Once you’ve worked out how much you have left over every month to invest, you can start to work out how much you’ll be saving, where, and for how long. First though, you need to get a handle on risk and how it works when it comes to setting timescales for achieving your goals.
Understand and Apply Risk-Flex
I think I might have coined the term risk-flexing, but probably someone far brighter than me did so really. I have a video on this concept that you can watch, but the idea is that you start with your baseline risk profile and dial that up or down based on timescale.
For goals less than five years hence, you dial DOWN the risk. For goals where the timescale is between 5 and 10 years, then invest according to your risk profile.
For goals longer than 10 years, then you can dial UP the risk accordingly and for very long-term goals, say 15 years or more out, then you can REALLY dial it up, knowing that time and markets will do their thing for you.
Identify and Apportion Your Savings
Now to divvy up the money you have, either as a lump sum or as monthly savings between your goals. Prioritise the near-term, but not exclusively. I would definitely tilt your savings towards the stuff you want to achieve earlier, but if you do that completely, you’ll never put any money away towards retirement.
I’m assuming that you’re in your workplace pension already, if you’re employed and eligible. If not, you should definitely open a pension and pay something into it. Factor a pension into your long-term goals.
As far as apportioning money between long and short term, maybe start at 75% near-term and 25% long-term. If you have £400 pm to save, £100 would go towards your long-term goals and £300 towards your nearer-term goals.
This will obviously affect some of the other variables. If you’re saving for a house deposit in five years, it’ll take you longer at £300 pm than it will at £400 pm. That itself is a variable, so work out how much longer it’ll take you at that difference, and decide if you’re happy with that. It will focus the mind somewhat.
You may decide that in light of this, you need to find another £100 per month to save, and set about working out how that’s going to happen – a side-hustle perhaps, or a second job. But without planning, you’d be flying blind. At least you know the impact of the variables now and can work with them.