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How to plan for long-term savings goals

Long-term and short-term savings goals are very different things that need different approaches.

If you have a big financial goal in mind that could take you a few years to achieve, you'll need a plan in place to get there, as well as the right type of account for your goal.

What are long-term savings goals?

Long-term savings goals are usually the more expensive things you want to buy that will take a while to save for, such as:

A house or flat
A car
Your retirement fund
University fees

How to set and achieve your long-term savings goals

Because they require more time, commitment and discipline, long term savings goals can be tricky to plan for and even trickier to achieve. But there are a few things that can help you get started and stay on track.

Being 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 into account prices going up 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.

Measuring and adjusting 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 or 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, which could mean it takes longer to reach your goal. But if your income goes up, you can start putting more money away, which means you might be able to hit your goal sooner.

Choosing 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, like in 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 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 further down in this article.

Keeping your savings separate from each other

When you’re saving with a specific goal in mind, especially if it’s a more expensive goal that will take you a few years to save for, it’s best if you keep those savings separate from any short-term savings you might have.

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, as you might want to change how much you’re putting towards one goal or the other if your priorities change.

For example, if you recently used your emergency fund to deal with an unexpected cost, you might want to prioritise putting that money back, meaning you might have to adjust how much you’re putting into your long-term savings.

Automating your savings

If you’re serious about your long-term savings goals, you’ll want to make sure you’re putting money away regularly. This also makes it easier to work out how long it will 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, as it’s easy to forget about paying in when you’re dealing with a busy life.

The best way to make sure you’re working towards your long-term savings goal is to set up a direct debit into your chosen savings or investment account. That way you’ll be working towards that 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?

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

How much it grows 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 if the cost of living goes up.

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.

Investments have more potential to grow than cash savings, but this isn’t guaranteed. That’s why investing is only recommended if you’re looking to put money away for at least five years - over time, the ups and downs of the stock market can even out and you might have the option to leave your money where it is for longer rather than take money out when the stock market isn’t strong.

Whether you save in cash or invest is completely up to you and how comfortable you are with risk. You can read more about how saving in cash compares to investing in our earlier article.

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, but you’ll have to pay a penalty fee if you use that money for anything else.

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 and all are tax-free, meaning you don’t pay any tax no matter how much your money grows by.

Stocks and Shares ISA

With one, simple annual management charge of 1.1%, our Stocks and Shares ISA could be a good option if you're looking to invest over the long-term.

Lifetime ISA

If you want to save for your first home or for life after 60, our Lifetime ISA could help as you'll gain a 25% boost from the government on top of your savings, as well as any potential stocks and shares returns.