The importance of setting a savings goal now

After several decades of gainful employment, you have every right to expect a long and happy retirement.

Financial decisions you make now could go a long way to ensuring you enjoy your golden years to full effect.

Building a savings and investment portfolio ahead of the day you retire means that your pension could be the last source of income you have to touch.

If you are to achieve your savings goals and ambitions, it’s always better to start planning now rather than later.

“The hardest thing for many people is having clearly defined objectives,” explains Edinburgh-based wealth manager Bob Hair, who heads up the Cazenove Capital office in the city.

“People tend to spend surplus income - only to then wonder why they never have any surplus income.”

By that, Bob means many people will, quite naturally, treat themselves or other family members instead of meeting the saving targets they have established.

“The key thing is having those objectives, no matter when you start. It’s a relatively simple thing to quantify how much you need to save to achieve that objective.

“But you’ve got to be clear - and then commit and get on with it. That’s where most people fall down. It’s not lacking the will - it’s just not doing it.”

While pensions are the bedrock for saving for your retirement, building investments on top of that is key.

“There are limits to what people put into pensions. Some people don’t trust them because the rules change so often,” said Bob.

“While it is very tax efficient to make use of pensions, there are other options available. You could be saving up in ISAs, or trying to build up investments through open-ended investment companies (OEICs).”

The latter are professionally managed collective investment schemes that pool your money with other investors. You effectively invest in a wider range of shares, and spread the risk across different investments.

“Some people like to have a clear objective and be very specific about which pot of money it’s going to be taken from,” adds Bob.

A well-known example of that strategy is the man who plans to buy a boat on the day he retires - the basis of the Deacon Blue pop hit, Dignity.

“Perhaps that guy was putting his earnings into one specific place, like a piggy bank under the bed,” explains Bob. “Other people may put £70 a month into a savings plan for the next 10 years because they've worked out that's what it will take to achieve their dream."

The wealth management expert also says you shouldn’t rule out stock market investment.

“When you save on a monthly basis the stock market risks are smoothed because of the concept of pound-cost averaging," he says.

“If you save month by month, you’re making lots of little investments, whether prices are up, down or indifferent. When prices go up, you don’t get as much for your money, but when they go down, you actually buy a greater number of units, or shares, and over time it generally smooths out.”