How to set savings goals

Whether you’re saving for something big, like a house deposit, an event, or simply for your peace of mind, it’s good to have a clear sense of purpose.

Studies into savings behaviour show that people who set savings goals manage to save more and reach their goals faster than those who don’t. And although we may instinctively want to live and spend in the moment, it may be possible to overcome this by creating a budget and with regular prompts or nudges.

So why not set some savings goals for yourself? You could start by thinking about the answers to some of these questions:

• What do you want or need to buy in the next 12 months?
• What breaks or holidays do you plan to take?
• What high-interest debts would you like to clear?
• What are your medium-term plans (like saving for a home deposit)?
• What savings might you need for your long-term future (such as retirement)?
• What help would you like to be able to provide for your loved ones?

Once you've turned your answers into a savings plan, you’ll need to keep focused on it. Here are some ways to do that:

1. Write your goals down
Place them somewhere visible like the fridge door, record them in a savings app, or make a note on your phone. The idea is to make sure you see them often so you're reminded of them regularly.     

2. Break big savings goals down
Break down big savings goals, like saving for a house deposit, into a series of smaller targets. Big goals can seem daunting, and when you don’t seem to be getting much closer to them it can be tempting to give up. Breaking them down into smaller goals will make it easier to see the progress you're making and keep you motivated.     

3. Get friends or family involved
Share your savings goal with them and ask them to regularly check up on your progress. Better still, make it competitive and encourage them to set their own savings goals. Sharing goals can make you feel more accountable for them, and encourage you to keep going.     

4. Think about timescales
It can be helpful to think about your savings goals in terms of short-term (like a holiday or a new car), medium-term (e.g. a house deposit) and long-term goals (e.g. pay off your mortgage or save towards a retirement fund).

By separating your goals in this way, you can enjoy the gratification of reaching short-term goals, while still having plans in place to reach your longer-term goals.

One way to meet the savings goals you’ve set is to establish where you're starting from, and how much you can afford to save. Budgeting will help you do this.

By creating a budget, you can: 

• Record income and expenses, helping you to get a clear picture of your current position
• Control spending, helping to identify areas to cut back and increase opportunities to save
• Establish new habits, helping you to avoid unnecessary spending and stay motivated to save
• Feel in control, giving you the peace of mind that comes with taking control of your finances

1. Daily spending
Make a note of everything you spend over a month. If that sounds like too much work, review your account transactions in your bank and card statements. Include regular payments, such as your rent or mortgage, and utility bills, as well as irregular payments. 

2. Income
Record all your sources of income, after tax. If your income varies from month to month, take a 3-month average.

3. Add it all up
Work out all your expenses and subtract this total from your monthly income.

If your expenses come to less than your take-home pay, you have a surplus, which you can prioritise for paying off debts or putting towards your savings goals. 

But if your expenses come to more than your take-home pay, you have less money at the end of the month than at the start. Before you can save regularly, you should focus on ways to reduce your spending.

Establishing clear savings goals and a budget to track your income and expenses can help keep you motivated to prepare for a healthier financial future.