Saving is a positive step in your journey towards financial independence. However, saving without a predefined target can feel daunting due to the lack of motivation to achieve a specific “goal” within a set timeframe.
Goal-based saving aligns a purpose with a financial target—in this case, the funds required to fulfil a savings or investment objective.
This approach not only provides direction but also encourages consistent saving habits, ultimately leading to the achievement of long-term financial goals.
Goal-based saving involves identifying a clear and distinct financial objective, factoring in all associated costs, and determining the timeframe required to achieve it. This process is followed by committing to periodic top-ups and mapping out a plan with the assistance of a Financial Adviser or a financial tool.
Once these steps are complete, the journey begins, requiring discipline and patience to see it through.
If you are new to setting financial goals, start by listing all your objectives, including the smaller ones. Outline the total amounts required for each goal, prioritising the essential ones based on what is important and urgent.
When saving with a goal in mind, it’s crucial to distinguish between needs, wants, and wishes, as this will help determine the timeframe needed to achieve them, whether short-term, medium-term, or long-term.
A common mistake people make is not choosing the right savings vehicles.
The vehicle used for building an emergency fund or retirement savings may differ from the one used to save for an asset. It’s important to familiarise yourself with various savings solutions that align with your goals, understanding their level of risk and expected returns.
Consulting a Financial Adviser can help identify the most suitable options. For instance, a Money Market Fund can be used to save for an asset or act as an emergency fund, and one can have different Money Market Funds for different goals.
Lack of emergency preparedness or saving in a vehicle that allows easy access to funds can lead to withdrawing money prematurely or failing to meet monthly savings targets. This can be mitigated by developing a strategy that ensures consistent savings towards your goal within a specified timeframe.
Building an emergency fund is one of the best ways to stay prepared for unexpected life events like job loss or medical emergencies.
An emergency fund prevents you from dipping into your savings or taking out a loan in times of need. Ideally, an emergency fund should cover six to twelve months of living expenses and should be kept in a safe, accessible place like a Money Market Fund.
There are simple personal finance rules to help you stay consistent. For example, prioritise saving by treating it as the first expense in your budget. Another effective hack is automating your periodic savings through standing orders, eliminating the mental hurdle of manually transferring money to a savings account each month.
To achieve your goals, remain realistic about your current financial situation, factoring in all your sources of income and expenses.
Financial freedom requires deliberate planning.
The writer is Head of Business Development at Jubilee Asset Management Limited
