What do You Want Your Money to do for You?

Essentially money should be a means to an end, not an end in itself.
So the first thing for you to decide when you start thinking about your finances is ‘What’s your objective or goal?’ ‘What’s your end?’ There may be only one, there may be a number of objectives.

Are you saving for something specific? A deposit for a house, or a big holiday?
Do you want to be able to retire at fifty-five?
Is the goal just to be more financially secure?

Whatever the goal, this will give you something to aim for – a target. It will also give you a timescale. When would you like to take the holiday? You’d like to retire at 55 etc

With those two things identified – the target and the timescale, you can work backwards.
If I need £3000 in two years’ time to be able to afford a holiday to Australia, then I need to save £125 per month for the next twenty-four months.

The next question is: Can I afford to save that much?

For some people the answer will be a definite no, in which case you may need to change the timescale. For most of us though, it may seem difficult to afford, but possible. The key thing about saving is that it’s all about getting something in place – a regular direct debit that takes a certain amount out each month and puts it into our savings account or ISA or pension. Once you have something in place, it becomes like a regular bill payment – it just happens and becomes part of your monthly payment cycle. You also often find that you don’t miss the money as much as you thought you would. Once you have a regular savings/investment plan in place, you’ll be surprised at how quickly it starts to accumulate. Even with the very low savings rates you receive at the moment, the ‘compounding effect’ can make a big difference.

We’ll talk about that next time.

Sarah Pohlinger
16.8.2014