The importance of saving money is often emphasized, but you also need to be intentional about saving money. How you save and how much you save depends on what type of goal you’re saving for. These goals will certainly change over the course of your life, but your learning strategy will remain the same.
Generally speaking, there are two types of savings goals: short-term goals and long-term goals. Short-term goals are those that are expected to be achieved within a few years, while long-term goals usually take at least five years.
Here, we’ll show you the best ways to save money for each type of goal.
What are short-term and long-term goals?
Short-term goals are typically achieved within six months to five years. Sometimes you have more specific deadlines than long-term goals. These goals include vacations, major retail purchases, and recurring payments.
When setting short-term goals, be specific and achievable. It’s important to plan ahead, even with things like buying a bike, so you don’t have to scramble to make up for a sudden financial downturn.
Long-term goals, on the other hand, are typically achieved after five years or more. This includes things like retirement and mortgage repayments. Although long-term goals may be less specific and the timeline for your goals may be a little more flexible, it’s still important to plan for these goals so they don’t end up being ignored.
Additionally, long-term goals have a time horizon, so it’s important to review these goals regularly throughout your life. Changes in your life, such as starting a new job or starting a family, may require some adjustments to your goals and a savings plan to match.
Examples of short-term and long-term goals
| short term goals | long term goals |
|---|---|
| vacation | retirement |
| down payment for a car or house | open a business |
| deposit for new apartment | pay for children’s education |
| regular loan repayments | buy a villa |
| home improvement | mortgage repayment |
| wedding | student loan repayment |
How to save for short-term financial goals
There are many different types of short-term goals, each of which may require a different strategy. It’s important to find the strategy that best fits the amount you need to save and how long you want to save to reach that goal.
1. Find an accessible high-yield account
Depositing your savings in the right account is one of the most important strategies for saving. Doing so creates a buffer against spending your savings, allows you to build wealth with a high yield, and provides a reminder of your savings progress.
For short-term goals, you’ll want an account that you can easily access when you’re ready to withdraw your money. Certificates of deposit (CDs) have maturity dates that align with your goals, making them a good option for your personal goals. For example, if you want to go on vacation after a year, a year’s worth of CDs could be a good option.
However, if you’re looking for an account that allows you to save for multiple short-term goals over a long period of time, you may want an account that’s more flexible than a CD. This is because there are usually penalties when you withdraw money from a CD. Get your CD before it expires.
Options for saving for short-term goals include:
2. Stick to a regular savings plan
Create a realistic savings plan to help you reach your goals on time. This plan can be used as part of your monthly budget and sets aside a certain amount of your income for savings.
Let’s say you want to save $3,600 for a down payment on a car within one year. You need to save enough money each month to reach that goal in 12 months. That means you need to save $300 every month.
One tip to ensure you stick to your savings plan is to put money into savings as soon as you get your paycheck. Then you won’t want to spend that money. In the example outlined above, let’s say you transfer $150 each paycheck to your savings account, assuming your pay schedule is biweekly.
3. Set up automatic savings
Automatic savings features are advances in financial technology that make saving easier. There are many mobile banking and third-party fintech apps that can automate your savings.
In most cases, app users set a percentage or dollar amount of how much they want to save each month, and that amount is automatically transferred to a connected savings account with each paycheck. Some products come with predictive tools that determine how much you can save based on your income, spending habits, and savings goals.
Some savings apps worth trying include:
- Oportun (formerly Digit): This app predicts how much you can save each month.
- capital: Qapital allows you to set your savings rules. For example, a rule might be that you need to save a certain amount every time you buy new clothes.
- chime: Chime comes with its own savings account, which automatically transfers a percentage of your direct deposits into your savings account.
4. Reduce expenses
Perhaps the simplest rule for saving money is to spend less. However, this may be easier said than done.
For short-term goals, look for areas in your budget where you can temporarily reduce spending. For example, preparing meals at home is something you can do for several months to reduce your food costs.
Cutting back on spending doesn’t mean you have to completely remove certain items from your budget. Rather, it’s about finding places where you can make small changes across several categories.
Some ways to reduce expenses include:
- Lower your energy bills by turning down your thermostat a few degrees in the winter (and turning down your air conditioner in the summer) and unplugging appliances you aren’t using.
- Sharpen your home cooking skills to save on eating out and ordering.
- Cancel your subscription to a streaming service you rarely use, or find a way to split it with some friends.
