People who write down their financial plans are likely to have more clarity about their priorities, retirement preparations and aspirations. Yet few of us have a plan to achieving our long-term money goals.
If you’re saving without a clear idea of what you’re saving for or how much you need, it will be difficult to know if you’re on track. Writing down a list of both short and long-term goals could help you prioritise your finances.
How to write a financial plan
Writing a financial plan may seem daunting at first – but following these simple tips could make it easily achievable.
1. Visualise your future
To help you with your written plan, it’s important to visualise what you want your future to look like. When we have a concrete picture of our future self, it becomes easier to make long-term plans and stick to them. Engaging with your pension regularly might help you to paint that picture. It could help you feel more connected to your savings and drive you to think more specifically around your future goals and vision for retirement.
To make visualising your future easier, try breaking it down into parts.
2. Write a personal statement to focus on
A personal statement could help you define an overarching theme of your goals for the future. For example, ‘When I retire, I want to move abroad and have saved enough to travel the world.’
Joyful and purposeful activities
Think about the things you might want to do in 5, 10 or 15 years’ time that will bring you joy or aligns with your purpose and values. For example, maybe you want to spend time travelling, do some volunteering, or work part-time to focus on a personal project. These should be in line with your values and what type of world you want to live in. Writing these down will help you see how much money you might need for these activities.
Our Picture your best life tool can help you to visualise what your life could look like.
Your money goals
Outside of the activities you would like to do that bring you joy and purpose, think of the key money goals you have. For example, maybe you want to save for a house, pay off debt or take early retirement.
Making your money goals specific may also help you to achieve them. Instead of ‘I want to save more money for retirement’, a specific written goal might be: ‘I want to save an extra £20,000 towards retirement within 10 years’. You can then make a manageable plan to stay on track to reach your target.
3. Decide what goals you want to prioritise
Now that you have your key goals and aspirations written down, it’s time to work out how to tackle them. Which goal is most important for you to complete first? What achievable target dates can you set yourself?
4. Think about your sources of income
Once you’ve identified your goals and timelines, you may have a better idea of how much money you’ll need in the future.
You should consider all your sources of income at retirement, to have an idea of how much you need to save to stay on course. Here are some examples:
Your pension is likely to be your main source of retirement income. Try using a pension calculator for an estimate of how much your pot could grow before you stop work. You can also use this to forecast the potential difference increasing your contributions could have.
If you have several jobs over time, you may have multiple pension pots with different pension providers. You may also have a personal pension if you’ve set one up outside of your work or are self-employed.
Remember your pension pot is an investment, so it can fall as well as rise and isn’t guaranteed. You may get back less than you paid in.
If you’ve worked in the UK for between 10 and 35 years and paid National Insurance in this time, you’ll be eligible for part of or the full State Pension.
The State Pension is unlikely to be enough to support your retirement in full, but it can help towards it. You can check your State Pension forecast on the government’s website to see how much you could receive, when you can claim, and if you could improve it.
- Check your State Pension forecast.
- Read Your guide to understanding the State Pension.
If you have any investments or savings outside of your pension(s), such as a stocks and shares ISA, bonds, or any savings in a current account, make sure to include these in your financial plan.
Like the pension calculator, there are online investment calculators that could help you forecast a potential future income. Just remember, the value of an investment can fall as well as rise and isn’t guaranteed, so be cautious with relying on this income to meet your goals. If you own a home and think you might downsize in future, you could also consider any profits you might make from this.
While you might not have a clear idea of how much you’ll receive, it’s worth keeping any potential inheritance in mind. If you’re likely to inherit a house or other savings, this could help to boost your income in retirement or help you pay for any short-term goals. Not everyone will receive inheritance, so don’t rely on this as a certainty. Inheritance may also be subject to inheritance tax.
Reviewing your written plans
Once you’ve made your written plan, keep it somewhere safe and refer back to it to see how you’re progressing with your long-term goals.
You might want to have a summary of your plan on show to keep you motivated. Remember, it might take more than one attempt to build a plan that you’re happy with. Your priorities and circumstances may change as you move through life. Reviewing your plan and adapting, when necessary, could help you feel happy and secure with your finances in the present and in the future.