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How your goals & timeframes impact your financial plan

So you’ve decided you want to start seriously thinking about your child’s future and how to afford all the large costs you might face as a parent. Now what?

The first thing we suggest is thinking about why you’re doing this in the first place. While people normally associate saving & investing with “getting rich”, we feel saving & investing allows more than that.

It allows you to live the life you want and hit the goals you’re trying to reach. 

With that in mind, we believe you should really think about what your goals are as not only does this increase your chances of sticking to whatever plan you come up with to reach them, but it also helps you decide on the right products to get there.

A diagram comparing the costs of various goals parents have for their children and the rough age they occur.

Short term goals (0-3 years)

Everyone has short term goals. Whether it’s paying for nursery fees, a family holiday (when the world is back to a semi normal state again) or anything else you might have on your mind, it’s likely you’ve got some that jump out to you.

Given that these tend to be a bit closer, it’s normally wise to not take any risk with that money and place it into an account that guarantees your money won’t go down. 

This is why it’s generally best not to invest any money for short term goals.

You should also make sure that the account/product you use to save money for short term goals allows you to withdraw the money (at the time you need it) with no penalties. For example if your goal is in a year’s time, don’t place the money in a 3 year fixed rate account.

Medium term goals (3-10 years)

As a parent your medium term goals may be to fund private school fees (if your child is still young) or upgrading to a bigger house (if you plan to have more children in the future). 

Medium term goals are probably the trickiest to solve for. This is because the length of time is normally long enough that you’re happy to take a little bit of risk on your money to help it grow and beat inflation, but also short enough that you want to protect that money from losing too much value if the market were to fall.

Long term goals (10 years plus)

The earlier you start planning for long term goals, the easier they are to reach. Whether it’s helping your child get on the property ladder when they’re older or covering their uni fees, starting the day they’re born (or as early as possible) gives you the maximum possible time to grow your money and reach that goal.

The general rule is that the more time you have to reach a financial goal, the more risk you can take with your investments (you can read up more about why that is here). For most people this means putting more of the money into stocks and shares and less into savings accounts and bonds.

Disclaimer:

When investing, your capital is at risk and may go up as well as down which means you may be left with less than your initial investment. This article should not be read as personal financial advice.  Individual investors should make their own decisions or seek independent advice.

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Capital at risk when investing.