Setting money goals is an important part of planning your financial future. Short-term financial goals, in particular, can help you jump-start your financial planning. What is a short-term financial goal? Short-term money goals are generally smaller goals that you plan to reach within a year.
Let’s take a closer look at how to set a short term financial goal through these seven examples.
Start with rebalancing your budget
Your first step in setting a realistic goal is to review and rebalance your budget. Since short-term goals are generally completed within a year, you’ll need to make sure you have room in your budget to allocate funds to your goals. Rebalancing your budget is the process of reviewing your finances to make space for money goals.
To rebalance your budget, consider how much you need to set aside each month to reach your goals. Then, go over your existing income and expenses. Do you have room in your budget to save for your goals? If not, you’ll need to adjust your budget by reducing expenses or increasing your income, so you have excess money each month to set aside.
7 short-term financial goals: What to do next
What are short-term financial goals you can start planning for today? Choosing good short-term goals for your situation is essential. These seven examples of short-term financial goals are a great place to get started.
1. Create an emergency fund
Expected time: 6-12 months
How to start an emergency fund: An emergency fund is a savings account with enough money to cover 3-6 months of living expenses. The point of an emergency fund is to provide a buffer of cash that you can use for unexpected emergency expenses, such as a job loss or major car repairs.
Depending on how much you need to cover your bare-bones living expenses, it could take anywhere from six months to a year to save up a solid emergency fund. It can feel overwhelming to save thousands of dollars, so aim to start small and break your goal into sections. For example, start by saving enough in your emergency fund to cover one month’s living expenses, then work your way up to six months over time.
2. Pay off high-interest debt
Expected time: 6-12 months
How to pay off debt: If you’re dealing with high-interest debt, such as credit card debt, paying it off is a great short-term financial goal. High-interest debt can eat into your budget and slow down other financial goals you might have, such as paying for a dream vacation or buying a house.
A debt snowball approach can help make paying off debt easier. To use the debt snowball method, start by paying off your smallest debt first. Then pay off your next smallest debt. Work your way up to your larger debts and use the momentum of paying off smaller balances to keep you motivated toward your goal.
3. Save for a big purchase
Expected time: 3-9 months
How to save for a big purchase: Whether you want to purchase the latest smartphone or need new living room furniture, saving for a larger purchase is an easy short-term financial goal. Planning for your purchase involves adding up the total cost of your purchase and dividing it by how long you want to save up for it. For example, if you want to purchase something that costs $1,000 in 5 months, you’ll need to save $200 per month to reach your goal.
4. Plan a wedding or vacation
Expected time: 6-12 months
How to save for an expensive experience: Much like saving for a large-ticket item, saving for a high-dollar experience like a wedding, honeymoon or dream vacation can be broken down into monthly sections. To save for your experience, add up how much you think it will cost. You can then divide the total by the length of time you want to save for your goal. It’s generally a good idea to work a buffer into your estimate to account for unexpected costs as well.
5. Put money into health savings
Expected time: 6-12 months
How to save for health care costs: A health savings account (HSA) is a great way to save up funds for health care expenses, such as an emergency room visit. You might even think of an HSA as an emergency fund specifically for health care emergencies. Some employers even contribute funds to employee HSAs, so be sure to ask your employer if this is an option for you.
6. Build a car down payment
Expected time: 3-12 months
How to save for a car down payment: Are you in the market for a new car? You can help lower the cost of a car loan by putting more money down when making your purchase. A car down payment is a good short-term financial goal for anyone looking to buy a new (or new-to-you) vehicle. To save for a down payment, decide on your total budget for the car and consider getting pre-approved for a car loan so you know how much money you need as a down payment.
7. Start an investment fund
Expected time: 3-6 months
How to start investing: Investment accounts help you build long-term wealth through stocks, mutual funds and other investment options. But while it can take a long time to see big returns on your investments, getting started can be a good short-term goal.
Many investment companies let you open an investment account and start investing with very little funds, so you can get started right away. Additionally, most companies let you open an account online or through a mobile app within minutes.
Where to save for short-term financial goals
Although short-term financial goals typically take less than a year to complete, you’ll still need to find a place to save for your goals, such as these common accounts:
- Savings account: Savings accounts, especially high-yield savings accounts, are the most common way to save for short-term goals. Most savings accounts earn interest, so your savings earn money while sitting in the account.
- Cash: Saving for goals in cash is generally only recommended for smaller short-term goals. The risk of cash is that you could lose it with no way of getting it back. In addition, cash won’t earn interest like other accounts.
- Certificate of Deposit (CD): A CD is a contract with a bank or other financial institution in which you agree to set aside funds and not touch them for a specified period. In return, the bank guarantees the interest returns on your money.
- Brokerage account: Brokerage accounts are investment accounts that let you invest in stocks, bonds, mutual funds and other types of investments. Investment accounts are often better suited for long-term savings but can be used for short-term goals as well.
- Health savings account (HSA): An HSA is a specific type of savings account that lets you save money for health-related expenses. The biggest benefit of an HSA for health care goals is that money can be invested. Any earnings you make from your investments can typically be withdrawn tax-free if you use the money for health care expenses.
Consider working with a fiduciary
A fiduciary is a type of financial professional who promises to keep your best interests in mind when providing financial advice. This helps eliminate conflicts of interest, such as your financial adviser recommending an investment that earns them the biggest commission.
While most fiduciaries are financial advisers, not all financial advisers are fiduciaries. Financial advisers are not obligated to work in your best interests. Choosing a fiduciary adviser is generally a good way to ensure your financial professional is providing the best advice to help you set and reach your short-term financial goals.
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