Three Simple Steps to Your Dreams

After the festive season's excesses we are pulling ourselves back onto the straight and narrow. But times are hard, right now, and some of the things we want and need look difficult to achieve.

After the festive season's excesses we are pulling ourselves back onto the straight and narrow. But times are hard, right now, and some of the things we want and need look difficult to achieve.

For example, recent economic developments haven't been kind to people saving up for a house.

And while owning our own property - a place to put down roots, to raise our children or to retire in comfort - is a lifelong dream for many of us, the harsh truth is this: property is also an investment. For most of us, becoming a home-owner will involve a vast amount of debt, all in order to tie up the majority of our savings in bricks and mortar.

We've analysed huge volumes of data in our hive of over a million current investors from all around the UK, and staggeringly, although nearly a quarter of investors under 30 (and therefore the ones most likely to be first-time buyers) consider property their main financial goal, in some parts of the country it can take over 19 years to put a foot on the first rung of the property ladder without help.

This sobering statistic (see here: for a table of this information by region) uses average house prices and average salary and savings information from our 'hive' of data to look at the time it would take to save up for a 20% deposit. It assumes that all these investors' savings are going towards buying a property, ignoring all their other financial goals and the other demands on their finances.

But that isn't how we save. One in five people in the UK are focusing on saving for their retirement, and the same proportion of UK residents are either unwilling or unable to save at all.

There's a silver lining

Now, in the New Year, is a great time to take control of our savings and investments. If we aren't already saving, now is an ideal time to start. If we are saving, we can consider how we could reach those goals a little faster.

It doesn't matter if the dream is bricks and mortar, the children's education, getting the money together for a fantastic stress-busting holiday or anything else. Whatever the aim, we all want to get the most out of our savings in these troubling times.

Setting a smart budget can help us do that. So can sticking to our New Year's resolutions. Many of the "This year I'm going to give up X" resolutions can have a huge positive impact on our finances.

Take smoking as an example. Our hive shows that UK residents saved on average 9.9% of their salary in 2011, a total of £3,238. A 20-a-day smoker could bump this figure up by another 79% by quitting, saving another £2,555.

Work smarter, not harder

Once we've worked out how much money we can afford to put away, we need to make it work for us by investing it sensibly. We need to keep in control of our money.

The three biggest factors affecting investment returns are asset allocation, fees and tax, and there's a smart step to take to make sure our money works as hard as we do.

1) Picking the right level of risk for our investments is the first step. To do this we have to consider our financial goals - when do I want the money? How much do I need? - and personal preferences. Then we just need to pick how to allocate our assets to match. A shorter time horizon or lower risk strategy will call for a higher proportion of stable assets. A longer term or higher risk investment strategy would need more growth assets.

2) The second step is to make sure the fees we pay on our investments give value for money. To do this we need to shop around, and never be afraid of asking the hard questions - how much will this investment cost me in total? What are all the fees, management and set up costs involved? What is the net result this has delivered to the pockets of real consumers in the past?

3) Finally there's tax. And while it may be the only universal constant other than death, we can make sure we don't pay more than we have to. The easiest way to do this is to make sure that we use our full tax-free ISA allowance for our investments.

There it is - three simple steps to making our money work harder. All we have to do is reach for our dreams.

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