Financial milestones

We all have different goals for our money, but there are a few financial milestones that almost everybody shares. These are the key life experiences that only money can buy; the moments which bring a feeling of untold stability and can provide the security that is needed to reach financial independence.

Here are a few of the most common financial milestones, and how to reach them a bit more quickly.

Building an emergency fund

Your emergency fund is the first financial milestone that you should target. Ideally, you will start working towards this goal from the moment you receive your first pay check.

This is the rainy-day fund that will offer a financial safety net when you are faced with an unexpected bill, an unavoidable fine, or a period of unemployment. Aim to build a pot equal to three months salary and top it up again any time you need to make a withdrawal.

These funds should be held in an instant-access cash savings account, where you won’t be penalised for making a sudden withdrawal.

Starting an investment portfolio

Once you have your emergency savings pot sorted, you can start thinking about your wider financial goals. This will most likely involve creating a diversified investment portfolio which has been designed to be compatible with your own risk appetite, while delivering positive annual returns.

The first thing you need to do when setting up an investment portfolio is understanding your risk profile. Then you can start to allocate your money towards a variety of cash savings accounts, stocks and shares investments and bond holdings, as well as any alternative assets that you want to cover, such as property or crypto currency.

Saving for retirement

It’s a good idea to start thinking about your retirement the day you start working. The more time you give a retirement portfolio to grow, the less money you need to contribute to it. Retirement savings can be done through your company or if you work on a freelance or contract basis, directly.

Your employer may ask you how much of your monthly pay check you want to divert into your retirement fund, and you may even get some say over the type of fund that you are using.

Setting up your own pension fund is particularly important when you are self employed, but many employees also choose to maintain their own personal pension fund to supplement their overall retirement income. Shop around to find a pension fund that works for you, and then set up a direct debit to ensure that you are making regular payments.

Buying your first home

Buying your first home is a huge financial milestone. For most people, this will involve saving towards a deposit (typically 10% of the total value of the house) and getting approved for a mortgage.

To quality for a mortgage, you will need to meet your bank’s specific requirements. Most banks will look for evidence of a good credit score, minimal debts, and a regular income. You may then be offered a mortgage loan based on your income. If you have any outstanding debts - for instance to your student loan provider - the total value of these debts may be deducted from your overall mortgage allowance.

When applying for a mortgage, don’t forget about the additional costs – legal fees, arrangement fees, surveyor fees, etc. You may also need to spend some money updating your house before it is liveable, so be sure to budget for that as well.

Lately a growing number of people are opting for renting homes instead of owning. Ownership comes with a host of costs and responsibilities while renting involves less responsibility and frees up some cash to invest in other ways. While home ownership offers a feeling of belonging and security, you don’t have to rush into it.

Becoming debt free

Becoming debt free is a goal that most of us share. This means no more credit cards, no more student loan payments, and no more paying off your mortgage.

The sooner you can pay off your debts, the cheaper they will be. Interest will keep on accruing while you work to pay off each bill, so take any opportunity to make overpayments where possible. When it comes to your mortgage, shop around and take advantage of any mortgage transfer deals that are available. If you come into any extra money, use at least some of it to pay your debts before saving or spending it.

Working towards being debt free can be challenging if you are also padding your emergency fund, saving for retirement and paying off a mortgage. It might be a good idea to decide what percentage of your income you’d like to put towards debts, savings and investments based on your financial priorities.

Saving for your children

Putting a little money aside for your children is the best way to ensure their financial future. Start as early as possible, saving even a small amount of money every month. Take advantage of any tax-free saving schemes, reinvest any interest, and keep on saving into this pot until your child is at least 16 years old. This money can help your child find their feet once they leave home, be put towards their education or be a lovely gift for a lucky 21-year-old.

Reaching your pension fund goals

Everyone has a financial independence number – the amount of money you need to never have to work again. Once you have reached this number, you can start to make choices about how you want to spend your time. Perhaps you love your job and keep working but reduce the number of hours you spend at work in a week. Or perhaps you’d prefer to pack your bags and start exploring.

Your financial independence number is directly linked to your cost of living. Once your investment portfolio is large enough that an after-inflation drawdown can cover your cost of living, you are financially free. Your portfolio will continue to grow above inflation because you are not cutting into your principal investment contribution. Because you are living off the growth of your portfolio, if managed carefully, you’ll never run out of money. Doesn’t that sound lovely?