Establishing financial objectives is a crucial element in strategizing your economic future. Specifically, short-term financial objectives can be instrumental in initiating your financial planning process. What qualifies as a short-term financial goal? Generally, these are modest goals that you aim to achieve within a year.
Let’s explore how to formulate a short-term financial goal through seven illustrative examples.
Begin by adjusting your budget
The initial action in establishing a feasible goal involves assessing and adjusting your budget. Since you will typically meet short-term goals within a year, it is essential to confirm that your budget can accommodate the funds needed for these objectives. Rebalancing your budget entails scrutinizing your finances to create room for your monetary ambitions.
When rebalancing your budget, evaluate how much you should save monthly to accomplish your goals. Review your current income and spending habits. Do you have additional capacity in your budget to reserve money for your goals? If not, modifications will be necessary, either by cutting back on expenses or finding ways to boost your income, ensuring surplus funds each month to allocate to savings.
7 short-term financial objectives: Next steps
What short-term financial objectives can you start working on now? Selecting appropriate short-term goals tailored to your circumstances is vital. The following seven examples of short-term financial objectives provide an excellent starting point.
1. Establish an emergency fund
Estimated duration: 6-12 months
Steps to create an emergency fund: An emergency fund is a savings account holding sufficient money to cover 3-6 months of essential living expenses. The purpose of this fund is to serve as a financial cushion for unforeseen emergencies, like job loss or significant vehicle repairs.
Depending on your basic living expense needs, it might take anywhere from six months to a year to build a substantial emergency fund. The prospect of saving thousands can be daunting, so it’s advisable to start small and break your goal into manageable parts. For instance, initially aim to save enough to cover one month’s expenses, then gradually work your way up to covering six months.
2. Eliminate high-interest debt
Estimated duration: 6-12 months
Strategies for debt repayment: Tackling high-interest debts, such as those from credit cards, is a strong short-term financial goal. High-interest debts can strain your budget and hinder other financial aspirations, like funding a dream holiday or purchasing a house.
A debt snowball strategy can simplify the debt repayment process. Begin by eliminating your smallest debt first, then progress to the next smallest, gradually tackling larger debts while harnessing the momentum gained from paying off smaller debts to stay motivated.
3. Save for a significant purchase
Estimated duration: 3-9 months
How to save for a significant purchase: Whether it’s the latest smartphone or new living room furnishings, saving for a larger purchase is a manageable short-term financial goal. To prepare for the purchase, total the expense and then divide it by the number of months you plan to save. For instance, if you want to acquire a $1,000 item in five months, you’ll need to save $200 each month.
4. Organize a wedding or vacation
Estimated duration: 6-12 months
How to budget for an expensive event: Similar to saving for large items, accumulating funds for costly experiences such as weddings, honeymoons, or dream vacations can be compartmentalized into monthly savings. Assess the total estimated cost and divide it by your desired saving timeline. Including a buffer for unexpected expenses is usually wise.
5. Save for health expenses
Estimated duration: 6-12 months
How to accumulate health savings: A health savings account (HSA) offers a viable means to save for medical expenditures, including emergency room visits. You can think of an HSA as a dedicated emergency fund for healthcare. Additionally, some employers provide contributions to employee HSAs, so inquire with yours to see if this is available.
6. Accumulate a car down payment
Estimated duration: 3-12 months
How to save for a vehicle down payment: Are you considering a new vehicle purchase? Increasing your down payment can help lower your car loan costs. A down payment for a car serves as a beneficial short-term financial goal for anyone in the market for a new or certified pre-owned vehicle. Determine your overall budget for the car, and consider pre-approval for a loan to establish how much you need to save for the down payment.
7. Initiate an investment fund
Estimated duration: 3-6 months
How to begin investing: Investment accounts facilitate the pursuit of long-term financial growth through equities, mutual funds, and other investment vehicles. Although substantial returns might take time, initiating an investment can be a constructive short-term goal.
Numerous investment firms allow you to open an account and commence investing with minimal funds, enabling immediate action. Most firms also provide the convenience of establishing an account online or via a mobile application swiftly.
Where to save for short-term financial goals
Even though short-term financial targets usually take less than a year to achieve, finding suitable saving accounts for your goals is still important. Consider these common options:
- Savings account: Savings options, particularly high-yield accounts, are the most recognized way to save for short-term objectives. Most savings accounts accrue interest, allowing your funds to grow while remaining in the account.
- Cash: Storing funds physically is typically recommended only for minor short-term goals. The drawback is that cash can be lost without recourse, and it does not earn interest like other accounts.
- Certificate of Deposit (CD): A CD represents an agreement with a bank to deposit funds for a fixed period, after which you receive guaranteed interest returns.
- Brokerage account: Brokerage accounts provide a platform to invest in stocks, bonds, mutual funds, and various investments. These accounts are often more suitable for long-term savings but can also serve short-term objectives.
- Health savings account (HSA): This specialized account allows you to save funds for healthcare-related costs. An HSA’s key advantage lies in its ability to be invested; any returns can generally be withdrawn tax-free when used for eligible medical expenses.
Think about collaborating with a fiduciary
A fiduciary is a financial expert who commits to prioritizing your best interests when offering financial guidance. This commitment helps to remove potential conflicts of interest, where a financial advisor may suggest a product primarily for the higher commission it yields.
While the majority of fiduciaries are financial advisors, it’s important to note that not all financial advisors serve as fiduciaries. Traditional financial advisors do not have a legal duty to act in your interest. Choosing a fiduciary advisor is often a beneficial way to ensure you receive sound advice aimed at helping you define and achieve your short-term financial objectives.
