Short-term money goals: What they are and how to save for them

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OCCU  -  02.15.2022
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When we think about saving money, it’s usually the bigger, long-term goals that come to mind: buying a house, saving for retirement, starting a college fund. But saving isn’t just for the big stuff.

As you map out your budget and plan your savings strategy, it’s also important to consider any major purchases or expenses coming up in the next three to five years. By planning ahead for these with a short-term savings strategy, you can avoid taking on more debt and ensure the money is available when you need it.

“Generally speaking, you should think about your goals and break them down into categories based on time frame,” says Bridget Todd, head of trainer development at The Financial Gym. “From there you can determine how best to allocate your free cash.”

What are short-term savings goals?

A short-term savings goal is any goal that falls within the next five years. It can be something you plan, like a vacation or wedding, or it can be a fund to prepare you for future expenses such as a home or car repair.

Common short-term savings goals include:

  • Travel and future trips.
  • Weddings and their events.
  • Minor home repairs and improvements.
  • Gifts for celebrations.
  • Wellness activities, such as a marathon.

Your short-term savings goals should be measurable, attainable within the time frame, and as specific as possible. It also helps if you give them vivid labels that evoke a sense of excitement, which can help motivate you to keep saving, adds financial psychologist Dr. Brad Klontz.

“We need to give our financial goals specific, exciting names that conjure up images and feelings that thrill us,” he says. “For example, instead of a vacation, name your goal a ‘Family European Vacation.’ Instead of ‘retirement’ call it your ‘Financial Freedom Fund.’ Link your passion and excitement to the financial goal by naming it.”

Member tip: Have a MyOCCU Online & Mobile account? You can customize your savings goals with the Financial Wellness feature.

What does a short-term savings strategy look like?

The main difference between saving up for long-term and short-term goals is that long-term savings are often invested in high-yield accounts that keep your money tied up, while short-term savings should be kept where you can access it quickly and without penalty.

“Money you need soon shouldn’t be in the stock market. Money you’re investing long term—like for retirement—shouldn’t be in a plain old savings account,” says NerdWallet. “Before you decide on a short- or long-term investment, think about what you’re investing for and how liquid—or accessible—you need your cash to be.”

In general, keep money you’ll need within the next two years in an accessible savings account. If you won’t need it for the next three to five years, you could invest it in the stock market, suggests Todd, as long as you invest conservatively and keep at least 40% of your portfolio in bonds.

Choose a high-yield savings account. The advantage of using a savings account for your short-term savings is that your money remains easily accessible. The downside is that you earn less interest. Shop around for the highest-yield savings account you can find, such as our Ignite Savings. Depending on your timeline, you may also want to consider short-term certificates of deposit (CDs) to help accelerate your savings.

Automate your savings. Once you decide how much of your income you can put toward savings, you’ll need to prioritize between your long-term and short-term goals. Ideally, you’ll want to allocate a portion of your income to each. Set up automatic deposits to make saving easy and ensure your money always goes to the right account.

Find your groove. Saving works best when it becomes a regular habit, like brushing your teeth. As soon as you finish saving for one goal, start applying those monthly funds to your next target. Aim to always be working toward at least one long-term and one short-term goal.

Even if your short-term money goals are small, they can have a big impact on your long-term financial picture. Planning for short-term savings can help you avoid debt and navigate life’s ups and downs with minimal friction.