The first and most important step is to clearly define what you are saving for. Be specific about both the amount you need and the purpose of the savings. Having a well-defined goal will help you stay focused and make it easier to create a realistic savings plan.

• What are you saving for?
• How much do you need to reach your goal?

• Property deposit: - £30,000
  This is a common goal for first-time homebuyers. The average price of a property in the UK is around £300,000, so a 10% deposit typically amounts to approximately £30,000. Depending on where you live, this amount may vary, so consider adjusting based on the average house prices in your area.
• Wedding: - £10,000
  The cost of a wedding can vary significantly, but the average cost in the UK is around £18,000 to £20,000. Many couples opt for smaller, more intimate ceremonies and aim to spend closer to £10,000.
• School fees: - £120,000
  Private school fees can be substantial. On average, yearly fees for private schools in the UK range from £12,000 to £18,000 per year. Over several years of education, these costs can add up to £120,000 or more.

Once you've defined your goal, determine when you want to achieve it. The time horizon affects how much you need to save each month and whether it's feasible to save or invest to reach the target.

• Short-term goal (1-3 years): - Saving for a holiday, car, or home improvements.
• Medium-term goal (3-5 years): - Saving for a a property deposit.
• Long-term goal (5+ years): - Goals like a child's education, retirement, or larger financial commitments.

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 inflation rate typically ranges from 2% to 3% per year, depending on the country and economic conditions. Failing to account for inflation could leave you short of your target, even if you meet your nominal savings goal.

Formula: To adjust an amount for the effects of inflation, use the following formula:

You want to save £30,000 for a home deposit in 5 years, and you expect an average annual inflation rate of 2.5%. Using the formula:

Due to inflation, you'll need to save £33,942.25 to have the equivalent purchasing power of £30,000 today.

Now that you know your goal and time horizon, decide whether you want to simply save or invest your money. The choice between saving and investing depends largely on your risk tolerance, the time horizon for the goal, and capacity for loss. While saving offers more security, investing typically yields better returns over time, as investments have the potential for higher growth, particularly over long-term periods. For more insights on this, see our guide to saving v investing.

If your time horizon is short (under 5 years) or you want low risk, keeping your money in a high-yield savings account other savings product may be best.

• Low risk: - No risk of losing money, but subjected to inflationary pressures.
• Lower return: - Typical returns range from 3% to 5% annually.

If you have a longer time horizon (5+ years) and can tolerate more risk, investing in stocks, bonds, or mutual funds could help you achieve higher returns.

• Moderate to high risk: - Markets fluctuations, but investments generally grow over time.
• Higher return: - Returns from a balanced investment portfolio can average 5% to 8% annually.

Understanding your risk profile helps you choose investments that match your comfort with changes in market value. Risk and return are closely linked — generally, the higher the risk, the greater the potential return. But it also means accepting a greater chance of loss. It's not simply about picking the most aggressive strategy for the highest returns; it's about finding a balance that aligns with your personality, time horizon, financial goals, and personal circumstances.

Your risk profile affects how much of your portfolio is allocated across asset classes, such as equities (which are typically more volatile) versus bonds or cash (which are usually more stable). Factors like your age, income stability, emergency savings, and even how well you sleep at night during market downturns all play a role in determining what's right for you.

These profiles broadly align with how many investment platforms, especially those regulated by the Financial Conduct Authority (FCA), define investor risk categories: Conservative often maps to “low risk,” Balanced to “medium risk,” and Aggressive to “high risk.” While naming conventions vary, the core idea remains the same: higher risk may bring higher returns, but also a greater chance of losses.

Prioritises protecting capital over higher returns, typically allocating 70% to 90% to bonds and cash. This profile suits short-term goals or cautious investors.

• Typical return: 2% to 4% per year.
• Example allocation: 20% equities / 80% bonds and cash.

Balances risk and reward, often splitting investments more evenly between stocks and bonds. Suitable for medium to long-term goals with moderate volatility tolerance.

• Typical return: 4% to 6% per year.
• Example allocation: 60% equities / 40% bonds.

Targets higher returns by heavily weighting investments toward equities. Best suited for long-term investors who can tolerate significant ups and downs in value.

• Typical return: 6% to 8%+ per year.
• Example allocation: 80% - 100% equities / 0% - 20% bonds.

You don't need to perfectly fit one category, these are just frameworks to help guide your thinking. Many platforms help you find your risk level through simple questionnaires.

Now that you know your goal, time horizon, and whether and understanding of your risk profile, you can calculate how much to save each month.

Formula: The formua for calculating this is:

If you want to invest, you'd typically do so through an online broker or investment platform. Once your account is set up, you'll choose an investment vehicle (which is essentially an account type) that holds your investments and may offer tax advantages or other benefits.

