How to Balance Long-Term and Short-Term Savings Goals

We all know it’s important to save money. But how do you balance saving towards both your short-term and your long-term goals? I recommend creating a savings plan that takes your budget, goals, and timeframe into consideration. This can help you be successful in saving in both the short and long-term.

Define Your Goals

First, you must define your savings goals. Get specific! Write down two or three savings goals you have. Assign each goal a due date. This lets you distinguish between short-term goals, those you can reach in one to three years, and long-term goals which take more than three years. Also, write down why you want to achieve each goal. Be as clear as you can. Your “why” keeps you motivated.

Pick Your Savings Method

Next, you need to pick your saving methods. This can depend on the timeframe for your goals and also on your risk tolerance. For short-term goals where you will need the cash sooner or you want to have easier access to it, a high-yield savings account is a good choice. It lets you earn higher interest but also gives you quick access to your cash with no penalties or fees. For longer-term goals, you might consider savings vehicles that have a higher return, like investment accounts. Or you may have a retirement account that your employer maintains. Always factor in when you’ll need the money and understand any taxes, fees, or penalties associated with the account you choose. There is also a lot of evidence to support having a separate account for each goal.

Know Your Budget

Now it’s time to figure out how much you can save each month. This means creating a budget. Review your spending for the last several months. Determine how much money you need to meet your necessary expenses. Make sure to account for the bills you pay each month, your groceries, debt payments, and other expenses that you have to pay to get through the month.

Next, look at what’s left. This is where you will find money to save. Identify things you spend on each month that aren’t necessary. What can you cut? How much you cut depends on how much you want to save and how hard you want to hit your goals. It can be helpful to not allocate every spare dollar to savings and keep some “fun money” in your budget. This helps you stay on track and not feel so limited. Identify how much you can comfortably eliminate and remember you don’t have to cut out discretionary expenses entirely. Just cutting back can help you save.

Divide Your Savings Between Goals

Now you need to divide your savings between your goals. Using the goal completion dates you wrote down, determine how many months you have to reach each goals. Divide the total savings you need by the number of months until you want to complete each goal. This will give you how much you need to save monthly to reach your goal. Now divide up your monthly savings between each goal using how much you have to save towards each goal.

If you don’t have enough to fully fund each goal, you’ll have to prioritize. Some goals, like an emergency fund, are time-sensitive. Other goals, like saving for retirement, may need to be prioritized in order to take advantage of an employer match. Think about the goals that you have written down and how achieving each one reflects your values and changes your overall financial picture. Fully fund your top priority and allocate any unused savings towards your next priority. Once you reach your top priority you can add those savings to your next goal to achieve it sooner.

Track Your Progress

Now that you have a savings plan in place, you’ll want to track your progress. Whether you use a pen and paper, Excel, or an app, be sure to record your monthly savings towards each goal. This will help keep you motivated!

Repeat the Process

Setting savings goals isn’t a one-time thing. As things change, you’ll need to repeat the process. And as you achieve your short-term savings goals, you’ll want to start the process over and set new goals or save more towards your existing goals. No matter what, be sure to celebrate your wins and milestones along the way! Acknowledging your achievements will help keep you motivated going forward.

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