Clarity is Key if You Want to Reach Your Personal Financial Benchmarks

When it comes to your money goals, it’s important to find the right balance between what you need now and what you want for the future. Some financial goals, like building an emergency fund or paying off debt, may require immediate attention, while others, such as saving for retirement or buying a home, take years of planning. Understanding which of your goals fit into the short-term versus long-term category can help you create a financial strategy that makes sense for your lifestyle. With a clear distinction between the two, you can budget more effectively, prioritize your savings, and make progress toward achieving both your immediate needs and your future aspirations. Check out this article for practical financial goal-setting tips.

Short-Term Financial Goals: The Basics

It may seem self-explanatory, but timelines for your financial goals are on a continuum, so it’s valuable to identify which types belong on your short-term list. Of course, these are the goals that are for your more immediate needs, but that could mean the next few months or the next few years.

As you think about your short-term money goals, here are a few common examples:

• Upcoming life transitions (marriage, new baby, buying a home)
• Saving for your emergency fund
• Paying off debt (credit cards, student loans)
• Travel plans
• Home repairs and improvements

If you don’t see some of your own goals on this list, it doesn’t mean they don’t qualify as short-term goals. As you work on your goal-setting, it can help to think in terms of what you hope to accomplish in the next five years versus what you hope to accomplish beyond that timeframe. 

Clarifying Long-Term Financial Goals

Most often, long-term money goals are those “big picture” costs you’re working towards. They won’t be accomplished in months – or even in a few years’ time. Rather, they may take decades to achieve. They also tend to involve higher dollar amounts than your short-term goals. 

Here are a few common long-term financial goals:

• Saving for retirement
• Putting your children through college
• Paying off your mortgage
• Starting or buying a business

Keep in mind that, although you will probably be making incremental progress toward these goals on a monthly or yearly basis, they are still long-term because their ultimate achievement is many years away.

Get Comfortable with the Gray Area

It’s easy to confuse your short- and long-term goals when they overlap a bit – which is normal. If it helps you, create a category of midterm goals for yourself, too. These may be goals you hope to achieve in five or ten years, but set the timeline that makes the most sense for you. 

These middle-of-the-road money goals may be things like:

• Saving for a down payment on your own home
• Raising your credit score
• Buying a car with cash
• Working toward maxing out your 401(k) contributions

If the idea of midterm goals makes things feel fuzzier for you, rather than providing added clarity, try a different tactic. You can always take pieces and parts of your long-term goals and add them to your short-term list with specific timelines for accomplishment, too.

Estimating Realistic Time Periods

One of the more challenging aspects of financial goal-setting is that many people have a “gap” between when they would like to accomplish a money goal and when it is actually realistic to do so. While some goal periods are difficult to estimate, you’ll help yourself by having a good handle on your financial situation. If you haven’t created a budget yet, make this your first step. Once you know exactly how much you have coming in and how much you’re spending and where, you know how much extra money you have each month to put toward future goals.

For example, you may have a short-term goal to pay off your student loans in five years or less. When you do the math, though, you find that it will actually take you ten years based on your current income, pushing this goal into your long-term category instead. On the other hand, spending carefully may allow you to allocate more towards your mortgage, potentially reducing your monthly payment. Either way, it’s easy to see how budgeting is a critical step in meeting your goals.

Budgeting and Saving 101

Knowing where you stand is crucial to the rest of the goal-setting process for a few reasons. First, it forces you to come face to face with your spending habits, which may have some room for improvement. Second, it shows you the math – and numbers don’t lie. Rather than setting arbitrary time periods for achieving your money goals, you’ll know what you can actually accomplish.

While there are different methods to use for setting up your budget, many people use a 50/30/20 budget as their baseline. This is where you use 50% of your after-tax income for your needs, 30% for your wants, and 20% for saving or paying off debt. You can use this calculator to get started, or try a budgeting app like YNAB (You Need a Budget).

Ideally, your budget will show you that you have excess income each month that can go into your savings. So, where should you store your nest egg until you need to use it? For short-term goals like your emergency fund, choose a high-yield savings account that you can access easily and that doesn’t have a minimum balance requirement. For midterm savings, you may be best served by a certificate of deposit (CD) with a high interest rate. For long-term savings, say for retirement, you want a tax-advantaged account like an IRA or 401(k).

Setting Financial Goals

Most people have multiple short- and long-term financial goals, and it’s impossible to give equal weight to all of them with limited resources. So, think about which goals help you fulfill a need versus those that help you fulfill a want. Even though it may be tempting to put more toward your vacation fund for next year, failing to put enough into your retirement savings could mean you can’t pay your bills once you retire. So, allocate your money toward your needs first – regardless of their timeframes – and then you can allocate the rest of your funds toward your wants.

 

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