How to set your financial goals this year

Whether it’s losing weight, stopping smoking, getting fitter or eating more healthily, most of us have probably made at least one New Year’s resolution, but how many of us will actually go on to achieve it?

We all have different financial goals and aspirations in life, yet these goals can often seem out of reach. In today’s complex financial environment, achieving your financial goals may not be that straightforward but this is where financial planning is essential. Designed to help secure your financial future, a financial plan seeks to identify your financial goals, prioritise them, and then outline the exact steps that you need to take to achieve your goals.

If your New Year’s resolutions include giving your financial plans an overhaul, here are our financial planning tips to help you create a robust financial plan for 2021 and beyond. If you would like to speak to someone about your 2021 financial goals, contact Headway Wealth today to book a free, no obligation initial consultation*.

Be specific about your personal finance objectives

Any goal (let alone financial) without a clear objective is nothing more than a pipe dream, and this couldn’t be more true when setting financial goals.

It is often said that saving and investing is nothing more than deferred consumption. Therefore, you need to be crystal clear about why you are doing what you’re doing. This could be planning for your children’s education, your retirement, that dream holiday or a property purchase.

Once the objective is clear, it’s important to put a monetary value to that goal and the time frame you want to achieve it by. The important point is to list all of your goal objectives, however small they may be, that you foresee in the future and put a value to them.

Set realistic goals

While it might be a good thing to keep your financial goals a bit aggressive, being overly unrealistic can definitely impact on your chances of achieving them.

It’s important to keep your goals realistic, as it will help you stay the course and keep you motivated throughout your journey until you get to your destination.

Short, medium and long-term goals

Now you need to plan for where you want to get to, which will likely involve looking at how much you need to save and invest to achieve your goals. The approach towards achieving every financial goal will not be the same, which is why you need to divide your goals into short, medium and long-term time horizons.

As a rule of thumb, any financial goal which is due within a five-year period should be considered short-term. Medium-term goals are typically based on a five-year to ten-year time horizon, and over ten years, these goals are classed as long-term.

This division of goals into short, medium and long-term will help in choosing the right savings and investments approach to help you achieve them, and it will also make them crystal clear. This will involve looking at what large purchases you expect to make, such as purchasing property or renovating your home, as well as considering the later stages of your life and when you’ll eventually retire.

How inflation impacts your savings

It’s often said that inflation is taxation without legislation. Therefore, you need to account for inflation whenever you are putting a monetary value to a financial goal that is far away in the future. It’s important to know the inflation rate when you’re thinking about saving and investing, since it will make a big difference to whether or not you make a profit in real terms (after inflation).

In both 2008 and 2011, inflation climbed to over 5% – not good news for savers. So always account for inflation by applying the 20 year inflation rate average within your country to your savings calculations.

Risk protection plays a vital role

It’s best to discuss your goals with those you’re closest to and make plans together so that you are well aligned. An evaluation of your assets, liabilities, incomings and outgoings will provide you with a starting point. You’ll be able to see clearly how you’re doing and may find areas you can improve on.

Risk protection plays a vital role in any financial plan as it helps protect you and your family from unexpected events. Make sure you have put in place a Will to protect your family and think about how your family would manage without your income should you fall ill or die prematurely.

Make sure you’re using all of your tax allowances

With tax rules subject to constant change, it’s essential that you regularly review your own and your family’s tax affairs to plan accordingly. Tax planning affects all facets of your financial affairs. For example, you may be worried about the impact that rises in property value increases may have on gifts or Inheritance tax, how best to dispose of shares in a business, or the most efficient way to pass on your estate.

Utilising your tax allowances and reliefs is an effective way may reduce your tax liability and making considerable savings over a lifetime. When it comes to taxes, there’s one certainty – you’ll pay more tax than you need to unless you plan. The UK tax system is complex, and its legislation often changes so it’s more important than ever to be tax-efficient, particularly if you are in the top tax bracket – making sure you don’t pay any more tax than necessary.

Creating your comprehensive personal financial plan

Creating and implementing a comprehensive financial plan will help you develop a clear picture of your current financial situation by reviewing your income, assets and liabilities. Other elements to consider will typically include putting in place a Will to protect your family, taking out life-insurance or creating a more efficient tax strategy.

Understanding your retirement freedom options

Retirement is a time that many look forward to, where your hard-earned money should support you as you transition to the next stage of life. With changes to legislation, the number of options available at retirement has increased, and has brought about pension freedoms over the years. The decisions you make regarding how you take your benefits may include tax-free cash, buying an annuity, drawing an income from your savings rather than pension fund, or a combination.

You may have several pension pots with different employers, as well as your own savings to withdraw from, this is why, early retirement planning early gives you the best chance of making sure you have adequate funds to support your lifestyle later in life.

Monitoring, reviewing and evaluating your financial plan

There is little point in setting goals and never returning to them. You should expect to make iterations as life changes. Set a formal yearly review, at the very least, to check you are on track to meeting your goals.

Need help?

Headway Wealth can help you with all your financial planning needs throughout 2021 and beyond. We would be happy to discuss your  financial goals and interests to create the right financial plan for you.. For more details on how we can help you with financial goal setting and planning, you may book your free appointment, contact us on +44 (0) 2033 935 920 or email us at [email protected],

*No fees. No commitment. No obligation to buy.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change.

The value of investments and income from them may go down. You may not get back the original amount invested

Headway Wealth Ltd are authorised and regulated by the Financial Conduct Authority