How to Budget for Short-Term and Long-Term Financial Goals

Financial goals tend to fall into two buckets: short-term (an emergency fund, debt payoff, travel) and long-term (retirement, mortgage, college savings).

Here’s how to prioritize both and decide where to put your money until those goals become reality.

Short-term financial goals

🎯 Short-term goals are your savings and spending plans, beyond your day-to-day necessities. These are the things you’ll spend money on generally within a few months or years. Examples of short-term goals include:

Emergency fund: If you don’t have an emergency fund, make it a priority. Start with a goal to save $500, then build toward three to six months of living expenses. This will keep you prepared for smaller emergencies like a car repair, or bigger issues like job loss.

Credit card debt paydown: There are a few ways to go about paying off credit card debt, but the debt snowball method (pay down card with the smallest balance first) or debt avalanche method (pay off the card with the highest interest rate first) are popular ways to make progress toward this goal. How fast you pay off your debt depends on how much you can put toward your balance each month.

Personal goods: Items in this category might include things like a new laptop or piece of furniture. Set a monthly savings target so you’re not eating into necessary spending.

Travel: Consider a dedicated sinking fund, or savings account, that holds only the money you’ve saved for vacations and other travel. This way, your travel savings won’t bleed into other goals, and you can more easily track your progress.

Wedding: Start early and set a target based on your wedding date and budget. Be sure to build in a buffer for those unexpected costs that come up during wedding planning.

Minor repairs and home improvements: If you own a home or are responsible for repairs, budget a set amount each month so that a leaky faucet, busted garbage disposal or leaky toilet doesn’t derail your other savings goals. Also use this to save for any homeowner association or co-op fees and yearly home maintenance.

» Get started with our 50/30/20 budget calculator

Long-term financial goals

🎯 Long-term goals are the big-picture items — often years or decades away — that usually require more money and consistent attention than short-term goals. Common examples of long-term goals include:

Retirement fund: This is a top priority. Consider contributing enough to a workplace 401(k) to get an employer match. If you don’t have one, consider a Roth or traditional IRA. If you’re concerned about saving for a child’s college, remember, your child can get student loans, but you can’t get a loan to finance your retirement.

Paying off a mortgage: For most, a mortgage is likely a 30-year financial commitment, but making larger monthly payments can shave time off your loan. See how much with our mortgage payoff calculator.

Starting a business: Dreams have to start somewhere, and if starting a new business is one of yours, you’ll need substantial savings to get it off the ground. Explore different ways to fund your business ideas before you take the leap.

Saving for a child’s college tuition: A 529 plan is a common way to save for education costs. You can take advantage of the long runway — your money has 18 years to grow if you open the account when your child is born — and many accounts have tax advantages. Learn more about the pros and cons of a 529 plan.

» MORE: How to save for retirement in 7 steps

How to prioritize goals

You’ll probably be juggling a combination of short- and long-term goals at once. Cover your basic needs, such as food, housing and utilities, and then build your financial goals around what's left.

Prioritize in this order:

1. Emergency and retirement funds — start here, regardless of what else is competing with your money.

2. Debt payoff — especially high-interest debt like credit cards.

3. Everything else — travel, home improvements, education savings, business startup costs or whatever matters most to you.

How to budget and save for your goals

💵 Start by knowing where you stand. Look at your after-tax income, then figure out how much money you can realistically spend and save each month.

⏰ Set a timeline for each goal, and automate what you can. A direct deposit into a sinking fund each month removes the temptation to spend that money another way.

✂️ Cut back on nonessential spending to free up more money for your goals.

» Dive deeper: How to budget money in 5-steps

Where to save

Where you keep your money should match how soon you'll need it.

Short-term goals and your emergency fund: Keep this money in a high-yield savings account. You can access it quickly, and there are no penalties for using that money. You can earn interest faster, because it grows at a much higher rate than a traditional savings account.

Long-term goals and retirement: A brokerage account is one option for helping long-term goals grow even more. A good rule of thumb is to only invest money that you won’t need for at least five years, since the stock market can be more volatile in the short term.

» Next steps: Choose a budgeting system that works for you.