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How to create a savings goal?

Saving is often something that we put off when it is a crucial part of building your wealth and financial freedom. Savings can be your safety net when unexpected expenses occur. 

How to get started? The first step is to set your savings goals. Having a savings goal that is aligned with your financial plan is crucial. Your savings goals could be anything from saving for a rainy day to saving for a holiday. 

Types of Savings Goals

The first step to step to setting any goals is to understand the type and timeline of the goal. This can help you with planning. Here are the three typical types of a savings goal:

  • Short Term – These are savings that you will need to access in the near future. Short term savings goals usually have a horizon of six months to a year. This could be saving for a holiday.
  • Medium Term – Medium-term goals are between 1 to 3 years. This could be saving for a new car. 
  • Long Term – These are goals with a horizon of longer than five years. Examples include retirement, a bigger house, or to pay off debt. 

Where to Keep this Money?

Another confusing part of saving is where to put your savings. While a savings account at your bank may seem like a great option, it may not be the best place to earn interest that helps grow your money over time. 

The best way to identify the best place to put your savings is to talk to a financial advisor. Financial advisors can help you to draw up a financial plan that will align with your savings goal. 

However, if you are wanting to get right in, here are some potential ideas based on the timeline of your goal.

Short Term Goals

When it comes to saving for the short term you have two major factors to keep in mind. Firstly, you need to ensure the savings account is accessible within your timeline. Secondly, the savings account needs to be lower risk. 

Possible options include:

  • Savings Account – A savings account is an interest bearing account offered by your bank.
  • Money Market Account – A money market account is a type of cash investment that earns interest. 
  • Cash-Based Unit Trust – Unit trusts that are classified as stable or that invest in cash. 

Medium-Term Goals

When you are saving towards a medium term goal, you need to think more about the return on the interest you will be earning. A few percent a year over a three year period can make a huge difference in the value of your savings or the time it takes you to reach your goal.. 

Potential savings accounts include:

  • Multi-Asset Unit trusts – Multi Asset funds are investment funds that include multiple asset types such as Equity, Property, Cash and Bonds.
  • Low-Risk Funds – Low risk funds are funds with a more stable return and less volatility. 
  • Money Market Funds – A money market account is a type of cash investment that earns interest. 

Long Term Goals

The long term is always a difficult one to judge because a savings goal of 6 years is quite different to a savings goal of 40 years. It again comes down to analysing your needs and risk appetite.

If you are saving for the longer term, you could consider a little more risk depending on what the savings are for. This could mean introducing more equity into your portfolio. 

Possible options include:

  • Managed Funds – Managed funds are actively managed and monitored by a professional fund manager. 
  • Funds with a long-term focus – Funds with an investment horizon of 5+ years can suit your long term goals. 
  • Multi-Asset Unit trusts – Multi Asset funds are investment funds that include multiple asset types such as Equity, Property, Cash and Bonds.

Speak to your financial advisor who can assist you in finding the best funds to suit your financial needs. 

While saving money may seem like a hard task, it becomes easier when you set clear and defined goals. Whether you are saving for a wedding or the holiday of a lifetime, set your savings goal to help you achieve it. 

Speak to one of our Bond Optimiser assessors today to see if we can help you to save on debt repayments. 

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