Saving or investing money every month can feel like a challenge, especially when you have other expenses to consider. However, having plans for saving money can be a good way to feel secure. Even starting with a small amount might make a difference to your future.
Setting a savings goal can give you a “why” and may help you to focus on achieving something. In this guide, we will explore how to choose between saving and investing to help achieve your goals.
Why is setting clear financial goals so important?
The main reason to set a financial goal is simple: it often works! People who set a target tend to save faster. They may put away up to £550 per year more than those who don’t.
A savings goal can help you achieve your target, but be creative. Instead of calling it “Savings,” you could give it a name like “Spanish holiday fund” or “First car pot.” When your goal has a name, you may be more likely to contribute.
What’s the difference between short-term savings goals and long-term investing goals?
Understanding the difference between saving and investing is the first step in learning how to set investment goals.
- Short-term saving: This is generally for things you want to do soon, usually within one to five years. This might be a new laptop, a holiday, or an emergency fund for repairs. Cash savings provide stability for short‑term goals, though their growth is usually limited, and inflation can erode their real value.
- Long-term investing: This is often for goals that are at least five to ten years away. This might include buying a home or planning for retirement.
The main difference between the two is risk and reward. Savings protect your money but grow slowly. Investments have the potential to grow more over time, but their value can also drop, meaning you could get back less than you put in. Matching your goal’s timeframe to the right approach is one way to manage your money.
How to break big financial goals into achievable milestones
Whether you want to save £100 for a gift or £25,000 for a house deposit, big numbers can feel scary. The trick is to break them down. If you need £1,200 in a year, that’s £100 a month, or about £23 a week. Once you see the small number, it may feel easier to manage. Here is how some people stay on track:
- Make it automatic: You could set up a Standing Order or Direct Debit for the day you get paid. This moves the money before you spend it.
- Small steps matter: Even saving £5 a week is a great habit.
- Stay positive: Celebrating your progress every time you hit a small milestone could help keep you motivated.
Learning to save regularly is a hassle-free way to put money aside. If you are ready for long-term growth, our Investment ISA can help you get started.
How to choose the right strategy for saving or investment goals
Knowing how to set saving goals depends on when you need the cash.
- You might choose saving if: You need the money in less than five years. You want to know exactly how much is in there, and you may need to be able to withdraw it quickly without penalty fines.
- You might consider investing if: Your goal is more than five years away. You are comfortable with “ups and downs” of the market because you know that, historically, investing has often outperformed bank interest rates over long periods. However, you should be aware that some higher-risk investments have failed to grow and have lost value.
The right strategy for your risk level and timeline may help your money to work as hard as possible for you.
How regular check-ins help you stay motivated with your financial goals
- You wouldn’t go for a train without checking when they run. Your money is the same. A quick “check-in” once a month can help you see progress.
- Seeing your balance grow can be a confidence booster. If you get a pay rise or your bills increase, you might choose to adjust your goals. Many great apps track your progress automatically, which makes check-ins quick and easy.
Popular saving and investing goals people aim for
Everyone’s journey is different, but here are some common investment goals:
- Emergency fund (short-term): Having 3-6 months of basic costs saved for unexpected expenses.
- Dream holiday (short-term): Saving for a big trip or something you really want.
- Home deposit (long-term): Building a pot to buy your first house.
- Retirement (long-term): Investing for the potential to enjoy your later years comfortably.
Different goals may need different timeframes. An emergency fund might be suited to an easy-access savings account, while a retirement fund is often suited to investing.
Common financial goal challenges and how to overcome them
- Life happens. Sometimes the car breaks down, or you might lose your motivation. If you can’t save your usual amount one month, you could just save what you can.
- Building an emergency fund first is another way to protect your goals. It means that when an unexpected bill arrives, you don’t have to stop your long-term investing. To stay focused, you can also train your brain to save more money by focusing on the feeling of security your savings can provide.
- Setting a goal can make you more aware of your spending. For example, cancelling a £40 gym membership you never use could save you nearly £5,000 in almost a decade.
- Once you have a goal, you might want to share it with someone. This can make it “real.” If you are saving with a partner, you could support each other when things get tough.
Key points to remember about saving and investing
Here’s a recap to help you set better financial targets:
- Give your goal a name: You could use specific names to help you stay motivated and save faster.
- Pick the right strategy: Research bank accounts for short-term savings and investments for goals over five years away.
- Think in small steps: Breaking large targets into smaller weekly or monthly amounts might make them feel achievable.
- Make it automatic: Consider setting up a Direct Debit to move money to your savings when you get paid.
- Check your progress: Try using apps or a diary to track your success and adjust your plan if spending changes.
Need help? Visit the Shepherds Friendly help and support page to get in touch.
No advice has been provided by Shepherds Friendly. If you are in any doubt about what type of saving of investment is best for you, we recommend getting in touch with a financial adviser, who will be happy to take you through the options available. Should you consult a financial adviser, there could be a cost involve,d and you should confirm this cost beforehand
