How to Save for Multiple Financial Goals

Investors who set financial goals tend to see them in the very distant future, but some need to be addressed in the short-term

Robert van den Oever 4 February, 2022 | 9:33AM
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Balancing act

There are life events that carry a financial goal with them: think buying a house, or saving for your children’s education. Then there are smaller ones, like buying a new car. A car is cheaper than a house, granted, but for most people it still goes beyond pocket money.

What's the best way to combine these different kinds of goals? The danger could be that by focusing on the short-term needs, your retirement savings are too low. When your investment base is low, the compounding effect of time will also be lower. Then you may end up with an insufficient retirement income in later life.

Likewise, if you focus on retirement and invest for maximum long-term returns, you may fall short in the short-term. If you are so focused on saving for retirement, your house deposit pot may start to feel somewhat neglected.

The key is to define how important different goals are to you and how much you want to put aside for them, based on your current and prospective income. Make a list of your goals and allocate your savings and investments based on that order. Here are three steps.

Step One: Prioritise

For families, funding the kids' education could be first priority, as it’s a crucial step for their future. Other goals may have to make way for that. 

For people in a different situation, paying for education may not be an issue at all, so they can focus on different goals. Everybody needs to make their own decisions.

Step Two: Know What You Can Spare

How much can you set aside? Define what percentage of your income you can spare to put into saving and investing without getting in trouble with your daily spending. This amount will add some realism to your goals, and tell you which goals you might have to let go.

Step 3: Find Extra Income

If you're realising certain goals may have to go on ice, you may want to look for other income to help you achieve what you want.

If you are early in your career, then you may expect pay rises or bonuses, which can help with this – just remember that extra income is not necessarily representative of your future earning power. The more likely other future income sources are, the more you can take those into account in achieving your goals.

If you are on the brink of retirement, a salary increase is unlikely, and other income from other work will disappear. That changes your income position downwards, and with it your room for savings.

In Summary

Decide which goals are the most important to you and dedicate your investable money in order of importance. Look what you can set aside given your usual expenses and see if there is extra financial room on the horizon. You may achieve more than you had hoped for.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Robert van den Oever  is Research Editor of Morningstar Benelux