5 practical tips that could help you set realistic financial goals

18 April 2024

Setting goals is part of creating an effective financial plan. They can motivate you, keep you on the right track, and help you define what “success” is for you. As your plan might cover decades, it can be difficult to know if your goals are realistic. Read on to discover five practical tips that could help make your financial objectives achievable.

1. Take steps to build a strong financial foundation

One of the challenges of meeting financial goals is that the unexpected can happen and derail even the best-laid plans.

You might set out to add an extra £200 each month to your pension so that you can retire early. But an emergency repair to your home or an illness preventing you from working for several months means you need to halt contributions.

Having appropriate financial foundations in place could mean you’re in a better position when you face challenges.

For example, building up an emergency fund could improve your financial resilience if you face an unexpected bill, such as repairs to your car or home. How much you might want to have in an emergency fund will depend on your needs, but a general rule is between three and six months of essential expenses.

Despite the security it could offer, many people in the UK don’t have an emergency fund. According to a report from the Financial Conduct Authority, almost a third (30%) of UK adults, the equivalent of 15.9 million people, do not have a savings account. 

Similarly, taking out appropriate financial protection could keep your long-term plans on track if you had an illness or accident that prevented you from working. Depending on the type you choose, financial protection may pay out a regular income or lump sum under certain circumstances.

Having a strong financial foundation could help you minimise risk to your long-term goals, and mean they’re more realistic.

2. Start with a review of your current finances

Before you start setting goals, a complete review of your current finances could be valuable.

Setting out your income, assets, and expenditure might play an important role in understanding how you could use your wealth to reach your goals, and whether they’re realistic. It could highlight where you could manage your wealth more efficiently or where you’d be happy to make adjustments if it meant you’re more likely to secure the future you want.

3. Make your goals specific and measurable

A vague goal might seem like it gives you more flexibility, but it could mean the steps you need to take are unclear.  

Rather than stating, “I want to build a nest egg for my child”, you could change it to, “I want to build up a £20,000 nest egg for when my child is 18”. By making it more specific, you could set out a clear plan to make it achievable.

In this scenario, you might consider:

• How much you should contribute to the nest egg each month
• Whether you should save or invest
• The best vehicle for building the nest egg, such as a Junior ISA
• How interest rates or investment returns could help you reach your goal.

A clear goal could make it simpler to understand if you’re on track when you review your target and decide if adjustments should be made to your plan. It might also help you identify if you’re being unrealistic. For example, if the monthly contributions to your child’s nest egg don’t fit into your day-to-day budget, you may choose to revise your expectations.

4. Ensure your assumptions are backed by evidence

Often, factors outside of your control will play a role in reaching your financial aspirations. For instance, you might assume a certain interest rate or investment return when making a plan. It’s important that the assumptions you make are realistic, or it could mean you unexpectedly fall short of your goals.

Of course, interest rates or returns cannot be guaranteed, but you can base your expectations on facts.

Let’s say you’re investing and calculate you’ll need to achieve returns of 8% each year to reach your goal – historical data might show that these returns are improbable, or that you’d have to take more risk than is appropriate for you.

Instead, you might find that returns of 5% are more likely. So, you could adjust your goal to make it more realistic or make changes to your plan, such as increasing how much you invest each month.

5. Work with a financial planner

A financial planner could bring together your current finances and long-term goals to help you understand if you’re being realistic and what steps could support your aspirations. A tailored financial plan may help you turn goals into a reality and give you confidence about the future.

Please contact us to arrange a meeting and talk about your financial and lifestyle objectives.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.

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