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Short-term and long-term goals might seem self-explanatory, but some cases aren’t exactly clear-cut. We will help you identify your goals, plus budget and save for them accordingly.
Short-term financial goals
Short-term goals describe your more immediate plans, beyond simply covering necessities. Although timelines vary, these are the things you’ll spend money on generally within a few months or years. Examples of short-term goals include:
- Emergency fund.
- Credit card debt paydown.
- Personal goods.
- Travel.
- Wedding.
- Minor repairs and home improvements.
If you don’t have an emergency fund, that’s your first priority. You might not need an emergency fund for several years, or you might need it right away. There’s no way to know when car repairs or medical bills will pop up.
To budget for this, put aside money from your paycheck to start a $500 fund. Over time, build it up to three to six months-worth of your living expenses.
To pay down credit card debt, there are several methods you can use, including starting with the smallest debt first (debt snowball) or targeting the debt with the highest interest rate first (debt avalanche). The amount of time it takes to chip away at your debt depends on how much money you’re willing and able to put toward it.
To budget for a wedding, trip or home repair project, set a monthly savings goal and stick to it.
» Get started with our 50/30/20 budget calculator
Long-term financial goals
Long-term goals are usually big-picture items. These goals may take several years or even decades to reach. Your distant goals typically involve more money and regular attention than short-term goals. Examples of long-term goals include:
- Retirement fund.
- Paying off a mortgage.
- Starting a business.
- Saving for a child’s college tuition.
Saving for retirement is a priority. Your child can get student loans, but you can’t get a loan to finance your retirement. Consider contributing enough to a workplace 401(k) to get any offered match. If you don't have a workplace plan, think about a Roth or traditional IRA.
If you want to pay off your mortgage faster, you can make larger monthly payments. See how fast you can make a dent with our mortgage payoff calculator.
If you’re looking to start a company, explore different ways to fund your business idea.
How to prioritize goals
You’ll probably have a combination of short- and long-term goals to balance. Focus on your needs, such as food and shelter, first. Work your financial goals around those expenses.
Emergency and retirement funds are top priorities. Consider paying off debt next. Then you can decide how to allocate the rest of your money toward your other financial goals.
How to budget and save for your goals
Know where you stand before you start to budget and save for your goals. Look at your after-tax income. Then determine how much money you can spend, and how much you can save per month.
Set a timeline for your goals, then work toward them. If you can, automate payments toward your goals via use of direct deposit.
Try to cut back on purchasing things you don’t need and set the savings aside for your goals. You might use some of this money immediately on short-term goals or to make a dent in your long-term goals.
» Dive deeper: How to budget money in 5-steps
Where to save
Find a safe place to store your nest egg until you need it. For short-term goals and your emergency fund, you’ll want to keep your money somewhere you can access quickly and without penalty, like a savings account.
You may reach your long-term goals quicker by putting your cash into a high-yield savings account or certificate of deposit with a high interest rate.
If you can, set up automatic deposits into accounts where you’re trying to save. Track your progress to stay motivated.
If you're interested in investing your money, you can save in a brokerage account. A good rule is to only use money you won't need for at least five years.
For example, if you're interested in starting a 529 plan for your newborn, you'll have plenty of time to ride out stock market highs and lows.
» Next steps: Choose a budgeting system that works for you.
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