Setting Financial Goals - The Long vs Short-Term Strategies

Every savings goal is different. Each goal requires different types of accounts, amounts saved, and investing strategies. Goals with a shorter timeline require more conservative strategies versus those with a longer timeline and more time to save.

Understanding the difference between short and long-term goals and how to save for them is the key to reaching your goals.

What are Short-Term Financial Goals?

Short-term financial goals are those you can reach in a short time, typically six months to no more than five years. They typically have concrete and foreseeable deadlines and require an immediate plan of action. They also require that you invest less aggressively than if you were saving for long-term goals because there's less time to make up for any losses.

Examples of Short-Term Financial Goals

Everyone's short-term financial goals will look different, but here are some common examples:

• Saving for a down payment on a house
• Buying a car (with a down payment)
• Buying new appliances
• Saving an emergency fund
• Paying off small debts
• Taking a vacation

Each of these goals has a predictable and reachable timeline, making them easier to save for because you have a distinct timeline and dollar amount required.

Steps to Save for Short-Term Financial Goals

Since short-term goals have a more immediate need, you may have to make some significant changes to your financial lifestyle to meet them, including creating a more stringent budget, cutting back on non-essential expenses, or finding additional sources of income.

1. Create a monthly budget: Now's the time if you don't already use a budget. Along with budgeting for regular expenses, such as housing, insurance, food, and transportation, you should include savings. If you have a specific goal, such as buying a car, determine how much money you need and how long you have to save. This will help you determine how much you must save weekly or monthly to reach your goal.
2. Automate savings: Put savings on autopilot so you don't accidentally spend the money you planned to save. Set up a direct deposit with your employer or through your bank to set aside a specific amount each month.
3. Find ways to cut back: If your budget doesn't allow for savings, find ways to cut back. This may mean eating out less, shopping only for necessities, or canceling unnecessary subscriptions.
4. Find other sources of income: If you find your budget doesn't have enough room for savings, find other ways to increase your income, such as a side hustle, asking for a raise, or taking on a part-time job.

What are Long-Term Financial Goals?

Long-term financial goals are those you want to meet in five years or longer. The most common example is retirement, but there are many other long-term goals you can set. These goals typically aren't as specific because the need for them is so far off, but you will need to save regularly to reach those goals.

Long-term goals also often require changes, especially as your life circumstances change. For example, if you start a family, you may have new long-term goals, such as setting up a college fund or changing jobs may change your retirement goals.

Examples of Long-Term Financial Goals

As we said, retirement is a common long-term goal, but others include:

• Starting a business
• Paying off a mortgage
• Buying a car for cash
• Getting out of consumer or student loan debt
• Buying a second home

Long-term goals are often thoughts or dreams that people begin saving for in the hopes of reaching them in the future.

Steps to Save for Long-Term Financial Goals

Saving for long-term financial goals requires consistency and flexibility. For example, you may save a certain amount of money each month now, but when you start a family or change jobs, your ability to save may change. The key is to be consistent and always save as much as you can afford to make your long-term goals a reality.

Here are some steps you may consider:

1. Open specific accounts for your goal type: Determine what you want to save for the long term and what types of accounts you need. For example, you should consider a 401 (k) or IRA for retirement and a college savings plan for college expenses.
2. Keep accounts separate: Combining your short—and long-term savings funds can get confusing and may lead to dipping into long-term savings without realizing it. Instead, have accounts designated for each type of goal and take advantage of tax savings wherever possible, such as with a 401 (k) or college savings fund.
3. Invest aggressively: If you have a long time before you need to reach your goal, consider ways to invest aggressively to maximize your earnings and increase the likelihood of reaching your goals.

Prioritizing your Financial Goals

It's normal to have short—and long-term goals, but you may have to prioritize some goals over others. For example, everyone should plan for retirement and make it a regular part of their budget as early in life as possible to allow adequate time to save.

Other goals may have to take a backseat, or you may need to be more flexible in how you save for them to satisfy more important goals. By prioritizing your goals, you ensure you take care of the most important stuff in your future while also satisfying other financial goals.

Final Thoughts

The key to successfully reaching any financial goal is having a financial plan, including a budget and some accountability. Consider apps like Spendings.IO or YNAB to ensure you stick to your goals and are able to reach them.

Don't forget, though, that flexibility is key. Life will throw you curveballs, and circumstances will change. Re-evaluating your situation and ensuring you're prioritizing the important goals is key.