- By creating a shopping list and sticking to it, you are less likely to succumb to impulse purchases.
- To save money on gas, walk or bike when you go somewhere.
How to save for long-term financial goals
A savings strategy for long-term goals focuses on maintaining a savings plan over time.
1. Invest in a retirement account
A long-term goal common to almost everyone is retirement. Bankrate’s recent retirement savings survey found that more than half of American workers are behind on their retirement savings.
The sooner you open a retirement account, the easier it will be to reach your retirement savings goals in the long run. There are typically two options for retirement accounts: IRAs and 401(k)s. When it comes to IRAs, you can choose between a traditional IRA and a Roth IRA. 401(k) plans are employer-sponsored, so contributions are deducted directly from your paycheck and are often adjusted by your employer.
Fidelity suggests you should aim to save 15% of your pre-tax income for retirement each year. However, this is only true if you start saving at age 25. Depending on your current age and your retirement age, you may need to have a larger or smaller retirement savings budget.
2. Consider opening a separate account for other long-term goals
There’s no need to keep your short-term and long-term savings in separate accounts (separate from your retirement account), but it may be helpful depending on what goals you’re working towards. If you keep your savings in the same account as your other savings, it can be difficult to track your savings progress towards your long-term goals.
For example, if one of your long-term savings goals is to send your child to college, it may be helpful to have a specific college fund account. You can also open this account in your child’s name while making regular donations.
Another option to track your savings for different goals is to download an app that tracks your savings progress. For example, Mint allows users to set specific savings goals that can be broken down and tracked within the app.
3. Don’t let short-term goals overshadow your long-term goals
It may be easier to save for short-term goals. Because the goal is closer and therefore seems more concrete. However, long-term goals often coincide with important events in your life, so it’s important not to overlook that.
One way to remember these long-term goals is to review your budget regularly. A budget not only helps you maintain your savings and spending priorities, but also reminds you of your various aspirations.
It’s helpful to remember that saving for a long-term goal doesn’t mean making big sacrifices to prepare for the future. It’s about saving little by little so that you can feel fulfilled in the long run. Let’s aim for higher goals while still having fun.
4. Explore passive income opportunities
As part of your long-term savings strategy, you may need to find new ways to build wealth. One way to do this is to pursue passive income opportunities.
Passive income is a way to earn money outside of working for an employer or contractor. In most cases, you’ve put in a lot of effort up front to establish your business or create something that sells, and you want to recoup the cash flow from that effort without having to actively participate on an ongoing basis. Masu. That additional income can supplement your retirement savings and other long-term savings.
Some common ways to earn passive income include:
- Investing in dividend stocks
- write a book
- Create a bonding ladder
- Sell handmade items online
5. Build your career
If you plan for the long term, establishing your career and advancing is not only financially rewarding but also personally fulfilling. Focusing on a long-term career strategy means you can advance in your profession while doing what you love.
In some cases, the potential for long-term career growth may mean finding a new employer. Think about what you want from your career and what opportunities are available. Finding a career that is both satisfying and enriching will motivate you to move forward in your career and reap greater benefits in the long run.
How financial goals change with age
As we age and change, so do our financial goals. The goals of a young worker, fresh out of college, with student loans and no children, are very different from those of a person with a mortgage and children or a retiree.
Financial goals for your 20s include:
- Building an emergency fund
- Contributions to an employer-sponsored retirement account
- student loan repayment
Financial goals for your 30s include:
- buy a house
- family growth
- Set aside money for travel, dining out, weddings, and other activities
Financial goals for those in their 40s include:
- Increase investment in retirement accounts
- save for your child’s education
- debt cancellation
Financial goals for those in their 50s include:
- Additional contributions to retirement savings accounts
- Join nursing care insurance
- Support for aging families
Financial goals for those in their 60s include:
- Plan for retirement expenses such as travel and a new home
- Savings for long-term care
- leave money for your heirs
Evaluate regularly to ensure your savings goals and strategy are aligned.
conclusion
Most people have a combination of short-term and long-term savings goals at any given time, so it’s important to pay attention to both. Short-term savings strategies may focus on establishing a specific, calculated savings plan, whereas long-term strategies are more flexible and require consistent reassessment.
Also, make sure you have an emergency fund ready. An emergency fund may be part of a short-term savings plan, but it needs to be something you maintain and build over your lifetime to protect yourself from sudden expenses while you’re saving for other purposes. There is.
–Freelance writer Mallika Mitra Contributed to updating this article.