Different vehicles suit different goals, time horizons, and tax situations. Here are some of the most common:

• Stocks and shares ISA: - Lets you invest up to £20,000 per year without paying tax on income or gains. Ideal for medium-to-long-term investing.
• Self-Invested Personal Pension (SIPP): - Offers tax relief on contributions, but you can't access the money until at least age 55 (rising to 57 from 2028).
• General Investment Account (GIA): - A flexible account with no contribution limits, but gains and income are subject to tax.
• Lifetime ISA (LISA): - Designed for buying your first home or saving for retirement. You can contribute up to £4,000 a year and receive a 25% government bonus.

Choose a vehicle that fits your financial goals, investment timeline, and tax position.

Investment products are the actual financial assets you invest in, held within your chosen investment vehicle or wrapper. They determine your potential returns, level of diversification, and how much risk you're exposed to.

Some products are simple and hands-off, while others require more time, attention, and knowledge. Choosing the right mix depends on your risk tolerance, time horizon, and how involved you want to be in managing your investments.

Direct investments in specific companies. They offer high return potential but come with higher risk - especially if you're not diversified, which can be expensive and time-consuming to do on your own.

• Risk level: High, especially if concentrated in a few companies.
• Best for: Experienced investors comfortable with market volatility and active management.

Generally lower risk than stocks, but they still benefit from diversification, which can be difficult and complicated to manage on your own. Bonds also carry interest rate risk: when rates rise, bond values tend to fall.

• Risk level: Low to high, depending on the bond type and issuer.
• Best for: Investors seeking more stable income with reduced exposure to stock market swings.

Actively managed portfolios that pool investors' money into a diversified mix of assets. The wide range of fund types means there's something for almost every risk level. They typically involve higher fees due to professional management. The key advantage is built-in diversification, which makes them a better fit for many retail investors.

• Risk level: Varies by fund type (equity, bond, or mixed).
• Best for: Hands-off investors who want diversification and are comfortable paying for active management.

Similar to mutual funds in that they offer diversified exposure, but with the added benefit of being more liquid so they can be bought and sold throughout the trading day like individual shares. Many ETFs are passively managed and track a market index, which often means lower fees than actively managed mutual funds.

• Risk level: Varies depending on the index or assets held.
• Best for: Cost-conscious investors wanting flexible, diversified exposure to the market.

A type of mutual fund that spreads investments across different asset types, such as stocks, bonds, and cash within a single product. They often come in preset allocations like 20/80 or 60/40 (stock/bond split). Ideal for beginners, they offer built-in diversification and require very little ongoing management.

• Risk level: Low to high, depending on the mix. Tailored to your profile.
• Best for: Beginners or anyone wanting simplified, cost-effective all-in-one investing.

Digital platforms that automate your investment portfolio using ETFs or multi-asset funds. They align with your risk profile and goals, but don't provide personalised financial advice. While they offer convenience and hands-off investing, they can be more expensive than managing your own low-cost multi-asset fund and often come with limited choice. They don't always offer the best-performing or cheapest options available in the wider market.

• Risk level: Tailored to your profile.
• Best for: Investors who want automation and simplicity, and are happy to trade off flexibility for ease of use.

When selecting products, always consider your risk appetite, how involved you want to be, and what fits best with your broader goals. For more guidance, see our guide on picking an investment product that suits you.

Your financial goals, life situation, and the markets themselves can all change - so your investment plan shouldn't be static. Regular check-ins help ensure your strategy stays relevant, balanced, and on track.

• Annual reviews: - At least once a year, review your portfolio's performance, check if you're on track toward your goals, and fine-tune your investments if needed.
• Life changes: - Major events, such as getting married, having children, changing careers, or receiving an inheritance, might shift your financial priorities. Revisit your plan when these milestones occur.
• Rebalancing: - Over time, your portfolio may drift from your intended asset allocation due to asset performance. Rebalancing helps realign it with your risk profile and keep your plan on track. If you're using a multi-asset fund, this happens automatically but your needs may still change: for example, moving from an 80/20 fund to a 60/40 one.
• Reassessing: - Rebalancing keeps you on your current path; reassessing asks whether you're still on the right path. Multi-asset funds automatically keep you aligned with your chosen allocation but your allocation itself might need to change. For example, as you approach your financial goal, you might shift from an 80/20 to a 60/40 mix to reduce risk.

Think of your investment plan as a living document that grows and evolves with you. A little time spent checking in now can prevent bigger headaches later and help you stay in control, even as life changes.

Goal-based investing gives your money direction and your plan purpose. Instead of reacting emotionally to market noise, you're focused on outcomes that matter to you — like reaching a deposit target, funding education, or building financial freedom.

This approach helps you choose investments that are appropriate for your time horizon and risk profile, and it makes reviewing your progress more meaningful. You're not just checking returns — you're measuring how close you are to something important.

Perhaps most importantly, it gives you a sense of control. You can adapt your strategy as your life evolves, rebalance when needed, and reassess your goals with clarity. Over time, this leads to smarter decisions and greater confidence in your financial future.

Ready to map out your own goals? Try our investment goal calculator to see what it will take to get there.