Five steps to achieve your financial dreams

There comes a point for most of us when we start thinking about giving up work for good and spending time doing the things we really want to do. That feeling came to Dave Abson in mid-2008, after 28 years as a lecturer in marketing at Newcastle Business School.

"I was feeling a bit stressed in my job and I'd had a minor health scare, with raised blood pressure. The doctors were telling me that I had to take things easier," he recalls. "I was 57 and the general assumption in higher education is that you stop work at 60."

Dave and his wife Christine spoke to their financial adviser, and he told Dave he could retire now, even though his pension would be paid on reduced terms as a result of leaving early.

Dave says: "His calculations didn't necessarily involve us skimping on our finances in retirement. We factored in reasonable living costs such as energy, food, heating and clothing, plus things like holidays and going away at weekends.

"Obviously, we were going to take a cut in our earnings, but we could manage."

As a result, shortly before his 58th birthday, Dave took the plunge and retired. While he's doing OK financially, he's topping up his income by doing some freelance consultancy work to pay for small luxuries, such as a new mountain bike.

The difference is that work-related stress has largely disappeared from his life: "I was offered some part-time consultancy in Trinidad. They paid for the ticket but when the work was done I could choose when to return to England and I stayed out for a few more days.

"So there I was, scuba diving in Tobago, just offshore from Ian Fleming's Caribbean house. I came out, looked at my watch and realised that back in England it was the first day of term back at college."

But while Dave managed to turn his dream into reality, how can the rest of us achieve our financial goals? Here we outline the five steps you need to take to make sure you reach the financial goals you're aiming for.

1. Review your current situation

When you talk to people about how they go about planning their financial future, most will say they respond to individual issues in much the same way as one might with an illness: deal with a specific problem and when it's sorted, that's generally the end of it.

So for example, if you think your retirement income might not be all that great when you stop work, you go to a financial adviser and set up a pension. If you are paying too much in mortgage costs, you go to a broker and try to switch to a cheaper loan, end of story.

But while this approach is understandable, it does make sense to take a more holistic approach to your finances. This holistic approach is part of a much deeper process of financial planning.

For example, there is little point in charging ahead with your financial goals before you've reviewed your current financial status.

Here you need to be honest with yourself about where you are now – for instance, if you're ridden with debt, a goal that involves spending a lot of money might be unrealistic. To find out where you stand financially, draw up a budget showing your income and outgoings.

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Look at previous bank statements to see exactly what you spend your money on – this will highlight what's essential and what isn't.

Essential outgoings include your mortgage payments or rent, household bills such as gas, electricity and water, and car and home insurance and payments.

Once you know exactly what you spend each month, you can look at how to cut costs to create additional income.

For example, could you cut down on your non-essential spending or when it comes to your essential spending is there a way you could shop around for a better deal? This will help you reach your financial goal even quicker.

2. Be clear about your goals

Once you know how much money you can afford to put aside each month towards your specific goal, you need to know exactly what you would like to achieve. As Ian Howe, managing director of Baigrie Davies, says: "You need to be very specific.

"Apart from anything else, working out your goals in explicit detail is an important part of meeting them. The more definite you are, the better the potential to change."

So how do you go about creating a financial goal? Jane Wheeler, principal at Somerset-based Direction Financial Planning and the author of Sorted, a DIY financial planning book, says: "The first thing I'd do is drop the word 'financial'.

Goal setting is about what people want out of life, or dealing with changes in their lives.

"If you really think about it, most issues that matter to people - like a career change, re-training, getting married or going to live on the other side of the world – are not financial goals as such, although they have financial implications.

"For example, people don't say: 'I want £450,000'. They say: 'I want to be able to retire two years earlier'. So don't start off by thinking in terms of pounds, shillings and pence."

To assist in that process, you first need to ask yourself a series of questions that at first sight appear to have nothing to do with financial planning.

They include identifying the names of the most important people in your life, if you spend enough time with them, if there is anything – like cooking, art or writing – that you've always wanted to do.

3. Setting your goals

After this, you need to set your goal out in writing. Most people find it helps to clarify whether they really want it. It is also part of the process involved in working out how to achieve it.

Create a worksheet with column headings for short/medium and long-term goals, the cost of the goal, the target date and how much you need to put aside each month.

