Not all financial goals are the same, which means they shouldn’t necessarily be approached the same way. Depending on your circumstances, some goals might take longer to reach than others.
What are short-term goals?
Short-term goals are your more immediate expenses. Although timelines vary, these are the things you’ll spend money on generally within a few months or years. Short-term goals include expenses such as rent and insurance, saving for a vacation or wedding and paying down student loans, and wants or luxury purchases like a new piece of furniture.
What are long-term goals?
Long-term goals are usually your big-picture costs. These goals may take several years or even decades to reach. For example, long-term goals are things like paying off your mortgage, starting a business, and saving for your child’s college tuition and your retirement. Your distant goals typically involve more money and regular attention than short-term goals.
The gray area
There is often overlap between the two categories that can make things fuzzy. Medium- or mid-term goals fall between short-term and long-term goals. These include things like buying a new car or saving for a house down payment and tend to take a few years to achieve.
Other goal periods can be tougher to estimate. For example, 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. And the amount of time it takes to chip away at your debt depends on how much money you’re willing and able to contribute.
How to prioritize your goals
You’ll likely have a combination of short- and long-term goals to balance. Work your goals around your usual expenses, focusing on needs like food and shelter first. Emergency and retirement funds are also high priority; contribute to these funds and pay off debt next. Then you can decide how to allocate the rest of your money toward your wants and other savings goals.
How to budget and save
Know where you stand before you start to budget and save for your goals. Determine how much money you can spend and save per month based on your income. Use the 50/30/20 budget calculator as a starting point. Set a timeline for your goals, then work toward them. Track your expenses using an app or method like the envelope system to stay on target.
Try to cut back on purchasing things you don’t need and set the savings aside for your goals. You might spend (or save) some of this leftover amount immediately on short-term goals or to make a dent in your long-term goals.
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 ideally want to keep your money in a place you can access it quickly and without penalty, like a savings account.
You may reach your long-term goals quicker by putting your cash into a savings account or certificate of deposit with a high interest rate, or by investing, especially if you don’t plan to use this money for at least five years — say you’re starting a college fund for your newborn. That way you’ll allow time to build up a positive return. For retirement funds, weigh your options between IRA and 401(k) accounts.