Without short-term savings goals, it can be difficult to move the needle toward a brighter financial future. That said, short-term savings goals can help you to create a plan for your money and help you avoid procrastination. Let’s explore more about what these goals are, why you should set them, and how to reach them.
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What are short-term savings goals?
A goal that is short-term can help you visualize what financial success looks like for you. Short-term savings goals tend to fall within a five-year window, though you can set financial goals of all shapes and sizes.
While five years might feel far away, setting up savings goals now can help you live your best life later.
Why set short-term savings goals?
Setting up your savings goals now can put you on a path toward long-term financial success. Though it may not be exciting, it's worth it. Here are some more great reasons why goals matter.
Motivation and sense of accomplishment
It’s difficult to make progress toward the financial future of your dreams without setting goals.
Short-term goals, which tie your money actions to your dreams, can help you tap into much-needed motivation.
For example, you might have the short-term goal of saving up for a down payment on your first home. If you love the idea of a place to call home permanently, you might feel more motivated to stick with your savings strategy.
As you commit to and meet your short-term goals, you’ll also have a sense of accomplishment. When you start checking goals off of your list, you'll be proud of your decisions.
Make progress toward bigger goals
Many use short-term savings goals as stepping stones toward bigger financial goals. After all, it’s often easier to move forward when you set up milestones along the way.
For example, you might have the 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 home expenses and repairs, and paying a specific amount of extra money toward your house each year.
All progress is good progress
It’s easy to skip over the importance of short-term goals in pursuit of flashy goals.
However, they present an opportunity to celebrate your progress along the way. Accomplishing short-term goals of any kind means you are making progress toward bigger goals. And all progress is good progress.
How to create and reach your short-term financial goals
You’ve decided to pursue short-term financial goals, that’s a great 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 similar to running without an end goal in mind. If you set a specific goal, you'll be more likely to make it to the finish line.
Instead of setting the goal to generally improve your financial situation, add relevant details.
For example, you might set the goal of building an emergency fund equal to six months’ worth of living expenses. Another example could be saving $25,000 for a vehicle purchase.
Whatever your dreams are, get specific on 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 short-term goals. Setting unrealistic goals can set you on a path to failure.
The reality is most people have big money goals. While it’s tempting to just focus on the big goal, it’s often more realistic to break down your big goals into more manageable short-term goals.
For example, you might have the goal of paying off your mortgage early. Instead of focusing on the entire mortgage balance, you might set a short-term goal of paying off an extra $10,000 of the principal balance within five years.
As you choose a goal, be honest with yourself. Dreaming big is a good thing. But setting goals you aren’t able to achieve can chip away at the commitments you make to yourself.
Be kind to yourself by choosing to set a realistic short-term savings goal.
3. Set a timeline
Most short-term goals are completed within five years. But you’ll need to look at when is an ideal time to complete the goal.
For example, if you’d like to be a homeowner in two years due to a big move, you could use that as a timeline for your down payment savings goal. Or if you want to go on your dream vacation in one year, that might be a natural timeline for your goal.
How to stick to the timeline you set
Start with your ideal time frame and then ask yourself if the timeline is realistic.
As one of the most fun short-term savings examples, let's say you want to save $6,000 for a vacation in one year. You'll need to save $500 per month to reach that goal. Be honest with yourself about the realities of your goal. Choose a timeline that you can deliver on.
Consider giving yourself some breathing room in the budget for whatever life throws your way.
For example, you might add a few months to your goal. If you have to pay an unexpected medical bill or repair your vehicle, you might still be able to hit your goal.
4. Make room in your budget
With the amount you need to save and a timeline in place, it’s time to determine the amount you need to set aside each month.
For instance, let’s say you want to save $12,000 in one year. You’d need to save $1,000 per month to reach your goal. If possible, make a space for this new savings goal in your budget.
A sinking fund is an excellent way to build your savings goals into your budget. With a sinking fund, you'll set aside a set amount of money each month for a set period of time.
For example, if you are saving $100 per month for holiday purchases, you can make this a line item in your budget. Within a year, you would have a sinking fund topped off at $1,200.
5. Get creative
Of course, setting your short-term savings goals is very different from hitting your savings goals. After all, you might need to increase your income or lower your expenses to accomplish them.
The great news is that with a little bit of creativity, you can completely transform your financial situation.
Don't spend money
If you want to try spending less, consider kicking things off with a no-spend challenge. Other ways to save include slashing your takeout costs, meal planning, and avoiding online shopping.
Try to earn more money
While there is a limit to how much you can cut back, there is no upper limit to your earning potential. If you want to get really serious about increasing your income, you can start by asking for a raise at work or finding a better-paying job.
For anyone who wants to push the envelope further, consider starting a side hustle, selling stuff around your house, and building passive income streams.
As you grow the gap between your income and expenses, funnel those funds toward your short-term savings goals.
When it comes to setting savings goals it's important that you are clear what you want to achieve and set a realistic timeline. When you have this clarity, it’s easier to set your goals and plan your budget accordingly.
When it comes to setting savings goals it’s important that you are clear on what you want to achieve and set a realistic timeline. By having this clarity, it’s easier to set your goals and plan your budget accordingly.
Short-term savings examples
Short-term savings examples will look different for everyone. The dreams you have for your future and your current financial reality will help you choose goals that make sense for your situation.
A few examples of these goals include:
Saving for a down payment on a home
Setting up a short-term goal to save for a new home could involve:
- Identifying the cost of homes in the location where you want to buy
- Determining how much you need to save for a downpayment e.g. 20%
- Determining other costs e.g. closing costs, moving and furnishing costs
- Creating a timeline to save by building your savings goals into your monthly budget
Building an emergency fund
Setting up a short-term goal to build emergency savings could include:
- Getting clear on what 3 to 6 months of emergency savings would amount to e.g. how much would your core essentials cost? Specifically food, housing, transportation, core utilities, medicines, etc
- Opening up a dedicated emergency savings accounts
- Building your savings goal into your budget
- Setting up direct deposit from your employer to have money deposited into your fund each time you get back
Saving to pay off debt
Paying off debt can take different amounts of time depending on how much debt you have and your income. To pay off debt:
- Determine exactly how much debt you have
- Decide how much money you can apply to debt each month in excess of your minimum required payment
- Set a timeline for paying off your debt completely.
Other ideas include saving for a vacation, starting a business, or saving for an expensive purchase.
How many short-term savings goals should I have?
The number of savings goals you have is entirely up to you but having too many can be overwhelming. A good rule of thumb is to have 3 main short terms goals you focus on.
Where should I keep my short-term savings?
Ideally, you want to keep your short-term savings where it's liquid and easily accessible. For example in a high-yield savings account or certificate or deposit. You don't want your short-term savings tied to any investment volatility.
More articles on financial goals
If you liked reading about setting financial goals, check out these articles:
- Examples of financial goals
- Financial goal setting for success
- Financial Goals By 40! 9 Goals To Achieve
- 10 Good Goals To Have For Your Finances
Short-term savings goals can be a great move for your finances!
A short-term savings goal can serve s a compass when making spending choices. With a concrete goal in mind, you can choose to focus on your goals instead of succumbing to impulse purchases.