Many people are familiar with long-term goals like retirement, but did you know that short-term financial goals are just as crucial? These can be smaller goals that build up to a larger goal, or they can be one-off savings goals for something like a vacation.
What Is a Short-Term Financial Goal?
A short-term financial goal is something you can start on right away and complete in under a few years. Some short-term money goals are even easier to reach. These include things like creating a budget, paying off debt, creating an emergency fund, starting your investments and writing a will.
Here are seven short-term financial goals you can start working on now.
1. Start Budgeting
If you’re not already budgeting, you should be. By budgeting, you’re taking the first step toward your financial goals by tracking your spending and savings. “Start small,” says Natalie Taylor, CFP. “It’s better to take a small step in the right direction that can help build momentum over time than to feel overwhelmed by an unrealistic goal.”
Budgeting is that small step, making it an ideal short-term financial goal. And it doesn’t need to be intimidating. While there are many styles of budgets, use one that helps you manage your expenses and plan for the future. Track your expenses, breaking them down into categories like:
Monthly fixed expenses: Any expense that’s the same every month, like rent/mortgage, phone bill, internet bill, or car payments.
Variable expenses: These change from week to week and can include transportation, groceries, and entertainment.
Non-monthly expenses: These are expenses that come irregularly, like car maintenance, gifts for birthdays and holidays, and vacations.
By tracking your expenses and comparing them to your income, you can see if you’re spending more than you make. If you are, you need to reduce your spending. Since you’ve reviewed your expenses already, you probably know where there’s room to cut. With more room in your budget, you’ll have more money to meet other goals, such as reducing debt and meeting savings goals.
Learn more in our article: Why is Budgeting Important?
2. Start Paying Off Credit Card Debt
Credit card debt is high-interest debt that you need to eliminate. By paying off your credit cards, you’re getting rid of debt that’s growing monthly in interest. According to the Federal Reserve, the average credit card interest rate right now is around 20% annually, or 1.67% monthly. That means if you carry a balance of $5,000, by the next month, it will grow to about $5,085. Then that will compound the next month.
As you can see, paying off this debt is an important short-term money goal. You can start this process by setting all your cards to pay the minimum automatically. This way you won’t ever miss a payment. However, if you only pay the minimum, you’ll be paying off this debt for a very long time.
Anything extra that you can use to pay down your credit card will help. Consider using windfalls, such as bonuses, tax rebates, or inheritances, to wipe out your credit card debt.
Sometimes it’s hard to know when to pay off your debt, and when to save. See our article: Should I Pay Off Debt Or Put Money In Savings?
3. Establish an Emergency Fund
Another smart short-term financial goal is establishing an emergency fund. An emergency fund should contain enough money to pay your living expenses for three to 12 months if you were to lose your income.
Whether you save three or 12 months depends on a variety of factors, like whether you have children, own a home, work for yourself, and if you’re close to retirement. The more responsibilities and risks you have, the more you should have in your emergency fund.
Not sure how much emergency fund you need? See our article: How Much Emergency Fund Should I Have?
4. Save for a Vacation
Not all financial goals need to be dry and boring. Financial goals should also be fun - after all, you want to use your money to live and enjoy life - like going on vacation. While many people plan vacations and rack up credit card debt, be proactive by budgeting and saving for your vacation.
Let’s say, for example, you estimate that it’ll cost $2,000 to bring your family of four on a vacation. If you have a year to save, then you need to put away $166.67 each month. If you could save $200 per month instead, you’ll have an extra $400 to play with. That way, if you decide to do an extra excursion or splurge on a fancy dinner, you won’t blow your budget.
5. Start Investing
While saving and investing can be long-term financial goals, just getting started is a great short-term financial goal. You may already have a retirement account, but look into other ways you can make use of your money. Opening a brokerage account is a good first step to investing.
Consider different brokerages, their advantages, disadvantages and fees, and determine if you want to work with a human financial advisor or a robo-advisor.
If you’re interested in investing, learn more about different investment types. Bonds, mutual funds, stocks, exchange-traded funds (ETFs), and real estate investment trusts (REITs) all work differently.
When selecting investments, consider your risk tolerance, goals, time horizon, and how much effort you’ll put into managing your portfolio. Remember that diversification is important to mitigate risk. While the average stock market rate of return is 10%, that’s over a large span of time. The market can fluctuate widely from year to year.
Wondering where to invest your money? See our article: Investment Vehicles: Definition and Types
6. Write a Will
Especially if you have children, you need to write a will. The most important document is a will that specifies guardianship if both parents pass away. Writing a will is a relatively easy short-term financial goal. It can save your family a lot of headaches and time in court in the event of your passing.
Each state functions a little differently, so it’s important to research what’s necessary in your state. You may be able to complete a will without a lawyer, but having a lawyer who specializes in wills and trusts may give you extra peace of mind.
7. Give to Charity
You may not think of giving to charity as a short-term financial goal, but it could be a great one to pursue. Giving helps you feel connected to your community and be part of causes you care about. Plus, if you have children, charitable giving can be a great way to get the whole family involved in financial decisions.
Spend time researching the organizations you are considering. You can set up automatic monthly donations or decide to make a lump sum contribution. Remember that many donations to non-profit organizations are tax-deductible, so keep track of how much you give in a year.
How to Balance Short-Term and Long-Term Financial Goals
Having both short-term and long-term financial goals is part of having a complete financial plan. But, how do you keep them balanced? For retirement goals, you can have the money taken directly out of your paycheck, making it a priority. From there, you can use separate savings accounts for different goals. The more you automate your savings, the easier it can be.
Taylor says, “Dedicate separate savings accounts to your goals and set up automatic transfers. Consider having transfers hit on payday. You could also split your paycheck to go into two separate accounts through your payroll system at your employer. Most companies offer this option.” Many banks allow you to nickname different accounts. For example, you could have different accounts labeled “Emergency Fund,” “House Down Payment,” and “Vacation Savings.”
Your short-term goals can also form the building blocks of your long-term goals. “Set smaller goals that you can reach this year or within 3-12 months within a larger goal,” says Taylor. “These micro goals should be a dollar amount or activity based, such as paying down $5k of credit card debt by year end or increasing your retirement contribution by 1% this year.”
Summary: You Can Reach Your Short-Term Financial Goals
Short-term financial goals are goals you can reach in under a few years. While long-term goals may feel lofty and far away, short-term goals are more immediate and attainable.
Your financial goals should be aligned around common concepts such as increasing your family’s financial security, growing your wealth, and/or improving your quality of life. With smart saving and spending, you can use smart financial goals to put your money to work for you.