Money: Define your goal, then shoot for the best returns

Saving money for emergencies and a retirement income may be your priorities, but once you have built up a contingency fund and put a pension plan in place, what's your next savings goal?

You may have disposable monthly income which you don't spend, or you might have a specific plan for the future which you want to be able to afford.

"Unfortunately too few people have any real objectives," says Jim Preston, of Wesleyan Financial Services. He says professional financial advice can be useful to help you pinpoint what it is you want to save for.

Your objective could be something general - perhaps you just want to build up a cushion of capital for retirement. A pension will provide you with an income when your working days are over, but you may want to have capital as well, either for extra income or to dip into for holidays or a new car.

Or you could have a specific goal in the future - weddings for your children, a round-the-world trip, a new car in five years' time, school fees or higher education costs. More and more people aim to build up enough money to be able to retire 10 years before the date their pension pays out.

If you want to put money away long term, but have no particular goal, how much should you be saving? Start by calculating how much you can afford. Work out what your disposable income is after bills and regular expenses. Half of that amount could probably go into long-term savings, says Christine Ross, of the independent financial advisers Willis National.

Whatever your reasons for saving in the longer term, putting money away for years at a time allows you to achieve far higher investment returns than with short-term funds.

There is no shortage of financial products for long-term savers. Which type you choose depends on a number of questions: Do you want to make regular savings, or do you have a lump sum to invest? Do you want a completely safe investment, or are you prepared to take some risk? How long will it be before you need access to the money?

National Savings certificates are about the lowest-risk investment you can make. Your investment is guaranteed by the Government, making it even safer than money in a building society. Rates of return are tax free, making them attractive for higher-rate taxpayers. For example, 46th issue fixed interest certificates pay 4.8 per cent compound over five years, equivalent to a gross rate of 8 per cent if you are liable to income tax at the higher rate.

There is also a variety of insurance company bonds. Some are for the risk-averse investor; others can be quite speculative. Guaranteed growth bonds are among the safest. You commit a lump sum to these for a number of years, usually five. GE Financial Assurance pays 27.62 per cent net interest on a five-year growth bond over the term. The minimum investment for this bond is pounds 5,000.

Insurance companies also offer with-profits bonds. They give you a share of the profits of the investment fund they are based on. The profits vary with stock-market fluctuations, but the sharpest changes are smoothed out by the product provider usually withholding some of the profits in a good year for distribution in a bad one.

Unit-linked bonds reflect the underlying performance of an investment fund more closely than with-profits bonds. The bonds' value can vary from day to day and go down as well as up.

Regular savings plans can help you to keep putting money aside. "The majority of the public do need some sort of discipline in saving," says Mr Preston. Building society accounts and Tessas are safe options for regular savings. Compare interest rates, which vary widely.

A unit trust savings scheme gives you the opportunity to put regular sums into shares or other financial market investments, while spreading your risk. "The idea behind a unit trust is that most people wouldn't be able to get a spread of investments without a substantial amount of money," says Ms Ross.

Most of the funds on offer have more than 50 different holdings, with many holding between 150 and 200 different investments. You can save as little as pounds 25 a month in a unit trust savings scheme, or put in a lump sum.

Because the stock market is prone to ups and downs, you should aim to keep a unit trust investment in place for at least five years to give it time to grow.

Endowment policies can also be good for regular savings, with life insurance included. But these are worth little in the early years because most of the fees are payable at the beginning. Fees for a unit trust are spread more evenly throughout the period you hold the investment for, so if things change and you have to cash the investment, then you will lose less money.

Willis National: 0800 181844; Wesleyan Financial Services: 0800 22 88 55

'The Independent' has published a free guide, 'Making Your Investments Work for You'. The guide, which covers every aspect of financial planning, including paying off a mortgage, retirement and investment, is sponsored by Wesleyan Financial Services. For your copy, call 0800 13 79 749 or fill in the coupon on this page.