Setting out a financial plan can help provide you with the clarity of where you want to be, and what it will take to help you get there. A financial plan is a strategy that can help you realise your goals and set you on the path to financial success.
For some people, defining these goals is easier than for others, however, experts agree that you should start with the three pot rule. The three pot rule consists of your short, medium and long term plans.
Short Term Goals
Generally speaking your short term goals should consist of financial aspirations that you hope to achieve within six months to a year. This could consist of things like a holiday, clearing debt or making a purchase such as a new phone. You may need to include building an emergency fund as one of your short term goals. An emergency fund can help you stick to your other saving goals in the future and should consist of three to six months salary.
It is a good idea to stick to cash products as savings vehicles for your short term goals, however, this shouldn’t stop you from hunting around for the best interest rates. If your income from these looks to be outside of the personal allowance, you may want to consider a Cash ISA.
Medium Term Goals
You should be aiming to achieve your medium term goals within five to seven years. This may include the purchase of a new car, or renovations to your home. Have a separate account available for your medium term goals and consider investing in order to help you achieve them quicker. Five to seven years is still a reasonably short time when it comes to investments so ensure you have mitigated your liability to risk by creating a diverse portfolio.
Long Term Goals
For most people the most pressing long term goal is to provide for retirement. You may also want to set up a university fund for your children or grandchildren. Finding the right investment vehicle is key to saving for your long terms as any funds held in a savings account will be eroded by inflation over time.