Short-term financial goals require a different strategy than those for mid-term or long-term goals.
Short-term financial goals are goals that you want to achieve in one to three years. Examples of short-term goals are establishing an emergency fund, saving for a vacation, paying for a wedding, buying a car, minor home improvements, paying down debt, or maybe you have your eye on something you want to purchase or experience.
Below are a few steps to take when creating your plan for saving for short-term goals.
1. Establish your short-term financial goals
Take some time to define your goals. Grab a pen and paper or your computer and get started with the following.
Write down all of the goals you want to achieve in 1-3 years. Write as many as you can think of.
Next, note when you would like to achieve each goal. Be specific with the dates,
Now, figure out how much money is needed for saving for your short-term goals and write that down.
The final step is to narrow your goals down to two so take a look at all of your goals and pick the ones that seem most achievable and will give you the greatest joy.
The reason that I suggest starting with your top two goals is that you are more likely to succeed when focusing on a few goals at a time. More than two goals can be a bit overwhelming. Once you’ve achieved your goals you will have the motivation to start working on more.
2. How much money do you need each month to achieve your goals?
Let’s say that your top two short-term goals are paying off your car and taking a vacation with your friends.
Let’s work with the assumptions below:
Car loan
Your car loan is scheduled to be paid in three years but you want to accelerate that and pay it off in two years.
To determine how much extra you need to pay toward your car loan each month in order to pay the loan off one year earlier you can use an online early payoff calculator.
For the purpose of this article, I am assuming that you need to pay an extra $180 per month toward your car loan in order to pay it off sooner. Now, of course, your number will be totally different since I have no idea what your purchase price, interest rate, or length of loan currently is. So, this is just an example.
Vacation with friends
Your friends are planning a reunion vacation next year and you really want to go with them. The cost is $2000 all-inclusive and you need to give them a 50% downpayment in 6 months.
The calculation here is fairly simple. You need $2000 in 12 months, so that is $170 per month. (170×12 = 2040)
Bottom line
The bottom line is that in order to achieve the two goals you will need to come up with an extra $350 per month. $180 for the car and $170 for the trip.
3. Let’s get started saving for short-term financial goals
You’ve determined you need $350 per month extra in order to reach these goals. Do you have $350 per month? If not, check out your spending and see where you can trim the fat and/or find ways to add to your income. I know that this sounds logical and you are probably thinking that if you had the money you would already be doing this, but hear me out.
Once you have an actual monthly number that you need for these goals that you are excited about you will find a way to make it happen. If you are feeling stuck, check out some of my other posts for tips and suggestions.
Create your budget
Now it is time to create your budget to be sure you are saving for your short-term goals. Be sure to add your new numbers to your budget. Your auto loan should now be $180 per month more than it currently does. You will also have a line called “vacation” with an expense of $170. If you do not add this line you might forget to expense it so add the line.
Make sure these items are non-negotiable expenses. Of course, if you cannot pay your “need” expenses such as housing, food, transportation, and clothing, then that is a different story. However, these short-term goals should come before any other “wants” that pop-up.
Where to put your money
I like to use separate savings accounts. You can open one and name it your short-term goal account. Transfer money into it regularly and use it only toward your short-term goal expenses.
This keeps the money separate from your standard spending money and makes it much easier to keep an eye on the balance.
The separate savings account really helps me when I am saving for particular goals. I can transfer any amount as many times as I want without fees so I regularly add to my savings account and I am not tempted to spend it on something else.
Get creative and accelerate your plan for short-term financial goals
What if you were able to pay off your car sooner than 24 months and still take that vacation in 12 months? It’s possible. Once you achieve your vacation goal in one year, you will have that $170 per month available to add to your car loan payoff. That is now $350 per month EXTRA. This could reduce your car loan by almost six months (with the fake numbers I am using).
But wait, what if you could do it even faster?
Check out this strategy for even more……
Whenever I spend less than my budget or I opt out of an activity or purchase I transfer the difference into my savings account. Even if I save $5 I transfer that $5 into my savings account. You would be surprised how quickly it adds up and now that you can do this on your phone it’s super simple. (Think the spare coins in the jar strategy)
If you can save $5 extra each day by ditching the coffee, bagel, boba tea, fast food, lottery tickets, or whatever, you are saving $150 per month.
If you add that $150 to the $180 extra you are already paying toward your car for the first 12 months and then once the vacation is funded add the $170 as well how soon will your car be paid off? I guarantee that it will be less than your original two-year goal. In fact, it might be paid off when you return from your vacation.
So now, not only did you reach your two short-term goals early you can now out that money you were spending toward your next goals.
Example 1:
In this example, you are paying $180 per month toward the car and $170 per month toward the vacation for the first year.
Once the vacation is funded, you move the $170 toward the car payment and start paying $350 extra until the car is paid off. It will be less than your two-year goal.
Example 2:
In this example, you save an extra $5 per day, which is $150 per month. Add that to the $180 toward the car payment for the first year.
Once the vacation is funded, you move the $170 toward the car payment and start paying $500 extra until the car is paid off. It will be less than than the two years you had as your goal.
Short-Term Financial Goals wrap up
Limit your short-term financial goals to two that are meaningful and manageable. Then determine the extra monthly expense and add this as a line item in your budget. Find creative ways to cut from your spending and add some income. Finally, keep your savings separate from your spendable money.
As always, remember to find some fun in the process. It is the only way to stay sane, happy, and motivated.
If you have any questions or comments, please reach out.
Thanks for reading!
Stay balanced,
Jill