How to save for long-term goals

We all have big dreams – buying a house, getting a new kitchen, travelling the world – but to reach them, it often requires a bit of forward planning and some smart saving.

Whatever your dream might be, here are some practical tips to help you reach it.

Step 1: Pick a goal

Let’s be honest, most of us have more than one long-term goal. And while this is a great aspiration, it might be easier to focus on saving for one thing at a time.

If you’re struggling to choose, just think about which one you want to reach first – perhaps you want to buy a house before you get married. In which case, make the house deposit your main goal.

Once you’ve settled on a savings goal, set yourself a deadline. This doesn’t have to be set in stone, but giving yourself a timeframe can give you some extra motivation.

It’s important to set a realistic goal. To do this, work out how much you need to save and how long it’ll take you to reach that amount. For example, if your goal is £20,000 and you can save £300 a month, then your deadline should be around 5 and a half years.

If you’re not sure how much you can save, go through your monthly income and outgoings to see how much is usually left after bills. This can help you understand exactly where you’re spending your money. Adding up how much you spend on things like takeaways, for example, can be a real eye-opener.

Step 2: Choose the right savings account

If you haven’t already opened a separate savings account, that’s a good next step. Separating out savings from your current account makes it less likely you’ll dip into the cash. It also makes it easier to see how much you’ve saved - and how near you are to your goal.

You’ll also want to make sure you’ve got the best savings account for your needs. And to do that you’ll need to compare savings accounts. There’s a lot to choose from, for example:

• Instant access – these are the most popular types of savings account, as they let you dip into your savings if you need to.
• Regular savers – reward you for saving regularly to help you build the habit of saving
• Limited access accounts – allow you to keep putting money in, withdrawals aren’t always instant and often carry a penalty
• Fixed rate accounts – give you a single rate that doesn’t change for the term you’ve chosen
• Fixed term bonds – give you a higher interest rate in return for locking your money in for your chosen term
• Investment accounts – offer higher potential returns but with the risk that you could get back less money than you invest as your money is tied to the value of what you’re invested in, for example, stock, bonds or even gold

Which type of account you choose should depend on your goals, your saving timeframe, and whether you might need access to it. The important thing is to make sure you’re earning interest on your savings. Because that interest can then earn interest too (this is called compound interest), which can help you reach your savings goal even quicker.

Step 3: Pay yourself first

If you wait until the end of the month to save, there might not be any money left. Or the amounts may vary wildly, making it hard to know how long it’ll take to reach your goal.

Instead, try to save as soon as you get paid.

You could set up a standing order to transfer money into your savings account the day you get paid. This way you don't need to remember to save, as it’ll be done automatically. Some of the other benefits to paying yourself first include:

• Build good savings habits
• Avoid overspending
• Steadily grow your money
• Reach your goals faster

Step 4: Plan to save

Don’t worry if your goals are big but the amount you can save is small. Everyone has to start somewhere. If you can save just £5 a week and not touch it, in 5 years it would be worth £1,300 – and that’s without adding interest!

There are plenty of little tricks you can do to save. For example, rounding up to the nearest £1 and saving the change. This approach of little and often could increase the amount you save by hundreds each year.

The important thing is that you have a plan to save. Whether that’s actively, by putting money away each month, or passively by rounding up your transactions.