Setting financial goals is the cornerstone of personal finance and is a large part of an adviser’s job.

In the UK, there are so many factors to consider when finances are discussed:

In a world like ours, effective goal setting is more important than ever. Whether you aim to save for a house, plan for retirement, or simply manage an ‘in-n-out’ budget, having clear financial objectives can make a significant difference. So here’s a quick little guide to understanding and implementing financial goal setting regardless of where you are in life.

Understanding Goals

Financial goals are specific, measurable outcomes that individuals or households set to manage their money effectively, or putting another way, they are deliberate and measurable actions taken towards their financial success. These goals can be short-term, such as planning a holiday; medium-term, like buying a car and a house; or long-term, such as planning for retirement, but for every goal, an adviser will establish them based on the following criteria, or what many call ‘SMART’ goal setting:

• Specific: Clearly define what you want to achieve.
• Measurable: Quantify your goal so you can track your progress.
• Achievable: Set realistic objectives based on your income and expenses.
• Relevant: Ensure the goal aligns with your broader financial and personal priorities.
• Time-bound: Set a deadline for achieving the goal.

In my humble experience, often I have often found that this is something clients struggle the most with. Identifying the criteria above and whether it’s a good fit for you can be difficult, but the beauty is that it’s specific to YOU, so you can choose whatever it is you want! But for the sake of argument, let’s look at how we can break these steps down and make them a little easier.

Steps to Easy Financial Goal Setting

1. Assess Your Current Financial Picture: Start by understanding looking at your income (starting with your salary), then, look at your expenses (approach this with a ‘we listen, and we don’t judge’ approach, we’ll get to that soon), next, take a look at your savings and what you’ve already got. Review your bank statements, credit card bills, and any outstanding debts to get a clear picture of your financial standing. For all of these, just look at note them down so you can clearly identify them and try to avoid going into a rabbit whole on one specific thing or the other.
2. Define Your Priorities: What’s most important to you? For some, it might be saving for your child’s education, while for others, it could be paying off debt or building an emergency fund. Once you have some goals, put them into a priority list. Take some time to think about why you want to achieve it, and the feelings you feel when you finally do!
3. Setting Time Scales for Goals: Some financial goals will have natural time limits attached to them, whilst some may be a little bit harder to identify. For example, if you want a pot of cash to give to the kids when they turn 18, we have an exact time frame of when we can achieve it! Some may be a little more difficult such as choosing when to retire. Try not to let that dishearten you though. Once we have our goals, lets break them down into the following three categories: short-, medium-, and long-term. For instance:

1. Short-term: Save £12,000 for an emergency fund within by June.
2. Medium-term: Build a house deposit of £50,000 by my 35^th Birthday.
3. Long-term: Save £900,000 for retirement.

Don’t worry if you’re unsure if your goal is valid or not we will do the work to determine how realistic they are in a moment.

• Time for Some Mathematics: Now you have your goal (Specific) and you have a time scale (Timebound), we need to make sure that it’s Measurable. The easiest way to do this is by years, months or days. So, in our short-term goal of an emergency pot of £12,000, we know that we have 12 months to achieve it, then simple maths tells us that we have to save £1,000 per month to Achieve this goal (or £32.8767123 per day if you want to be extra specific!). Now that we’re 80% of the way there, the only thing left to do is see if it is Relevant to the rest of the financial puzzle!

• For Example, let’s say that you earn £50,000 a year, then finding £1,000pm to put to savings should be straightforward. However, if you earn £12,000 per year, this may be a little more difficult to find extra cash to squirrel away!

• First One Down…: Now that you have your first financial goal, go back to your priority list, and repeat this process until you have completed your list. Don’t worry if you don’t have a complete list within the first 20 minutes of the exercise. This is important and will take some tweaking to get it right, so be patience with yourself.

Common Challenges and How to Overcome Them

1. Rising Living Costs: The UK’s cost of living changes can strain budgets. Combat this by prioritising essential expenses, reducing discretionary spending where possible, and focusing more on the higher priority items you’ve decided on.
2. Unforeseen Expenses: Building an emergency fund can cushion the blow of unexpected costs, such as house or car repairs, so be sure to have roughly 3 to 6 months expenditure on hand at all times (or make this priority #1!!!).
3. Debt Management: High-interest debts, such as credit card balances, are the biggest hinder to progress. Focus on paying off these debts first using strategies like the debt snowball or avalanche method.
4. Lack of Financial Knowledge: Many struggle with setting and achieving goals due to limited financial literacy. Consider attending workshops, reading personal finance blogs (like ours), or consulting a financial advisor.
5. What Can Be Insured Against, and What Can’t: Health, income, liabilities – all of these can be insured against. Market risk, interest rates, inflation – all of these can’t be insured against. Insurance is designed to protect you against the worst of situations, so be sure to get something in place. Life cover, illness cover, unemployment cover – all of these are valid types of insurance that if you don’t have in place, and you suffer from one of the events, it can be devastating (financially speaking), so this should also be high on your priority list. 

The Importance of Financial Planning for the Future

The earlier you start setting and working towards financial goals, the greater the impact. For example, compound interest on savings and investments can significantly boost long-term wealth. In addition, planning for retirement through workplace pensions and personal savings ensures financial security in later years. And last but not least, look to put insurances in place that you wouldn’t be able to cover yourself.

Conclusion

Financial goal setting is an essential step towards achieving stability and success in any environment. By understanding your financial situation, setting realistic objectives, and using the best tools available, you can navigate challenges and build a secure financial future.

Remember, the journey to financial freedom begins with a single, well-planned step.