The temptation to spend money as soon as it lands in your bank account can be all too powerful, but while a spend, spend, spend mentality might feel rewarding in the short-term, it can also leave you dangerously vulnerable to credit card debt and some of life’s major risks.
inSettg financial goals that can be achieved in the short, mid and long-term is crucial to breaking your spending habits and creating a more sustainable way to manage your money. It’s also the key to improving your financial wellbeing and allowing you to move forward in life without insurmountable financial obstacles.
But if you’re new to financial goal setting, where should you start? Here are five financial goals that will set you up to thrive.
1. Create an emergency fund:
If you haven’t done so already, then a vital short-term goal is creating an emergency fund to help you meet unexpected expenses. Initially, you should aim to create a fund worth £500-£1,000 to cover costs that you haven’t budgeted for, such as essential car repairs or replacing a faulty household appliance.
Once you have a small amount of cash to fall back on, you should ideally increase your fund so that it can cover more serious financial difficulties caused by a loss of a job or a period of illness.
Ideally, your emergency fund should cover all of your expenses for between three and six months. Here are some simple tips to help you create an emergency fund that we recommend reading in detail.
2. Pay off your credit card debt:
Opinions as to whether you should pay off your debt or create an emergency fund first differ. However, we’re firm believers that you should have at least some money saved to cover your unexpected costs first, otherwise, any unforeseen expenses will simply force you further into debt.
When paying off your debt, there are two approaches you can take. You can either take the ‘debt avalanche approach, by paying off the debt with the highest interest rate first. Once that is paid off, you should then move onto repaying the debt with the next highest interest rate.
The other method you could use is the ‘debt snowball’, as set out in the ‘Financially Ready’ checklist from Wonga, check their website for the free pack download. It’s built on the principle of paying off your smallest debts first, regardless of their relative interest rate.
3. Learn the basics and start investing:
Over the slightly longer term, a hugely beneficial goal is to learn what you can do to grow your money. We’re not talking about high-risk investments here. We’re talking about low-risk strategies that can provide a better return than a savings account. This investing course for beginners is a great place to start.
4. Buy your first house:
Getting on the housing ladder is the most important financial step most people will take. Rather than paying rent and getting nothing in return, every mortgage payment you make increases the value of the equity you own in your property. In essence, every mortgage payment makes you a little bit richer.
If your aim is to buy a home, then improving your credit rating and saving a deposit should be your priorities. You’ll need to save a deposit of at least 5-10% of the property’s value.
5. Never pay more than you need to:
In a capitalist society, profit-led companies will inevitably try to take as much money from you as they can – it’s your job to stop them. You can do that by researching and comparing every significant purchase you make or contract you enter into.
For example, if your mobile phone contract has come to an end, don’t blindly renew it with your existing provider. Similarly, if you’ve been with a utilities provider or an insurer for more than one year, you’re probably paying too much.
What financial goals have you set for the next year? Please share your thoughts with our readers in the comments below.