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How to make a long-term savings plan

If you have a long-term savings goal in mind, you'll need a plan in place to get there.

Long-term and short-term savings goals are very different, so they should be approached differently.

In this article we'll explore what a long-term savings goal could look like for you. We'll also share tips on the best ways to save long-term, and the right type of account for your long-term savings plan.

What are long-term savings goals?

Long-term savings goals are usually for the more expensive things you want to buy, that'll take a while to save for. These could include:

a house or flat
a car
your retirement fund
university fees.

How to plan for your long-term savings goals

Long term savings goals need more time, commitment and discipline. This can make them tricky to plan for. But there are a few things that can help you get started and stay on track.

Be realistic about your savings goals

When you’re deciding what to save for, be realistic about how much money you’ll actually need to reach your goal and how long it will take you to get there. It’s a good idea to take prices going up into account and aim to save more than you’d need for that goal right now.

When it comes to doing the maths, a budget method can help you figure out how much you can comfortably put away each month.

Measure and adjust your long-term savings plan and goal

When you’re saving for the long term, a lot can change before you reach your goal.

Your everyday costs might go up.
Your income might change.
You might run into some unexpected expenses.

It’s important to review your long-term savings plan if things change, to keep it realistic. If your daily expenses go up, you might need to put less in your savings every month. This could mean it takes longer to reach your goal.

But if your income goes up, you can start putting more money away. In this case, you might be able to hit your goal sooner!

Choose an account made for long-term savings

When you’re saving for short-term goals, you’re more likely to save your money somewhere that’s easy for you to access. This could be a regular cash savings account or a savings pot within your current account.

When you’re saving for a long-term goal, you’ll probably want to put your money in an account that’s harder to dip into. Committing to saving for a bigger goal over the course of a few years already takes a lot of willpower. So you'll want to make sure you’re not tempted to spend the money on something else.

You also might consider investing your money rather than saving it in cash, but we’ll explain more about that later in this article.

Keep your savings separate from each other

When you’re saving with a long-term goal in mind, it’s best you keep those savings separate from any short-term savings.

This will make it easier for you to keep track of how close you are to your goal, while still keeping track of other savings, such as an emergency fund.

Splitting your savings is also helpful when it comes to budgeting. You could then change how much you’re putting towards one goal or the other if your priorities change.

Say you've recently used your emergency fund to deal with an unexpected cost. You might decide to prioritise putting that money back, meaning you may need to adjust how much you put into your long-term savings.

Automate your savings

If you’re serious about your long-term savings goals, putting money away regularly is a smart move. This also makes it easier to work out how long it'll take you to reach that goal.

But saving over a long period of time can be difficult, especially if you’re making one-off payments. It’s easy to forget about paying in when you’re dealing with a busy life!

Setting up a direct debit into your chosen savings or investment account can be a gamechanger. That way you’ll be working towards your goal without even having to think about it. And you can always adjust how much you’re paying in every month if things change in the future.

Should I save in cash or invest for a long-term goal?

Saving in cash

Money you put into a cash savings account will grow by building interest, like your current account does.

How much it grows by depends on the account’s interest rate - which might change over time depending on the type of account you choose. It’s worth checking what the interest rate is and how long this is “fixed” for before you open your savings account. A variable interest rate might go down, although it might also go up.

There’s no risk of the amount of money in your account going down as it’s not invested. But the same amount of money might be worth less in the future as the cost of living goes up.

Investing

When you put money into a stocks and shares or "investment" account, it's invested in a fund along with other investors' money. The investment fund is used to buy various different types of investments: things like shares in companies, property and corporate and government bonds.

Your money increases or decreases as the value of those assets changes. When you want to withdraw your money, you'll "sell" your shares at their current price.

With investing there's good potential for your money to grow over the long-term, but there is a risk that the value could go down. So it’s smart to only invest if you plan to keep your money locked away for at least five years, as fluctuations tend to even out over time.

Which account is best for my goals?

If you have a specific long-term savings goal you’re aiming to reach, there might be an account designed to fit that goal.

For example, if you’re saving to buy your first home or for life after 60, a lifetime ISA gives you a 25% government bonus on everything you invest. That's up to £1,000 per tax year, if you invest the maximum annual amount of £4,000! Be aware that you’ll have to pay a penalty fee if you use that money for anything else though.

If you’re saving for any other long-term goal, an ISA could be a good option. You can put up to £20,000 in ISAs each tax year and there’s no limit on what you can use the money for.

Both lifetime ISAs and ISAs come in both cash and stocks and shares options. They're also tax-free, meaning you don’t pay any tax no matter how much your money grows by.