Saving for a goal
Set a realistic target, choose a deadline and calculate the monthly amount needed to reach your savings goal.
In this guide
Achieving a financial goal can seem daunting, but breaking it down into clear, manageable steps makes the process much simpler.
Whether you're saving for a home deposit, a dream wedding, or your child's education, a well-structured plan is key. In this guide, you'll learn how to set realistic financial goals, decide on your time horizon, account for inflation, and determine whether saving or investing is the best route for you.
Key terms used in this guide6 terms
Definition
Savings goal
A defined amount of money set aside for a particular purpose by a chosen date.
Define your goal
The first and most important step is to clearly define what you are saving for. Be specific about what you want, when you will need the money and how much the goal will cost. A well-defined goal will help you stay focused and make it easier to create a realistic savings plan.
- 1
What are you saving for?
This gives the goal a clear purpose and makes it easier to visualise.
- 2
When will you need the money?
This sets the timeframe and helps you choose between saving and investing.
- 3
How much will it cost?
This creates a clear target and leaves room to account for inflation.
For example: a £30,000 property deposit in three years; a £10,000 wedding in two years; or £120,000 of school fees over ten years.
Understanding time horizon
Once you've defined your goal, decide when you expect to need the money. Your time horizon affects how much you need to set aside each month and whether saving or investing is more suitable.
| Time horizon | Typical goals | Keep in mind |
|---|---|---|
| Short term | Typical goals1-3 yearsHoliday, car or home improvements | Keep in mind The monthly amount matters most because there is less time for interest or investment growth to help. |
| Medium term | Typical goals3-5 yearsProperty deposit or another major purchase | Keep in mind Balance the return available with the certainty of having the money ready on time. |
| Long term | Typical goals5+ yearsEducation, retirement or larger commitments | Keep in mind Inflation becomes more important, and investing may be worth considering if you can accept the risk. |
Adjust for inflation
If your goal is long-term, it's essential to consider inflation, which reduces the purchasing power of money over time. For most long-term goals, adjusting for inflation is crucial to ensure your savings will meet future costs.
The Government sets the UK's 2% inflation target, but actual inflation can be higher or lower. Use an assumption you can review rather than treating any one rate as guaranteed.
Today's target
What the goal costs now
This is the starting point. It describes the buying power your savings goal needs today.
Inflation-adjusted target
After five years at 2.5% annual inflation
Inflation adds to the target. After five years, you would need about £3,942 more to match the same assumed buying power.
The longer the timeframe, the more inflation can matter
This is an illustration, not a forecast. Review the assumption as prices and your deadline change.
Inflation calculator
Use an inflation assumption to estimate what today's target could cost by your deadline. Change the rate as well as the timeframe to see how compounding affects the amount.
Enter the cost today, your timeframe and an illustrative annual inflation rate.
Inflation calculator
Inflation assumptions
Decide whether to save or invest
Now that you know your goal and time horizon, decide whether you want to save or invest your money. The choice depends largely on your risk tolerance, the time horizon for the goal and your capacity for loss.
Choose an approach
- Short term1 to 3 years
- Medium term3 to 5 years
- Long term5+ years
Saving is generally more suitable for goals up to five years away, when certainty matters more than growth potential.
- Risk
- Cash does not move with investment markets, although inflation can reduce its spending power.
- Return
- The return is usually lower but easier to understand, particularly when the rate is fixed.
- Access
- Choose access rules that match when you need to pay for the goal.
For a goal less than five years away, saving is generally more suitable because investments can fall in value and may not have enough time to recover before your deadline. Your flexibility and capacity for loss matter too.
Here are some accounts that could help
The right account depends on when you need the money, whether you will save regularly and how much access you need along the way. Here are some accounts that could help.
Compare current examples across five common savings routes. Check the access rules, deposit limits and eligibility as well as the AER before choosing an account for your goal.
Monthly contribution
Enter your target, deadline, existing savings and illustrative savings and inflation rates to estimate the monthly contribution needed.
Monthly contribution needed calculator
Goal and deadline
Starting point and rates
The bottom line
A useful savings goal has a clear amount, a realistic deadline and a monthly payment you can sustain.
Start with the purpose, then test the plan. Allow for inflation, choose saving or investing according to the deadline and risk you can accept, and revisit the numbers when the cost, rate or timeframe changes.