This will not only clarify what you want the most, it also helps you to work out when you can realistically reach your goals.

Short-term goals can be anything that is achievable within six months to two years, and could be paying for a holiday, replacing a faulty boiler or perhaps buying a new car. This could also include reducing debt or building up a savings pot.

Medium-term goals are the ones that require a slightly longer timeframe and could include paying of a larger loan or perhaps saving up for a house deposit.

Finally, long-term goals are the ones that often take 10 years or longer to achieve. This could include everything from paying off a mortgage, saving for your children's future or saving towards your retirement.

To stick to your plan, it could be good to set some milestones. These will help you to measure what you are doing as well as setting realistic targets so you don't feel overwhelmed by the scale of the task ahead.

For example, if you're saving up for a £20,000 house deposit it might be worth dividing it into £5,000 milestones.

4. Learn to compromise and prioritise

Another key ingredient when working towards a goal is to learn how to compromise and prioritise. In the course of creating a set of goals, there will need to be lots of compromises between family members.

Ken Taylor, a financial planner at Scottish advisers Mackenzie Taylor Wealth Management, says: "The reality is that what matters to you may be far less important to your spouse and vice versa.

You might like the idea of saving up to buy a motorcycle and go on a round-the-world trip, but your partner might prefer to buy a horse and ride that.

"Also, you may need to juggle between goals and the finite resources at your disposal. You might want to retire at 55 instead of 60 or 65, but you also have to pay for your daughter's wedding next year and replace your car in two years' time – and you've only got a few hundred a month to do it all with."

Trying to achieve impossible goals could be at the expense of others that matter more. For example, meeting an important long-term goal – being debt-free in 15 years – may mean downgrading a short-term goal, like going on a fortnight's holiday to the Bahamas next year.

Understand exactly what is involved in the dual process: you are deciding both a final outcome and the journey involved in getting there. In other words, they determine how you will live your life today.

5. Goals are not set in stone

You may also need to adjust a goal to reflect what is happening in the outside world, or alter what you are doing to ensure your goal is reached as originally planned.

Because, as Ian Howe at Baigrie Davies points out, the one thing you can guarantee is that when you set out to achieve a goal, for better or worse life will get in the way of meeting it.

To combat this you need to regularly review your strategy and monitor where things are headed.

Finally, you also need to set aside money for a rainy day in case something unexpected happens. Also consider how you would cope financially should you lose your job or become ill or injured and unable to work.

Taking out income protection insurance, for example, could be an option as that would make sure you continue to receive an income should you become ill or injured.

Lastly, if you're struggling with drawing up a realistic plan you can always seek professional advice.

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Your Comments

A great article, however, I disagree with point 5. Goals should be set in concrete. If you want to achieve something, you can. What IS more flexible though is the timescale within which you will achieve it.

I very much agree with this article, which is very informative, I still believe that your finances should be moulded around the lifestyle you would like in retirement within reason, rather than your lifestyle being moulded around your finances.

This is a very nice article. It seems like goal setting is the most important aspect of financial planning. Without having a goal it is very difficult to know how much you need to save for the future. One thing is clear though, saving is important as it allows freedom to do whatever you want in the future.

 Dave Abson was wise to retire early. My husband was teaching in a 'challenging' school and became very ill. It took his GP, his union representative and me a year to persuade him to give up. He said that we wouldn't be able to live on his pension, my reply was that I'd rather be a poor wife than any kind of widow and that clinched it.
It's astonishing how well you can live on a small amount of money, if you plan and don't want material possessions such as a 'new' kitchen or to change your car every year. We eat extremely well and enjoy good wine with our evening meal, we're warm and comfortable - and healthy. We've inveted in pv panels and a solar water heating panel, a wood fired stove and water softener, all of which have improved our comfort and pocket. And we've had two Arctic cruises. We also lent three of our 'children' the cash to install pv panels, all this on a small teacher's and the state pension. 
Time is very valuable, we can make and mend, grow vegetables and fruit, cook well and enjoy everything we do. There's no rush, no pressure, just a happy life. Please don't feel that you MUST continue to work because you need the income, you don't. Why, you could even downsize and reduce your outgoings.
Our lives are far more precious than money.