Without short-term savings goals, it can be difficult to move toward a brighter financial future. That said, short-term savings goals can help you create a financial plan and avoid procrastination. Let’s explore further what these goals are, why they are set, and how to achieve them.
What are short-term savings goals?
Short-term goals can help you visualize what financial success would look like to you. Short-term savings goals tend to fall within a five-year window, but you can set financial goals of all shapes and sizes.
While five years may feel like a long way off, setting savings goals now can help you live your best life later.
Why set short-term savings goals?
Setting your savings goals now can put you on the path to long-term financial success. While it might not be exciting, it’s worth it. Here are some of the more important reasons why goals are important.
motivation and sense of achievement
Without setting goals, it can be difficult to make progress toward achieving the financial future of your dreams.
Short-term goals that connect your money actions to your dreams can help you gain much-needed momentum.
For example, your short-term goal might be to save for a down payment on your first home. If you like a place you can call home permanently, you may be more motivated to stick with your savings strategy.
You also feel a sense of accomplishment when you commit to and achieve your short-term goals. When you start ticking goals off the list, you’ll take pride in your decisions.
move towards a bigger goal
Many people use short-term savings goals as a stepping stone to larger financial goals. After all, it’s often easier to move forward when you set milestones along the way.
For example, you may have a long-term goal of paying off your mortgage early. Short-term goals you might set along the way include paying off any high-interest debt, building a fund for household expenses and repairs, and paying a certain amount of extra money each year toward your home.
All progress is good progress
It’s easy to overlook the importance of short-term goals in the pursuit of flashy goals.
However, they provide an opportunity celebrate your progress along the way. Accomplishing any type of short-term goal means you’re moving toward a bigger goal. All progress is good progress.
How to set and achieve your short-term financial goals
You’ve decided to pursue short-term financial goals, and this is an important first step. Below you’ll find a step-by-step guide to help you.
1. Know what you want to achieve
Setting short-term savings goals without getting specific is akin to running without an end goal. If you set a specific goal, you’re more likely to get there.
Rather than setting goals to improve your financial situation in general, add relevant details.
For example, you could make it a goal to build an emergency fund equal to six months of living expenses. Another example is saving $25,000 on a car.
Whatever your dream is, be specific about what you want to achieve.
2. Be realistic
A lofty goal can be inspiring. But it’s important to be realistic about your ability to achieve your short-term goals. set unrealistic goals will set you on the path to failure.
The reality is that most people have big money goals. While it’s tempting to just focus on big goals, it’s often more realistic to break down big goals into more manageable short-term goals.
For example, you might have a goal of paying off your mortgage early.Instead of focusing on your entire mortgage balance, set a short-term goal of paying off an extra $10,000 principal balance within five years.
When you choose a goal, be honest with yourself. It’s good to dream big. But setting goals you can’t achieve weakens the commitment you’ve made to yourself.
Choose to set a realistic short-term savings goal and be kind to yourself.
3. Set a schedule
Most short-term goals are achieved within five years. But you need to see when is the ideal time to accomplish your goals.
For example, if you want to become a homeowner within two years due to moving, you can use this as a timeline for your down payment savings goals. Or, if you want to go on your dream vacation a year from now, that might be your natural timeline for achieving your goals.
How to stick to the schedule you set
Start with your ideal time frame, then ask yourself if that time frame is realistic.
For one of the funniest short-term savings examples, let’s say you want to save $6,000 for a vacation over the course of a year. You need to save $500 per month to achieve this goal. Be honest about the reality of your goals. Choose the schedule you can deliver.
Consider giving yourself some breathing room in your budget to deal with whatever life throws your way.
For example, you can extend your goal by several months. If you have to pay unexpected medical bills or repair your vehicle, you can still achieve your goals.
4. Make room in your budget
With the amount you need to save and your timetable, it’s time to determine how much you need to set aside each month.
For example, say you want to save $12,000 in one year. You need to save $1,000 per month to reach your goal. If possible, make room in your budget for this new savings goal.
sinking fund
A sinking fund is an excellent way to incorporate savings goals into your budget. With a sinking fund, you’ll set aside a certain amount of money each month for a defined period of time.
For example, if you save $100 a month for holiday shopping, you can include that as an item in your budget. Within a year, your sinking fund would be $1,200.
5. Get creative
Of course, setting short-term savings goals is very different from achieving them. After all, you may need to increase your income or lower your expenses to achieve these goals.
The good news is that with a little creativity, you can completely change your financial situation.
no cost
If you want to experiment with spending less, consider starting with a no-cost challenge. Other ways to save money include cutting back on takeout, meal planning and avoiding online shopping.
work hard to make more money
While there is a limit to how much you can reduce, there is no upper limit to your earning potential. If you want to get really serious about increasing your income, start by asking for a raise or finding a better paying job.
For anyone looking to push the envelope even further, consider starting a side business to sell things around your house and build a passive income stream.
Use those funds toward short-term savings goals as the gap between income and spending widens.
When setting savings goals, it’s important that you be clear about what you want to achieve and set a realistic timeline. With this clarity, it becomes easier to set goals and plan your budget accordingly.
expert tips
When setting savings goals, it’s important that you be clear about what you want to achieve and set a realistic timeline. With this clarity, it becomes easier to set goals and plan your budget accordingly.
short term savings example
Everyone’s short-term savings example looks different. Your dreams for the future and your current financial situation will help you choose goals that make sense for your situation.
Some examples of these goals include:
Saving money for a down payment on a house
Setting short-term goals to save for a new home may involve:
- Determine the cost of housing in the location you want to buy
- Determine how much you need to save for the down payment, e.g. 20%
- Identify other costs such as closing costs, moving and renovation costs
- Create a savings schedule by incorporating savings goals into your monthly budget
Build an emergency fund
Establishing short-term goals to build emergency savings can include:
- Figure out what 3 to 6 months of emergency savings equals, for example, how much will your core necessities cost?Especially food, housing, transportation, core utilities, pharmaceuticals, etc.
- Open a dedicated emergency savings account
- Incorporate Savings Goals into Your Budget
- Set up direct deposit from your employer so you can get money into your fund every time you come back
saving to pay off debt
Paying off debt can take different times depending on how much debt you have and your income. repay loan:
- Determine exactly how much debt you have
- Determine how much debt you can claim each month in excess of the minimum required repayments
- Set a schedule for fully paying off the debt.
Other ideas include saving for vacations, starting a business or saving money for expensive purchases.
How Much Short-Term Savings Goal Should I Have?
The number of savings goals you have is entirely up to you, but too many can be overwhelming. A good rule of thumb is to keep you focused on 3 main short-term goals.
Where should I put my short-term savings?
Ideally, you want to store your short-term savings somewhere that is liquid and easily accessible. For example in a high yield savings account or a certificate or deposit. You don’t want your short-term savings tied to any investment fluctuations.
More Articles About Financial Goals
If you enjoy reading articles about setting financial goals, check out the following articles:
Short-term savings goals can be of great benefit to your financial situation!
Short-term savings goals can serve as a compass when making spending choices. With a specific goal in place, you can choose to focus on your goals instead of giving in to impulse buys.
As you decide how much to save from each paycheck to meet your goals, remember that it’s also important to enjoy life along the way. You can think about the future, or enjoy the present.
