be enrolled in a company pension. However, if you are self-employed, or want to save into your own private pension than the good news is – you have a long time to get the most out of your money.
In this circumstance it is worth looking into long-term investments for your capital. As this article shows, if you had invested just £100 in Unilever in 1984, by 2018 you would have had £13,779.
The new Oval Investment section allows you to invest the savings that you accrue in your digital wallet in a number of custom-designed investment funds. You can even set up an automated investment step so that you consistently invest capital each month.
Your capital is at risk, and past performance may not be a reliable indicator of future results. Oval Money is not permitted to provide financial advice, and if you have any questions please consult an expert.