If you were in need of extra cash in an emergency, could you spare an extra $1,000? According to Bankrate’s latest Financial Security survey, one-third of households faced an unexpected expense with 39% saying they could not cover a $1,000 emergency expense with savings. In another study, 76% of Americans have less than 15% of their income saved for retirement.
With so many Americans not prioritizing savings, how do you know where to begin? You must first understand the difference between short-term and long-term savings goals.
The Importance of Short-Term Goals
Imagine driving around with no map and no final destination. You would either end up lost or potentially run out of gas. Planning your savings goals is the same way. Without a final destination, you have nothing to aim for. Short-term savings goals are normally no longer than 12 months. An example of a short-term goal would be saving $1,000 for your emergency fund or paying off a $3,000 credit card debt.
Short-term goals are tangible in a small amount of time.
The Importance of Long-Term Goals
Long-term goals usually take a few years to accomplish. An example of a long-term goal would be saving for the down payment on a home or saving for retirement. Long-term goals help you plan for a secure and successful financial future. They’re something that may take more consistency and dedication in order to achieve.
You have to be willing to see the big picture and work towards it every day.
Why You Need Both Short-Term and Long-Term Goals
Short-term and long-term savings goals work together to help you achieve financial stability and success. For example, let’s say you owe $3,000 on your credit card and would like to invest $500 toward your retirement every month to achieve $1 million by age 60. By working on your short-term goal of paying off your $3,000 credit card bill, you are essentially increasing your net worth and moving one step closer to putting more money toward your retirement.
Short-term goals are little milestones you achieve along your way to accomplishing your long-term goals.
How to Set Your Savings Goals
Now that you understand the importance of having short-term and long-term goals, how do you set them? Here is a simple way you can start planning your savings goals:
- Plan backward. Imagine where you ultimately want to be and start a timeline accordingly. For example, maybe you want to have $400,000 in an investment account in 20 years.
- Decide where you want to be in 10 years.
- Then decide where you need to be in 5 years, 2 years, and next year in order to achieve this goal.
- Write down all your goals and what you need to do in order to achieve them each month.
- At the end of each month review your goals and make any adjustments as need be.
Keep in mind, it’s okay to make adjustments along the way. That’s why it’s important to constantly review your goals and progress.
How to Prioritize Your Savings Goals
So what if you have a lot of goals, how do you prioritize them? Here are a few simple tips to help you prioritize your goals and make adjustments along the way:
- Decide what’s most important to you right now.
- Then focus on the goal you want to achieve the most.
- Next, you may want to add more goals as you begin to achieve your high priority goals.
- Then make adjustments as you see fit.
As you can see having both short-term and long-term goals can help you achieve your vision for financial success. So, start today and write your goals down. What do you want to accomplish?