The Long and Short of it: Why Are Long-Term Goals Important?
Whether you’re a prospective or seasoned investor, you will have been told the importance of goal setting and establishing long-term financial goals. It may seem like an obvious step, but for those who are taking a chance on an investment, or find themselves being an ‘accidental landlord’, knowing the potential of an asset and having something to work towards is paramount.
Setting short-term goals is just as important as having broader objectives but why exactly are long-term goals so important when investing?
What is Considered a Long-Term Goal?
Short- and long-term goals vary depending on different factors, so it’s often best for you to determine your own definitions of these. Generally speaking, long-term goals are bigger milestones consisting of multiple stages. With different aspects to consider, long-term goals usually require more forward planning.
Unlike long-term objectives, short-term goals are typically more achievable within a number of months, or within a few years. More often than not, these short-term goals form part of a long-term plan and can contribute to the success of a greater goal.
Long-term goals will typically change with your age and personal lifestyle. A common objective for many investors, however, is a financially secure retirement. Property investment is often the chosen route for achieving financial security, which means paying off a mortgage may be a major milestone within a bigger goal of the dream retirement.
On the other hand, short-term goals are typically ones that are obtainable within a few years such as paying off credit card debt or going on a luxurious holiday. Although establishing your short- and long-term goals early on is key, it’s important to remember that plans and investments can change, so there should always be a level of flexibility within these.
What are Common Investment and Savings Goals?
Saving and investing is becoming more prominent throughout society, especially since the pandemic. Research has found that younger generations are becoming more inclined to start saving and investing early, with the assumption that this demographic has their long-term goals at the forefront of their minds.
At the same time, only 41% of the ‘Silent Generation’ and 60% of ‘Baby Boomers’ are likely to invest their money, considerably less than the 75% of ‘Generation Z’. The main motivation towards this investment trend is the lack of returns of savings accounts, further reinforcing the idea that the younger generation have specific, long-term goals to work towards.
While older generations are seemingly less likely to invest their earnings, this doesn’t necessarily mean they’re not preparing for the future. In previous years, those aged 40 and above were found to be the biggest savers, with 60% of 40-49-year-olds saving at least 12% of their income, which rose to 62% amongst 50-59-year-olds. As the biggest savers, this age bracket is thought to have an average of £20,028 put aside.
But are they planning for long-term objectives? The UK is renowned for being a nation of savers, but when it comes to saving for a comfortable retirement, the majority of the globe has the same idea. More than 70% of investors across Canada, Australia, the USA and the UK were working towards a comfortable retirement, while short-term goals, such as saving to start a business and saving for a large purchase were significantly less common as investment motives.
Retirement has long been a key investment and savings goal, especially as the retirement age continues to grow and the cost of living increases. With this in mind, it’s no surprise that a larger proportion of the younger generation are establishing this long-term goal early on, and are investing wisely to reach it. While ‘Baby Boomers’ may not take the same route to achieving a comfortable retirement, the long-term goal remains the same, regardless of age.
Why Invest With a Long-Term Goal in Mind?
It’s understandable that, in the early stages, investors might not be thinking about their long-term goals, so why is it beneficial to begin an investment journey with at least one in mind?
Invest With a Clear Focus
Knowing exactly what you’re investing for and why can often make the entire process a lot easier, especially with Buy-to-Let property. For example, if you’re aware of how much you need to save and by when, you’ll be able to gauge an idea of how many years you should spread your mortgage across.
Similarly, this will also help when determining which property type would help you to achieve your goal. But above all, having a clear focus from the outset gives you something to work towards, and gives your investment a purpose.
Save in Manageable Amounts
If you enter an investment with a clear long-term goal in mind, you can divide your goal amount by the number of years it will take you to reach it and in turn, you’ll be able to save a certain amount each month. By gradually saving a manageable amount, it’s less likely that you’ll be overwhelmed by the process and could still have extra income leftover.
For property investors, your monthly rental income will be the means to achieving your long-term goal, so by saving a proportion of this every month, you could still have money left over in case of tenant emergencies.
A Source of Motivation
Saving and investing for the sake of it without a goal can become mundane over time, so by having a long-term goal to work towards, it serves as motivation to keep going. Having an idea of what to work towards and seeing your investment grow closer to your long-term goal will undoubtedly motivate you to maintain, or even expand, your investments.
What about Short-Term Goals?
Short-term aims shouldn’t be overlooked in the investment process, and instead, should be used to complement and maximise long-term goals. Within a long-term goal, there’s often smaller, short-term milestones that can help motivate and further encourage you on your investment journey.
However, if these short-term goals are separate from any long-term aspirations, it’s crucial to shape them around, or keep in mind, the ultimate aim of your investment. Above all, it’s more important to keep your goals manageable and realistic, whether they’re short-term or long-term aspirations.